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ChinaNational Synthesis Report

Tian WeimingChina Agricultural University

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What are the major characteristics of the Chinese agricultural sector?

Dominated by smallholdersAbout 250 million rural households and average farm size of 0.6 ha.

Fully exploitation of agricultural resourcesHigh intensity of farmingVaried degrees of market-orientationGeographic diversityStrong government interventions.

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What happened during the past two decades in China

National economyMarket-oriented policy reformsInstitutional reformsEstablishment of a more effective legal systems

Agricultural sectorHousehold responsibility systemsDeregulation of marketing and tradeDevelopment of factor markets

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What have been resulted from the policy reforms?

MacroeconomyStrong growth of national economySteady rising of per capita incomeNotable increase in state fiscal revenuesAccumulation of foreign exchanges

Rural sectorSubstitution of manufactured inputs for labor in agricultureNotable growth of agricultural outputs along with structural adjustmentRapid development of rural non-agricultural industriesNotable rise of rural income with enlarged income disparity Widespread environmental degradation

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What are the most important changes with respect to agriculture?

Changes in mechanismGreater reliance on market mechanism in guiding production and consumptionCloser linkage with the world market

Changes in policy directionGradual shift from taxing agriculture towards supporting agriculture

Changes in market balanceTurning from shortage towards relative abundance

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Are these roles significant in the case of China?

Environmental roles:In the past

• While positive externalities did exist, and might be important as well, their values had not been clearly discerned by both policymakers and the public.

• Agriculture-related environmental degradation became widely observable.

In recent years• The public awareness on and thus demand for environment

al quality tend to be enhanced.• The government has taken a series of actions to cope with a

griculture-related environmental degradation.• Environmental quality begins to be used as resources for ea

rning incomes (tourist agriculture).

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Are these roles significant in the case of China?

Poverty alleviation role:Growth of agricultural production contributed significantly to rural poverty alleviation. The urban poor were also benefited from real purchase power effects.• Declining food prices• Declining prices of other goods and services

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Are these roles significant in the case of China?

Food security role:China’s national food security has been well ensured at present due to:

• Improved domestic food availability (Productivity growth)• Increased affordability (Domestic income, foreign currency)• Improved accessibility (Infrastructure and marketing systems)

Rising agricultural productivity has resulted in improvement of rural household security in general, but food insecurity exists for certain segments of the Chinese population.Overall, agricultural growth has made important contribution to China’s food security.China has contributed to the world food security as well.

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Are these roles significant in the case of China?

Buffer and social viability rolesChina lacks experiences that urban sector is shocked strongly during the past two decades. Buffer role is relevant mainly for the rural migrants and is really important.In the Chinese context, the buffer role of agriculture is working through mainly provision of initial support to outgoing rural laborers and shelter for returning labor. Off-farm employment also play a role for their hometown families to cope with shocks occurred in agricultural sector. China’s egalitarian land distribution system plays an important roles as buffer and as social safety net in the rural areas.

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Are these roles significant in the case of China?

Buffer and social viability roles (continued)Growth of agricultural production has an effect to retain rural labor on farm.However, given the resource condition, it is difficult for the Chinese farmers to raise their income continuously from farming. Transfer of rural labor to off-farm jobs raise the labor productivity with significance and urban-rural income disparity can be narrowed consequently.Both growth of agricultural production and transfer of rural labor to off-farm jobs contribute to social viability in terms that they help to raise rural income and reduce social tension related to urban-rural polarization.

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Are these roles significant in the case of China?

Perceptions on roles of agriculturePeople in different status tend to have different perceptionsThe traditional roles are well recognized

• Provide farm products and thus ensure food security• Generate rural income

Most people are aware negative environmental externalities, but few know the positive ones.They are not going to give up farming, but they don’t believe they can become rich only by farming.

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Are market failures important?China has been in transition towards a market economy

Market of agricultural products is relatively developedMarket of primary factors is still in its infancyRegulatory system has been evolving

Policy failures are dominant, especially during the early period of the reforms.Market failures are likely to become major issues in future.

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What are the likely conditions for agricultural development in future?

Demand for agricultural products becomes bottleneck, which is increasingly affected by macroeconomic conditions;China’s domestic market is integrated closely with the world market;Land and water resources will be competed away from farming;Marginal productivities of agricultural labor and physical inputs tend to decline; With further reforms on the urban sector, bankruptcy of enterprises and dismissal of employees will become regular phenomena.

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What the above changes imply?

Agricultural production is governed by law of diminishing return, ceteris paribus. China’s capacity to raise agricultural outputs will be bound by rising marginal costs. Income elasticities of demand for food tend to decline in general. Given this reality, is seems that some roles of agriculture can no longer be enhanced by promoting agricultural production.

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How the roles of agriculture will be affected?

Environmental rolesDemand for environmental services is growingWith respect to agricultural sector, environmental role will be played through:

• Reducing the pressure on natural resources and environment by import resource-intensive commodities

• Rationalizing resource use by adjusting structure of agricultural production

• Meeting the international norms

Enhancement of environmental and safety standards may result in high production costs.

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How the roles of agriculture will be affected?

Poverty alleviation roleIt is difficult to eliminate the remaining rural poor just by promotion of agriculture and transfer to off-farm jobs.

• Environmentally fragile areas• Remote areas with backward infrastructure • lack of physical and human capitals

Poverty alleviation in urban areas should rely on social security system, rather than on the purchasing power effect of agricultural growth.

• Urban poverty occurs mainly for certain segments of people

• It has been already established and is functional• It has no negative impact on the rural poor

Thus, poverty alleviation role of agriculture tends to diminish.

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How the roles of agriculture will be affected?

Food security roleWith WTO accession, the Chinese government can no longer use the traditional policy instruments to promote agricultural production and to achieve food self-sufficiency.Farm resources will be increasingly diverted away from farming along with growth of non-farm sector and enhancement of environmental protection. Domestic food availability may not increase, but affordability and accessibility will be improved.Contribution of agricultural growth to food security tends to diminish as well.

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How the roles of agriculture will be affected?

Buffer and social viability rolesThe social costs of retaining rural on their land will increase;Temporary transfer may also associate with large costs;However, large-scaled migration to cities will surely worsen urban congestions.Demand for buffer role may increase with urban reform. Agriculture should be promoted, but within the limit of economic rationality. Institutional systems need to be created to reduce the costs of migration and urban congestion, and to improve the ability of rural labor to work off-farm.

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What are the major positive complementarities?

Improvement of environment ensure long-term productivity and long-term food security;Poverty alleviation improves household food security; Improvement of food security helps to enhance social stability;Transfer of rural labor to non-agricultural employments creates favorable conditions for advancing structural adjustment of agriculture and rural economy in loner term (farm land consolidation, scaled and specialized farm production).

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What are the major negative complementarities?

Enhancement of environmental protection may require retirement of some land and to adopt high cost techniques.Intensification of agricultural production for either poverty alleviation or food security may cause environmental degradation.Transfer of rural labor away from farming may lead to a decline of agricultural output to some extent.

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Whether the roles should be enhanced?

All those roles are important and thus should be enhanced.However, the priority rank varies in line with the changing socioeconomic conditions.

In the near future, rural income growth and poverty alleviation may take higher weights.National food security is less concerned now, provided the current market situations remain;Environmental protection will be enhanced over time.

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How the roles of agriculture can be enhanced?

Traditional approach that focuses on raising output by increasing manufactured inputs is no longer viable:

Rising marginal costsStagnated or even declining prices Negative environmental effects

Emphases should be placed on raising efficiencyTechnical improvementStructural adjustment

Improvement of institutions and empowerment of rural people are crucial.

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What are goals of the Chinese government for future development?

It has been declared by the China leaders that “China will build a well-off society in an all-round way in the first 20 years of this century”.Key components

To maintain stable growth of the national economyTo realize well integrated urban and rural developmentTo ensure economic growth in a sustainable way

Promotion for all-round development of agriculture and the rural economy has been given a top priority.

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What is the vision of agricultural sector in future development?

Agriculture can no longer be a powerhouse to push up development of national economy in general and rural economy in particular. Instead, the government intends to adopt an urban-led rural development:

Agricultural sector serves as a pool to hold rural surplus labor.They are released gradually to the urban sector in demand.Households with labor transferred may raise their incomes and local purchasing power. Households remaining in farming have more land resource to work with and thus their labor productivity rise.

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What are the likely international spillovers?

How to enhance the roles of agriculture cannot and should not be addressed by individual countries

Opening of agricultural trade results in close integration of country market with the world market.The world market is distorted heavily by primarily the policies of developed countries. The domestic coping strategies depend on the international market situation. Being a large country, China may also affect the world market conditions.

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Thank you for attention and welcome for comments