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The Australia-China Chamber of Commerce and Industry of New South
Wales Newsletter No. 17 24 March 2000 |
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 CONTENTS Zhu Rongji's Comment on Agriculture World Bank: Reviving China's Rural Transformation |
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ACCCI ELECTRONIC NEWSLETTER NO. 17 This issue of the Chamber's E-Letter focuses on Reviving
China's Rural Sector. It is intended as background information for the
Chamber's Workshop on Rural Industries to be held on Thursday, 30 March, 2000
in the Boardroom of the Department of State and Regional Development (Level
44, Grosvenor Place, George Street, Sydney) beginning at 9.00 am. The Chamber expects to convene a workshop on this
topic near the beginning of each year, the purpose of which is to present an
update on the developments in that sector. The diversity of China's rural industries is such
that adequate coverage by newsletter is not possible. At the workshop,
invited speakers and panelists will have first-hand experience in specific
aspects of rural industries. These experiences will be shared, discussed and
commented upon with a view to forming an overall description of rural
industry developments. |
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ZHU RONGJI'S COMMENT ON AGRICULTURE From "Report on the Work of the
Government", a speech delivered to the National People's Congress on 5
March 2000 by Mr Zhu. Text is available from ChinaOnline: We should further stabilise and strengthen
agriculture as the foundation of the economy. Because of good harvests in the
past several years running and the relative surplus of farm produce, it is
particularly important that we guard against the tendency to neglect
agricultural development. China has entered a new stage of agricultural
development and strategic adjustment of agricultural production is an
important task at this stage. Farmers should be actively encouraged to
transform agricultural production by developing: ·
livestock breeding, ·
forestry, ·
aquaculture and ·
production of highly processed grain and other
agricultural products. The varieties of crops cultivated and breeds of
livestock raised should be improved so that high-quality products are
developed to meet the demand of the market. We should adjust the patterns of agricultural
production in different regions, taking into account their relative abundance
of resources and other local relative advantages. Coastal areas and outlying
areas of large and medium-sized cities should develop high-efficiency and
export-oriented agriculture where conditions permit. In restructuring agriculture, we should fully
respect the farmer's right to independence in production and operation,
avoiding coercion and commands. We should develop specialised co-operative
economic organisations and industrial operations in which farmers work with
companies, linking household farm operations with large markets and bringing
about agricultural restructuring. We should provide guidance and support for town and
township enterprises in their efforts to restructure to meet the demand of
the market and improve their managerial and technical levels. Plans should be
worked out and effective policy measures should be taken to accelerate the
development of small towns. Arable land should be effectively protected. We
should step up agricultural infrastructure development, focusing on water
conservancy projects to improve production and living conditions in rural
areas. |
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WORLD BANK: "REVIVING CHINA'S RURAL
TRANSFORMATION" The World Bank released this 152-page document in
August 1999. The primary purpose of the report is to identify and consolidate
information on crucial issues that impact on rural development in China. We
make use of several of these issues in order to focus attention for workshop
participation. We present the issues only. Comments emerging from the
workshop relating to likely priorities and solutions will be presented in
future E-Letters. Rural Fiscal Policy's Undermining of
Sectoral Growth In recent years, China's rural sector contributed
more in taxes and fees than it received in transfers and government services.
The World Bank estimated that the net rural-to-urban outflows exceed 100
billion yuan annually. Farmers are legally subject to a maximum payment to
government authorities of 5 per cent of their net income for the previous
year. However, a large number of additional fees, comprising about 20 per
cent of rural net income, have been administered by provincial and
lower-level officials. These fees are ostensibly levied as a means of cost
recovery for government services provided to the rural sector (including
salaries of officials). World Bank analysts suggest that much of this is
wasted through over-staffing and ineffective delivery of services. To the
extent that this occurs, the fees comprise a "pure tax". Slower Growth in Rural Incomes Much of the growth in per capita income in rural
areas since 1979 can be attributed to rises in farm-gate prices (after price
de-controls). Since most of China's farm-gate prices are now about equal to
international price levels, further increases in those prices cannot be
expected unless costly subsidy programs are initiated. This would of course
run counter to the undertakings associated with China's accession to the
World Trade Organisation. Other options for improving the growth in rural
incomes include: ·
increasing productivity of rural labour through
various means, ·
diversifying production into labour-intensive but
higher-value-per-hectare products, and ·
investing in transport and other marketing
infrastructure to allow farmers to gain a greater share of consumers'
expenditure on rural products. Recent attention has been given to the last of
these (with increased grants from the central government for transport and
communications in rural areas). The question is how much more is needed and
whether it will be effective in the absence of improvements arising from the
other two options. Township and Village Enterprises (TVEs) Off-farm employment has been a major source of
income for rural families (accounting, in some years, for more than 50 per
cent to total rural income). However, opportunities for continued growth of
TVEs is likely to be limited by the following: ·
In
many cases ownership of the enterprises is uncertain, thus making it
difficult to secure bank loans. ·
Increased
productivity of urban enterprises engaged in the same production has rendered
many TVEs uncompetitive. ·
Compliance
with environmental regulations is relatively costly for many small-scale
TVEs. ·
Financial
management is relatively poor for many TVEs and operational skills are
lacking for higher value added production. Agriculture Research World Bank analysis of growth accounting indicates
that increased crop production in recent years was overwhelming attributable
to previous investment in agricultural research. This investment has begun to
decline, however, in comparison with other developing countries. China's
farmers are therefore becoming disadvantaged in competitive international
markets. Options include the following: ·
increasing public investment in agriculture
research and technology transfer, ·
encouraging domestic private sector investment in
new agricultural technology, ·
providing incentives for foreign entrepreneurs to
develop and produce new technologies for the Chinese market, and ·
encouraging the import of technology developed
elsewhere through minimal import constraints and tariffs. All of these options present opportunities for
Australian participation, though some offer more than others. Foreign Direct Investment China's ability to attract foreign direct
investment, especially during the early 1990s, is well known. Most of this,
however, went into labour-intensive manufacturing processes. Only 4 per cent
of actual FDI during the 1990s was for agriculture or agricultural-related
manufacturing. There are several reasons for these relatively
small FDI inflows to agriculture: ·
FDI inflows are undeniably greater for sectors and industries
that have demonstrated a capacity to export. For most of the period, exports
of labour-intensive manufactured goods dominated. ·
Coastal provinces have a much greater track record
for exports and most of these provinces attempted to consolidate their
manufacturing activities through a combination of domestic investment and FDI
(with relatively less attention to agriculture). ·
Exports of agricultural products are concentrated
in a relatively small number of provinces: Shandong,
Guangdong, Fujian, Zhejiang and Liaoning provinces accounted for 58.8 per cent of the
country's total foreign trade in farm produce in 1999. ·
The need for foreign technology that generally
accompanies FDI was more apparent in manufacturing that it was in
agriculture, or agricultural-related manufacturing. ·
Property rights and protection against exploitation
of the required technology was less of a worry for owners of the technology
used in labour-intensive manufacturing (as compared to agriculture and
capital-intensive manufacturing). The last of these factors, in particular, remains
an important limitation to increased inflows of FDI into the rural sector. Rural Inputs and Resources Water is the major constraint on increased growth
of agriculture in China. According to the World Bank report, despite massive
investment in water development and conservation during the reform period,
water available for irrigation in 1993 was marginally less than that of 1980. Feasibility studies are currently being done on
ways to divert water from southern provinces of China (with more than ample
water resources) to the drier northern provinces. Improving the efficiency of
irrigation systems is also needed in order to ensure continuing supplies of
water in the large North China plain. The World Bank estimated that improving delivery
efficiency by 78 per cent could deliver an additional 100 billion cubic
metres of water to agricultural land. This would increase rural production
and income by an enormous amount. Another difficulty is the lack of an effective
charging system for irrigation water in China. To be effective it should be
based upon the volume of water consumed by each rural production unit. For
areas with ample water supplies, fixed annual fees carry no incentive to
conserve water or to alter cropping patterns to use less water. Agricultural Trade and Comparative
Advantage The World Bank staff concluded from recent trade
data that China is moving into an amenable pattern of specialisation in agricultural
production. Imports of land-intensive crops (such as grains) are increasing
in percentage terms, while exports of labour-intensive horticultural products
are expanding rapidly. Nevertheless, China's state trading companies
respond slowly to changing trade conditions and implement trade quotas that
were planned well in advance of harvest. This contributes more to a
destabilisation of supply and prices than to market stability. If China adopted tariffs at the binding rates that
it has offered in its World Trade Organisation negotiations, grain and
oil-seed prices for domestic producers and consumers could be maintained at
about 60 per cent above world prices. If China focused more on consumer welfare ad
lowered the tariff rate below the binding rate, then the prices for grains
and edible oils would fall substantially. This of course requires that
acreage presently devoted to those crops be transferred to higher value
crops. Food Security The issue of China's target for 95 per cent
self-sufficiency in grains was discussed in earlier reports by the Chamber.
Due to China's large holdings of foreign exchange reserves and its favourable
trade balance, it can now be classified as "food secure".
Nevertheless, a method for gradually lower the target is apparently difficult
to achieve. Continued intervention by government grain agencies seems to be
the greatest limitation. |
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Rural Labour Force The results of a 14-year study of rural labour was
recently released by the Research Centre for Rural Economy of the Ministry of
Agriculture. Some of the reported trends are as follows: ·
About 348 million rural labourers worked in
agriculture in 1998, but experts believe that only about 196 million were
needed by the industry. The remainder can be considered underemployed. ·
The demand for rural labourers in agriculture will
decline to 168 million by 2005. ·
The workforce trend is not expected to turn around
until about 2015, although it is expected to begin to slow down after 2005. ·
The rural workforce is expected to grow to 616.22
million between 2005 and 2010 with an annual increase of 3.22 million for the
five-year period. ·
The total workforce is expected to increase to
620.57 million, but with an annual increase of only 868,600 labourers by
2015, it estimates. The trend highlights the need to find employment
for the rural workers, either through greater activity from TVEs or through
increased rural-to-urban migration. About 70 million rural labourers left their homes
to look for jobs in cities during 1998. Of these, about 22 million were
employed for more than half a year outside their "home" province. This occurred despite restrictions placed on
employment of rural labourers in many cities. Beijing, for example, bars
rural labourers from about 100 trades. Cuts in Grain Price Support The State Council announced this month that price
support for selected grains will be reduced this year. Spring wheat in the north, wheat grown in the
southwest and early rice in the southern part of the country will be
primarily affected. They form about 20 per cent of the total grain output in
China. More Loans to Rural Sector The People's Bank of China (PBOC) will provide
another 15 billion yuan in loans to rural credit co-operatives (RCC) this
year. The money is earmarked for people and units engaged in agricultural
production only. Plans call for the loans to be used to support
planting and breeding industries, where funding shortages are most obvious.
Western areas are at the top of the list for this loan concentration. RCCs mainly target two groups of borrowers, farmers
and village enterprises. Both have difficulties in acquiring funds because of
their limited credit standing, which is needed to get loans from the
financial institutions according to the law. To solve the problem, the
central bank recently permitted farmers to form credit guarantee groups that
may consist of 5-10 families, each guaranteeing the others' credit worthiness
and liabilities. The loans will be granted according to a policy
that favours farmers who produce market-oriented products or to profitable
rural enterprises. |
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ADDITIONAL SOURCES OF INFORMATION "China May Hold Future of Food
Technology", commentary by Dennis Avery, Senior Fellow and Director,
Centre for Global Food Issues at the Hudson Institute, (available from ChinaOnline). "Foreigners Allowed to Tap China's
Minerals", China Daily, 22 February 2000. "Jobs Needed in Rural Area", China
Daily Business Weekly, 20 February 2000. "Government Cuts Grain Price Support", China
Daily Business Weekly, 5 March 2000. "More Farming Loans at Hand", China
Daily Business Weekly, 12 March 2000. Internet Addresses: ChinaOnline: http://www.chinaonline.com/ China Daily and China Business Weekly: http://chinadaily.com.cn.net The commentaries in ChinaOnline can be obtained by
clicking the "commentary" panel in their home page. Send comments about this E-Letter to: j.zerby@unsw.edu.au |
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