The string of policy announcements has left us in little doubt that China has placed rural development at the forefront of its economic reforms. However, the major document released at the conclusion of the recent Communist Party Central Committee meeting says little about raising farm-related income. The focus is on breaking down the barrier between rural and urban society.
This is an important issue because the gap between urban and rural incomes is growing progressively greater, rather than smaller – even though closing it has been on the government’s agenda for at least five years. In 2007, urban per capita income was RMB13,786 (US$2,020), over 3.3 times greater than rural incomes. The absolute size of the gap creates a socioeconomic wall, cutting off the rural population from much of the benefit of China’s modernization.
At the same time, farm productivity has reached a plateau. Food self-sufficiency remains one of China’s primary goals, yet the progress in agricultural production has not been good. For example, grain production spiked in 2003 but has since flattened out, with 2007 output only 0.7% up from the previous year. The gap in production of oil crops and soybeans is growing even greater.
Small and unprofitable
The fundamental issue is that China has too many rural residents and not enough land. Unlike many developing countries, within China there is virtually no disparity in farm size. Consequently, the average Chinese farm is 0.4 hectares, the smallest average of any Asian country. Even this number is misleading. The average wet rice farm is only 0.3 hectares and the average vegetable farm is only 0.2 hectares.
These tiny "farms" are simply too small to produce any significant incomes for farm households. By achieving uniform distribution of farmland, China has achieved the result of uniform distribution of poverty.
This result is reflected in the breakdown of rural incomes. While rural incomes have increased in the past five years, virtually all of that increase has come from rural residents in the urban workforce. Rural per capita income was RMB4,140 (US$606) last year, but only about half that came from operating the family farm. The remainder was earned from urban labor, investments and government subsidies. Meanwhile, living expenses of rural residents are increasing at a rate almost commensurate with the increase in income.
Farm income is currently insufficient to support rural families, and incomes can only increase in two ways: raising the average size of farms or boosting productivity. Neither is likely to happen.
The population of China is projected to rise by at least 100 million by the year 2020, much of this growth coming in rural areas. With more rural residents and the policy of equal distribution of land, the natural trend will be reduction in farm size, not increase. As for productivity, Chinese farms are already fully labor intensive and they already employ massive amounts of fertilizer and herbicide. And for mechanization to be profitable, farm size would have to increase to a size 40 times larger than the current average.
Break down the wall
The party’s goal is to double rural incomes by the year 2020, and little can be expected of the farm sector. Therefore, there must be increased access to urban employment opportunities. This is why economic growth is essential to China’s future: the only way farmers’ incomes can ever increase is by breaking down the socioeconomic wall between rural and urban areas.
Government policy can break down the legal barriers, but only solid economic growth can provide the jobs after the barriers are eliminated. It is estimated that China must create 300 million new jobs by the year 2020 just to keep up with population growth and rural-to-urban migration.
Any substantial reduction in Chinese GDP growth means that rural residents will remain confined – or return – to the countryside. With few jobs available in agriculture, income growth will stagnate and the likelihood of social unrest will rise. In this way economic growth is essential for social stability in China.
The countryside can longer act as a reservoir for absorbing the population of rural migrants. Their fate rests with development of the urban economies. There is no other solution.