The Reform and Opening and Rural China Economy: Three Phases

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In 1978, China began its reform and opening, starting an economic evolution lasting decades. Rural areas have taken the lead in reform. The state has successively issued a series of policies concerning rural reforms that have profoundly affected the economic development of rural areas in China. By reviewing the rural economic conditions and the process of the evolution of the economic interests of farmers as a starting point, a review of China’s rural economic policies over the past decades can better summarize lessons learned and improve China’s future rural policy orientation. This is of great significance to narrowing the income gap between urban and rural areas and achieving prosperity for all. From the beginning of reform and opening to the 2010s, China’s rural economic policies have been in an unstable and repetitive wave of changes in orientation and implementation. The rural economy has evolved continuously through three stages: the initial booming phase, the following declining phase, and the phase of enormous urban-rural economy gap.

The initial booming period was from the beginning of reform and opening to the mid-1980s. During this period, farmers have become the biggest beneficiaries of reforms. The income of farmers has generally been greatly improved, and the number of poor people in rural areas has been greatly reduced. From 1979 to 1984, the actual per capita net income growth rate after deducting the price increase factor increased at a double-digit rate each year. This is the period in which farmers’ income has grown the fastest ever in Chinese history, and it is also the period when farmers’ income has grown faster than that of urban residents. The income gap between rural residents and urban residents began to shrink.

During this period, China introduced a series of favorable agricultural and agro-enforcement policies. The transformation of the rural micro-mechanism and the transformation of national macro-economic conditions have basically synced with each other. While implementing the Household Contract Responsibility System, supply and marketing systems have also been reformed accordingly. After 1978, the Household Contract Responsibility System was gradually implemented throughout the country, and the agricultural management system was changed from the original collective management to the family management. The rural income distribution was no longer based on the production team, but instead was based on the farmers themselves. For the first time, farmers' income became proportional to their effort.

In order to reduce the price difference between industrial and agricultural product exchanges and increase farmers’ income, the Third Plenary Session has decided that to reduce the sales prices of agricultural industrial products such as machinery, chemical fertilizers, pesticides, and agricultural plastics. In 1979 and 1980, it decreased by 10% to 15%, basically handing the farmers all the benefit of cost reduction. The purchase price of grain has increased by 20% from the time when summer grain was purchased in 1979, and the excessive portion price has increased by 50% further. The acquisition prices of agricultural and sideline products such as cotton, oil, sugar, livestock products, aquatic products, and forest products also increased accordingly. In the next few years, the annual purchase price of almost all agricultural products has increased gradually.

Responding to the reform of agricultural policies, retail commerce, local agricultural and sideline products and family businesses were allowed in rural areas. Chinese 11^th CPC Central Committee Third Plenary Session of 1978 pointed out that family sideline businesses and rural market fair trade were necessary supplementary parts of the socialist economy and should not be interfered with. In 1984, the State Council decided that farmers were allowed to engage in the sale of agricultural and sideline products after completing the tasks of national agricultural production. In order to prevent all parties from apportioning the farmers who have escaped from poverty with more pressure, the Central Government has repeatedly prohibited the local governments from apportioning. During this period, the government also implemented a tax relief policy for farmers with financial difficulties.

The following declining phase with significant reduction in income growth was from the mid-1980s to the early 1990s. During this period, the growth rate of farmers' income has slowed down significantly. Despite the increase in agricultural output, agricultural taxes increased at the same time, the actual income growth rate of farmers was declining. In 1989, over 3 million rural enterprises went bankrupt in China. The growth rate of income of rural residents was generally lower than that of urban residents. The overall income gap between urban and rural residents has increased year by year.

During this period, the focus of China’s reforms has shifted from rural areas to urban areas and state-owned enterprises, taking a path that does not affect the interests of urban residents and allows farmers to bear most of the costs of reforms. This to a certain extent diminished the earlier accomplishments of rural reform. CCP canceled the price increase policy for excessive amount of agricultural production. In 1989, the central government further strengthened the state planning function during the agricultural purchasing process. The financial input to agriculture has also been reduced year by year, while the government has increased the collection of rural taxes and fees. In 1979, state financial support for agriculture accounted for 13.7% of the total fiscal expenditure, which fell to 9.98% in 1990 and 9.49% in 1993. After 1986, most of the costs brought about by market-oriented reforms were borne by farmers. The previously formed rural social security such as lower-level education and health cooperative medical care enjoyed by farmers nearly collapsed.

Meanwhile, the policies for the development of township enterprises fluctuate repeatedly. In 1985, the CPC Central Committee and the State Council issued preferential credit and taxation incentives for township and village enterprises. However, from 1988 to 1991, the state began to govern and rectify the economic order and environment, compress infrastructure developments, and restrict loans for township enterprises. The development of township and village enterprises has been greatly devastated. The growth of non-agricultural employment in rural areas has basically been stagnant, and farmers’ wage income decreased as well. Policies on the migrant workers were also fluctuating repeatedly. From 1984 to 1988, the state slightly liberalized the farmers' employment in the cities. The central document clearly stipulated that under the unified management of all levels of government, farmers should be permitted to open shops, set up service industries, and provide various kinds of labor services in the city. From 1988 to 1991, in order to maintain social stability, the central government exercised control and strict management of rural migrant workers, to prevent a large number of rural labor from entering the cities blindly.

From the early 1990s to the end of 2010, the income distribution gap of urban residents was expanded. During this period, although the income of farmers had a relatively high growth in individual years, compared with the early 1980s, the overall growth rate was slower than that of urban residents, and the income distribution gap between urban and rural residents generally showed an expanding trend. The gap reduced for three consecutive years from 1995 to 1997, but it began to enlarge again in 1998. During this period, after China established the reform goal of the socialist market economic system, the focus of China’s economic restructuring has become more prominent in cities and SOEs, and farmers continue to bear the cost of such reforms. Although the circulation policy of agricultural products tended to favor the interests of farmers most of the time, its implementation was limited. The rural area gradually became a subsidiary of the city, and a large number of agricultural populations flowed into the city with the weakening restrictions.

 For a long time, there have been two forms of farmers' work in the cities. First, the “migrating” flow, which means that farmers go out to work in the cycle of years between urban and rural areas. The second is “concurrent” mode, that is, the alternate transition between cities and rural areas frequently depending on how busy the agricultural work is. In recent years, there have been two new signs for farmers going to cities for work. Farmer workers who have completely disengaged from agricultural production and work outside the country have already accounted for a large proportion. The migrant worker population is expected to reach 300 million by 2020. The number of rural families who are away from home and completely separated from agricultural production and rural living environment is also on the rise. More and more rural laborers are shifting from part-time to full-time non-agricultural employment.

For a long time, the supply of public services and infrastructure has been biased toward cities. Public finances have not invested enough in rural areas. This policy tilting towards the city has developed for a long time, creating a large rural-urban gap in the level of public services. In recent years, the production and living facilities of farmers have improved. Governments at all levels have gradually increased support for rural education, healthcare, and rural public services have been strengthened. However, due to too many historical development issues, the backwardness of rural infrastructure and the insufficiency of rural public services have not changed significantly. These problems are particularly manifested in the difficulties of seeing a doctor, low levels of medical care, backward education, inaccessibility in transportation, unsafe drinking water, environmental pollution, etc. In addition to the rural-urban gap, the income gap between different groups of rural residents has continued to widen as well. The polarization between rich and poor in rural areas has accelerated. This gap will further expand judging from the current circumstances. In recent years, the income of rural households in the higher income groups has continued to grow, but the growth rate of farmers in low-income groups has been relatively slow.

In conclusion, the three phases of booming, declining, and the enormous gap have reflected the shifting economic focus of the CCP from rural areas to urban areas. Despite the great achievements in the cities, rural areas in China are lagging behind in economic development. In the future, the government should establish an urban-rural integration policy system. The policy of integration not only directly provides more economic support to the rural population, but also support the migration of rural labor to the cities. On the one hand, the rural population entering the cities will receive more income, and on the other hand, due to the reduction of the rural population, the people who continue to stay in rural areas have more land and can obtain more income from agricultural operations. Therefore, institutional obstacles to the separation of urban and rural areas must be eliminated, by establishing a unified social security system, public education system, household registration management system, and labor system in both urban and rural areas.

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