The impact of China's structural adjustment on its agricultural economy

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Title:
The impact of China's structural adjustment on its agricultural economy
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ix, 154 leaves : ill. ; 29 cm.
Language:
English
Creator:
Abdukadir, Gulnaz, 1957-
Publication Date:

Subjects

Subjects / Keywords:
Structural adjustment (Economic policy) -- China   ( lcsh )
Agriculture -- Economic aspects -- China   ( lcsh )
Genre:
bibliography   ( marcgt )
theses   ( marcgt )
non-fiction   ( marcgt )

Notes

Thesis:
Thesis (Ph. D.)--University of Florida, 1993.
Bibliography:
Includes bibliographical references (leaves 146-153).
Statement of Responsibility:
by Gulnaz Abdukadir.
General Note:
Typescript.
General Note:
Vita.

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Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 001883944
notis - AJV9078
oclc - 29507229
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AA00002072:00001

Full Text











IMPACT


OF CHINA'S STRUCTURAL ADJUSTMENT
AGRICULTURAL ECONOMY


ON ITS


GULNAZ


A DI
OF THE


ABDUKADIR


SSERTATION PRESENTED TO THE GRADUATE SCHOOL
UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
































Copyright


Gulnaz


1993


Abdukadir

































parents


Abdukadir


Ahonbay


Dilaram


Anivar,


husband


Sokrat


Saydahmat,


daughter


Unche


Saydahmat.














ACKNOWLEDGEMENTS


wish


express


appreciation


Elias


Dinopoulos,


who


who


cochair


the chairman


committee,


committee,


Max


Uma Lele,


Langham


Mark Brown,


who


are


the members


of my


committee,


their


help


preparation


this


dissertation


and


their


professional


guidance and constant encouragement throughout my


Ph.D.


program.


Lele


deserves


special


credit


assistance


in obtaining


data


from


the


World


Bank.


I would


also


like


to express


special


thanks


to Dr.


Langham


helpful


guidance


in modeling.


indebted


Laura


Newman


her


patience


editing


my manuscript,


special


thanks


to Dr.


Christina


Gladwin


her encouragement


throughout my


graduate program.


would


also


like


thank


family,


especially


parents


Abdukadir


Ahonbay


and


Dilaram


Aniwar


daughter


Unche


Saydahmat


their


moral


support


throughout


Ph.D.


program.


Finally,


very


special


thank


you


goes


husband,


Sokrat


Saydahmat.


He discontinued his


own


career to


promote my


education, he


not


only


took


care


household














also


shared


difficult


times


with


me and


gave


the


support


he could.















TABLE


OF CONTENTS


ACKNOWLEDGEMENTS


ABSTRACT


a a a a a a .... Vii


CHAPTERS


INTRODUCTION


S . . . 1


ement
nitio
Perfo
stem
active
nizat


of the Problem
n of Structural
romance of China


s of
ion


d u
Adju
's EC


a .
tment
nomic


Planning


t* uy
the Study
of the Study


REVIEW


OF LITERATURE


Previou
Previou
Econo
Previous
Agricul
Previou


Stu
Stu
les
Stu
ural
Stu


dies of
Supply
dies of


Structural Adju
Other Centrally

Reform in China
Response .
Agricultural De


stment
Planned


a
9


onomy


mand
mand


ADJUSTMENT


PROCESS


Adjustments in Rural Area
Institutional Adjustments
Price Adjustments .
Market Adjustments .


ANALYTICAL


FRAMEWORK


. a a a a a a 61


Behavior


Beh
M
Est
Beh


of Produ


avior of
ixed Eco
imation
avior of


rodu
my
the
onsu


cers
cers


C
me


Under
Under


Planned Economy
Plan/Market


nese Market Supply Function
Under a Planned Economy


m









summarizing tn
Classification


Models


scusse


Variabl


d Above


. . 81


MODEL


ESTIMATES


Data


The Model


Estimates


S 89


SUMMARY,


CONCLUSIONS


, AND


POSSIBLE


EXTENSIONS


summary


Conclu


. a a . 10


sons


ugge


stions


Poss


tensions


APPENDICES


DATA


USED


IN THIS


STUDY


CHINA


AGRICULTURAL


STATISTICS


1949-


TWO-


STAGE


LEAST


SQUARES


RESULT


HAUSMAN


SPECIFICATION


TEST.


. . . 144


REFERENCE


LIST


S. . . . . ..146


BIOGRAPHICAL


SKETCH














Abstract


Univel


Requirements


Dissertation Pre
rsity of Florida


the


Assented


the


Partial


Degree


Doctor


Graduate


Fulfillment


School
of the


of Philosophy


THE


IMPACT


OF CHINA


STRUCTURAL


AGRICULTURAL


Gulnaz

May


Chairperson: Elias
Cochairperson: Uma


Major


Department:


ADJUSTMENT


ECONOMY


Abdukadir

1993


Dinopoulos
Lele
Economics


purpose


define


this


the meaning of


context


research


structural


analyze


twofold.


adjustment


impact


The


within


price


first


the Chinese


and


nonprice


factors


market


supply


demand


agricultural


commodities.


The


second


draw


conclusions


and


implications


from


empirical


results


regard


structural


adjustment effect on agricultural supply


and demand


other


similar


economies.


Prior


studies


have


attempted


identify


empirically


factors


contributing


the


significant


improvement


Chinese


agricultural


development.


However,


there


are


comprehensive


studies


linking


the


elements


structural


adjustment


to agricultural


growth


or the


effect


. A


. i








Thi


study


clarifies


elements


structural


adjustment


agricultural


China


market


and


builds


economy


empirical


the


basis


models


producer


China's


profit


maximi


are


zation


estimated


consumer


three-stage


utility


least


maximi


squares


zation.


using


The


unique


models


data


from


various


Chinese


official


data


sources.


The


estimation


results


indicate


that


major


hypotheses


the


model


are


consistent


with


data.


major


results


are


as follows:


on the


supply


side,


price


factors


have


a strong


impact


on free


market


supply;


coefficient


institutional


organization


suggests


that


fewer


stortions


farmer


adjust


higher


work

home


effort

produce


exerted


market;


consumption


rural


the


demand


consumers


side,


rationed


goods


urban


consumers


are


both


substitutable


market


goods


income


elasticities


in rural


areas


are greater


than


urban


areas.


This


study


important implications


for other


centrally


planned


economies


and


analytical


methods


used


this


study


are


applicable


to the


problems


those


economies.


could


similarly


analyze


impacts


factors


structural


adju


stment


their


agricultural


supply


demand


and


ultimately


give meaningful


suggestions


to policy


makers


about


how


to make


decisions


on further


economic


reform.















CHAPTER


INTRODUCTION


Statement


Problem


Structural


adjustment


been


started


socialist


economies


past


decade.


The


former


Soviet


Union,


the


Eastern


European


countries,


China


have


begun


processes


structural


adjustments.


Each


the


intention


move


from


traditional


planned


economy


a mixed


planned-and-market


economy--which


elements


will


lead


of structural


to country,


each


basic


socialist


to a market


adjustment


economic


country


are


are


problems

similar.


economy.

different


needing

They


Although


from


to be

all


the


country


solved


need


reform


economy,


price


to open


nonprice


free markets,


factors,


decentralize


to reform ownership of


publicly


owned


properties,


etc.


Facing


these


tremendous


changes,


one


may


raise


questions,


such


as what


structural


adjustment


these


countries?


What


behavior


producer


consumer


under


both


planned


mixed


economy?


What


impact


these


changes


on the


economy?


attempting


answer


these


questions,


will


&~~ -


1 r


L


_


A


I










economy


second-largest


socialist


economy


Chinese


structural


adjustment


been


rather


stable


relatively


successful.


Specifically,


this


study will


only


examine the


structural


adjustment


Chinese


agri


cultural


economy.


This


because


structural


adjustment


Chinese


economy,


in agriculture


with


plays


reform


an important


agriculture


role


leading


reform


industry


other


sectors


the


economy.


Price


reform


institutional


reform


in agriculture


are


much


more


advanced


than


reform


other


sectors.


Furthermore,


China,


about


percent


population


lives


rural


areas,


about


35 percent


GNP


contributed


agricultural


sector.


China


feeds


percent


world's


population,


Clearly,


with


China


only

the


percent


largest


world


agricultural


arable


economy


among


land.

a the


socialist


countries


world.


study


factors


the


impact


structural


adjustment


on the


Chinese


agricultural


economy,


an empirical


supply


demand


model


will


be developed.


This


model


can


applied


European

adjustment


member


Countries


their


former


measure


economy,


Soviet


the in

appraise


Union


pact


policy


or Eastern


structural


alternatives


in an agricultural


sector,


finally


to help


make


decisions


rU


r s m


I













Definition


of Structural


Adjustment


literature,


definition


the


terms


"adjustment,


" "structural adjustment,


" and


"stabili


zation"


are


always


agreement.


policies


achieve


internal


exte


rnal


balance,


World


Bank


refers


them


"stabilization.


If poli


cies


make


changes


structure of


incentives


stitutions,


World Bank refers


to these as


"adjustment.


they


both,


then


this


referred


"structural


adju


stment.


" More


specifically,


World


Bank


character


zes


"structural


adjustment"


as "reforms


policies


institutions


covering


microeconomic


(such


taxes


tariffs),


interventions;


macroeconomic


these


(fiscal


changes


policy),


are


and


signed


titutional


improve


location


resources


, increase


economic


effici


ency,


expand


growth


potential,


increase


resilience


shocks


" (World


Bank


1990a


p.8).


The


World


Bank


defines


"stabili


zation"


"poli


cies


(generally


relying


on demand management)


to achieve


sus


tainable


deficits


fiscal


and


balance


reduce


rate


payments


current


inflation"


(World


account


Bank


1990a


p.8).


Streeten


(1987)


indicates


that,


pursuit













disruptions

structural


which


they


adjustment"


have


adaptation


adjust.


to sudden


defines

or large


often


unexpected


changes.


These


changes


may


favorable


unfavorable


objectives


pursued


government.


Gladwin


(1991


p.3)


stated


that


many


adjustment


packages


include such as


devaluation of


overvalued currencies,


increases

a closer


liberal


in artificially


alignment of


zation


domestic


police


food prices

prices with


decreases


and interest

world prices,


government


rates,

trade


spending,


wage


, and


hiring


free


zes


reductions


employment


public


input


sector


subsidi


or the minimum


O'Brien


wage,


(1991)


and


removal


states


that


food


structural


adju


stment


means


introduction


more


market-oriented


poli


cies


, such


liberalization


of markets,


more


efficient


ces


private


, greater


sector.


openness


Elson


trade,

(1989)


a bigger


pointed


out


role

that


struc


tural


adjustment


change,


change


means


costs


benefits,


losers


or winners.


Rodrik


(1990)


points


out


that,


while


structural


adjustment is


a multifaceted process,


present


practice


emphasis


zes


economic


liberal


zation.


argues


that


emphasis


liberal


zation


will


backfire


when


it conflicts


with


the


requirements


sustainability.


He concludes


that


liberal


zation may


often


need


to take


a back


S~ .


ft


1 f










different


nature


problems


different.


Therefore,


the elements


a structural


adjustment


program are


different


from one


country


to another.


What


the meaning


structural


adjustment


adjustment


presently


China?


being


there


undertaken


any


structural


China?


how


much


structural


adjustment


is present?


In this


study


we will


explore


these


questions.


We define


"structural


adjustment"


in China broadly


as the


degree


of China's


changes


in openness


to the outside world and


price


nonprice


reforms.


The


latter


includes


both


macro-and

Specifically,


micro-policies

macro-policy


and

includes


institutional reforms.

the exchange-rate policy,


price


policy,


inflation


rate


control


policy,


and


government


budget


control


policy.


Micro-policy


includes


tax


and


tariff


police


, import


export


licensing


policies,


deci


sion-


making


enterpri


ses.


Institutional


reform


policy


agriculture


includes


land


policy


and changes


the


production


responsibility


system,


government


separation


commune.


functions


industry,


reform


the


policy


includes


changes


ownership


firms,


creation


bankruptcy


system,


new


contract


system.


state


organizations,


levels


includes


government


separation


organizations,


responsibilities


separation


- L











ELEMENTS


TABLE
OF STRUCTURAL


1-1
r ADJUSTMENT


IN CHINA


Excha
Farm
police
Indus
police
Gover


nge r
produ
Y
try p
Y
nment
ol
ol in
est r
Tarif
payme


ate
ct


policy
price


product


price


budget

flation
ate policy
f, Subsidies
nt


Agricul
right
Product
response
Aboliti
system
Separat
of gove
product
Contrac
Bankrup
Owners
Decision
enterpr
Stream
govern
Commerce


real


ture


land


use


ion
ibility system
on of commune


io0
rn
io
t
tc
ip
n-
is
in
en
ia


fn
sme
In


function
and


system
y law
Iof the
making
es
ing of
.t organ
lizatio


firm
of


ization
n of


estate


PRICE REFORM NONPRICE REFORM


k


!










terms


staff


administrative


governmental


structure,


organizations.


streamlining


These


over-


elements


structural


adjustment


are


summarized


Table


Obviously,


important


how


structural


elements


structural


adjustment


adjustment


s study


China


will


agriculture


includes


confine


affect


many


myself


China's


market


supply


demand.


The ultimate


purpose of


structural


adju


stment


in China


achieve


economic


growth.


specific


strategy


development


was,


first,


to double


GNP


1980s


so as


to solve


the


long


-standing problem of


feeding


and


clothing


Chinese


people.


Thi


s was


achieved


1987.


The


second


goal


was


to redoubl


end


century.


then


, China


will


comparatively


strong


people


able


to live


a comfortable


life.


The


third


goal


was,


middle


of the


next


century,


to become a moderately


developed


country.


necessary


faster


growth


required


goal


to be


met


can


achieved


removal


structural


rigidity,


which


edes


growth.


Another


condition


which


requires


tructural


adju


stment deals


with domestic


stortions,


which cause


static


efficiency


losses


removal


domestic


stortions


1 China


lacked
central


Centrally


comprehensive


control


ofter


S C *


Planned


centraliz
i proved 1


Economy


ed
to b


(CPE)


information s
e excessively


always


system,
rigid


and


1*


I


-


I _










expected


lead


more


efficient


resource


allocation


higher


income


long


run.


Performance


China


s Economic


Planning


tem


After


People


s Republic


China


was


established


1949,


Chinese


transforming


war


communes


-torn


addressed


market-oriented


the


economy


task


into


command


economy.


The


communist


government


was


against


land


owners


indu


striali


took


away


their


privately


owned


property


state.


sought


financial


technical


assistance


from


Soviet


Union


effort


to rebuild


economy


1956,


nearly


enterpri


ses


been


national


practi


zed.


ces


narrower


indu


China


China


trial


s planning


started


base


system


central


a much


was


modeled


planning


lower


on Soviet


with


degree


much


economic


development


than


Soviet


Union


1928.


the


First


Five-


Year


Plan


(1952


-57),


serious


sec


toral


imbalances


occurred


economy.


primary


reason


was


a biased


investment


policy


which


focused


heavy


indu


trial


sector,


with


little


attention


paid


to agriculture and


light


industry


(Table


Heavy


industry


was


still


core


the


economic


development


program


Second


Five-


Year


Plan


(1958


-62).


)


1










TABLE


INVESTMENT


current


IN CAPITAL


price


CONSTRUCTION


renminbi


BY SECTORS


billion


yuan)


Agri- Light Heavy Other Total
culture industry industry
1953-57 4.2 3.8 21.3 29.6 58.8
1958-62 13.6 7.7 65.2 34.2 120.6
1963-65 7.5 1.7 19.4 13.7 42.2

1966-70 10.4 4.3 49.9 33.0 97.6
1971-75 17.3 10.3 87.5 61.3 176.4

1976-80 24.6 15.6 107.6 86.4 234.2
1978 5.3 2.9 24.4 17.4 50.1
1979 5.8 3.1 22.6 20.9 52.3
1980 5.2 5.1 22.5 23.1 55.9
1981 2.9 4.3 17.3 19.8 44.3
1982 3.4 4.7 21.4 26.1 55.6
1983 3.6 3.9 24.4 27.6 59.4
1984 3.7 4.2 29.9 36.4 74.3
1985 3.7 6.3 38.3 59.1 107.4


Sources


Cambridge


Stati


stical


Agency,


Hsu,


Univers


Yearbook
various


1989,
Press
of China


iSS


China


State


(Hongkong:


Foreign


Stati


Trade
stical


Economic


Reform
Bureau,


Information


ues)


C.J.,










Three


Banners


These


movements


terminated


Second


Five-


Year


Plan


result


chaos


the


Chinese


economy.


Also


1960,


unexpected


withdrawal


Soviet economists


and technicians


working


in China exacerbated


existing


the early


chaotic


1960s,


situation.


the government


Facing


formulated


nationwide


four


famine


guidelines


economic


recovery.


3 At


end


the


adju


stment


period


(1961


-65),


shares


agriculture,


light


industry,


heavy


indu


stry


economy


were


29.74%,


35.43%


34.83%,


respectively.


Thus,


during


this


period


the


allocation


China


s resources


improved


(Tabi


-3).


Third


Five-


Year


Plan


(1966


-70)


was


first


half


"Cultural


Revolution


During thi


period,


heavy


industry


grew


faster


than


agriculture


light


industry


(Table


Figure


Fourth


Five-year


Plan


(1971


-75)


was


second


half


of the

economic


cultural


revolution.


policies--an


open


During

door


period,


policy


the


new

four


modernizations--were


formulated,


proportional


relations


among


agriculture,


light


industry,


heavy


"Three
Socialist


Production,


Red Bann


" and


ers "


which


Construction,
the "People'


repre
"The


s Commune


sented
Great


"The
Leap


General Line
Forward of


Movement.










TABLE


PERCENTAGE


DISTRIBUTION


OF CHINA'


S ECONOMY


Gross


Value


of Indus


trial


Agricultural


Production)


Source:
Foreign
a. data
b. calc


Tsao,
Trade


are


J.T.H


Lex


, 1987,


ington


terms


:ulated


China


Books
1957
asis


s Development


Strategies


P.27


constant
of 1952


ces.


actual


exes


values


and


1960


1952 19578 1960 1965b
Agriculture (%) 58.53 43.27 20.10 29.74

Light industry(%) 26.72 30.14 26.60 35.43

Heavy industry(%) 14.75 26.59 53.30 34.43

Total(%) 100.00 100.00 100.0b 100.00

Total(billion 82.70 124.10 183.75 198.40
Yuan)










TABLE


GROWTH


RATES


OF OUTPUT


BY SELECTED


SECTORS


(PERCENTAGE)


Year Agriculture Heavy ind. Light ind. Total

1956 5.06 39.74 19.68 28.06
1957 3.57 18.45 5.77 11.57
1958 2.40 78.79 33.70 54.81
1959 -13.62 48.10 22.00 36.11
1960 -12.58 25.90 -9.80 11.21
1961 -2.39 -46.50 -21.62 -38.19
1962 6.16 -22.59 -8.42 -16.61
1963 11.71 13.80 2.32 8.51
1964 13.53 21.00 17.82 19.59
1965 8.21 10.21 47.69 26.40
1966 8.68 27.50 14.51 20.91
1967 1.48 -20.00 -7.09 -13.81
1968 -2.45 -5.11 -4.91 -5.00
1969 1.15 43.90 25.21 34.30
1970 11.46 42.30 18.09 30.70
1971 3.07 21.40 6.50 14.90
1972 -0.18 7.00 6.19 6.60
1973 8.42 8.70 10.60 9.50
1974 4.15 -1.60 2.70 0.30
1975 4.61 16.80 13.00 15.10
1976 2.47 0.50 2.41 1.30
1977 1.69 14.30 14.30 14.30
1956-77 2.69 12.29 8.65 9.62
(AVERAGE)








Table


1-4--continued


ote: All
hinese o
alue of
et contr
een from
he socie
rowth ra
good ap'
dded in
ector is
sources:
ambridge
tatistic<


outputs are measured
utput statistics are


output


ibut
the
ty.
te o
prox
that
unc
Hsu


at all


S


ion of each
commodities
In spite c
f the output
imation of t
sector so ]
hanged or ch
, C.J., 19


U


V


University
al Yearbook


in constant
arrived at


tages of productic
sector to national.
composition of th
of this statistics


: of
;he a
Long
iange
89,


Press I
of China


ency,1987,p.31-2).


cert
:ual
3 the
very
hina'


?.13.
(Hong


in si
growtl
outpl
sligl
s Fo


State


ec'
h
ut
ht:
re


prices.
as the
on. The
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e total
il defic
tor can
rate of
structu
Iv over


ian


Stati


Tra


sum


re fore
cannoto
produce
iency,
be use
the va


the
the
t be
t of
the
d as
lue-


re in tnat
time.
ide Reform


tical


Kong:Economic


Bureau,


Information


1981 6.60 -4.70 14.10 4.10

1982 11.08 9.80 5.70 7.70

1983 9.58 12.40 8.70 10.50
1984 17.61 14.20 13.90 14.00
1985 14.19 17.90 18.10 18.00
1979-85 10.39 8.21 13.05 10.41
(AVERAGE)










80-

70-

60

50

40

30

20

10

0

-10

-20

-30

-40

-50


56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71


72 73 74 75 76 77 78 79 80 81 82 83 84 85


FIGURE


THE


GROWTH


RATES


OF OUTPUT


BY SELECTED


SECTORS


Agriculture


Heavy


Industry


Light


Industry


Tota.










industry


output


did


improve.


accounted


1975


agriculture,


shares


light


total


industry,


and


gross


heavy


indus


try


were


28.53%,


30.93%


and


40.54%


respectively


(Tsao,


1987,


p.32).


Fifth


Five-


Year


Plan


(1976-


1980)


never


been


published.


believed


that


Fifth


Five-


Year


Plan


was


developed


under


leader


ship


Zhou


Deng.


Unfortunately,


power


struggles


terminated


plan.


The


Ten-


Year


Plan


(1976


-85)


was


prepared


accordance


with


Zhou


concept


four


modern


zations


Mao


s policy


high-


speed


more


development.


open


new


liberal


feature


attitude


Ten-


toward


Year


foreign


Plan


trade


was


and


investment


China.


lack


modern


technology,


mat


erial


funds,


many


projects


were


completed


schedule


or were


abandoned


resulted


the


waste


of human


capital


resources


Facing


these


problems,


The


Three-


Year


Adjustment


Plan


was


launch


ed (1979


-81)


Also,


1978,


China


started


overall


economic


adju


stment


and


reform.


problem


macroeconomic


imbalance


centrally


planned


economy


began


with


new


China


establi


shed


early


1950s.


highly


closed


economies,


internal


poli


c ies


are


crucial


to overall


economic


performance.


Most of


the disequilibrium has


resulted


from biased


policies


sum,


-*


*


1*


*










Biased


investment


policy.


Policies


favored


the


heavy


industry sector and de-emphasized investment in the consumers.


Fixed domestic pricing policy.


Prices were largely absolved


of their allocative function and the government planners made


the


important


decisions


resources


allocation.


The


priorities


government


were


high


savings


and


consumption.


Urban bias.


It has been and is represented by substantially


higher per


capital


expenditures on consumption goods


in urban


than


in rural areas,


with the difference widening until 1979.


Urban families have been given ever-increasing subsidies


over


the past four decades to prevent increases in the food prices.


The coastal area bias.


This resulted in greater emphasis on


east


coast


neglect


the


west


interior


areas.


Specially


there was a transfer of resources from the western


interior


area


the


east,


neglect


the


western


area's


economy,


and a


failure


to narrow the wide


income gap


between


residents of


these


two areas.


In addition,


environmental


the Chinese economy suffered both political


shocks.


The political shocks were both external and internal:


e.g


externally,


Soviet


withdrawal


economists


technicians


from


China,


internally


, the


"Three


Red


L


1 1_










rainfall


drought


early


1960s


most


China's


grain


production regions.


China does not,


like other


less developed countries,


face


extreme


macroeconomic


imbalances,


such


hyper-inflation,


huge


external


internal


debts,


etc.


(Table


1-5) ,


and


China'


economic and political systems are relatively stable.


Administrative


controls,


especially


over


prices


key


products


and,


imports


products


, probably


will


continue.


Therefore,


macroeconomic balance is crucial during


transition


toward


more


efficient


trade


system


based


decentralization of


decision-making


competition.


Objectives


the Study


China's


rural


structural


adjustment


since


1978


has made


extraordinary


changes


rural


areas--agricultural


growth,


improved living condition, consumption demand shifts--which in


turn have


impacted


on agricultural


supply.


Prior studies have attempted to identify empirically the

factors contributing to the significant improvement of Chinese


agricultural development between 1978-84.


However


, there are


no comprehensive


studies


linking


elements


structural


adjustment to agricultural growth or the structural adjustment











TABLE
MACROECONOMIC


1-5
INDICATORS


ITEM/YEAR 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987


GDP AT CURRENT MARKET


% GROWTH RATE


PRICE


358.81


OF GDP


CA BAL. EXC.OFF.TRANS(BILLIONS$)


CHANGES


IN NET


RESERVES


(BILLIONS$)


EXCHANGE RATE YUANN PER DOLLAR)


PRICE PARITY B/W IND.&


AG.PROD.


0.212

0.748

1.720

18.000


399.87

11.40

-0.221

-0.603

1.550

-5.800


477.15

11.80

-0.942

-0.372

1.490

-4.600


477.51


6.80


2.620

-1.925

1.780

-0.800


518.58


8.60


6.202

6.275

1.920

-3.300


578.46

11.50

4.833

-4.093

1.960

-0.800


692.44

19.70

3.082

-1.816

2.190

-4.800


854.06

23.30

-11.19

4.64

3.20

-3.00


971.99

13.80

-8.55

1.991

3.450

-6.400


1135.71


16.80


-0.191

-4.852

3.720


-6.5


(% GROWTH RATE)


TOTAL EXTERNAL DEBT (MILLION


4504


5798


8359


9609


12082


16722


23746


35428


Sources


: World


Bank,


1990b,


China


Between


Plan


Market,


p.107,110,116,:


I










This


study


defines


meaning


structural


adjustment


within


Chin


ese


context


clarifi


impact.


The main


objective of


thi


study


is to conduct


an empirical


analyst


Chinese


price


structural


nonprice


adjustment,


factors


primarily


agricultural


impact


supply


demand


. The


associated


specific


ectives


are


. To


clarify


meaning


of structural


adjustment


China,


attempt


answer


such


ques


tions


there


been


structural


adjustment


China,


and


how


much?


structural


adjustment


been


right


direction


And


what


been


impact


the


structural


adjustment


on agricultural


market


supply


and


demand?


evaluate


adjustments


institutional,


examine


price,


behavior


and


market


producers


and


consumers


under


both


planned


mixed


economies


. To


construct


empirical


model


China


free


market


economy,


to make


analy


ses


price


and


institutional


adju


stment


effects


supply


and


demand


agricultural


goods.


. To


about


draw meaningful


China


conclu


structural


sions


from


adjustment


empirical


impact


free


analyses


market


demand


supply,


to suggest


possible extensions


to other


reforming


centrally


planned


economies.










Chapter


reviews


relevant


theoretical


and


empirical


literature,


discusses


controversies


and


limitations


previous


studies,


and,


finally,


indicates


the


direction


s study.


Chapter


reviews


China


structural


adju


stments


specifically


terms


price


adjustments,


institutional


adjustments,


market


adju


stments.


Chapter


IV presents


the


analytical


framework


of a Chinese


aggregated agricultural


good


model


a free market


economy.


behavior


production


unit


consumer


under


both


planned


economy


and mixed


economy


are discussed.


The


behavior


urban


separate


rural


Optimizing


households


behavior


market


is assumed


are


treated


the model.


The


free


market


supply,


urban


demand,


and


rural


demand


aggregated


agricultural


goods


are


derived.


Chapter V


model


presents


estimation


sources


method,


structure of


result


data,


regre


the

sion


analyst


Based


on the


res


ults


the


regression


analysis,


detailed


analyst


s of


estimated


parameters


price


and


income


elasticiti


follows.


Chapter


conclusions,


includes


suggestions


summary


further


analyses,


research.














CHAPTER


REVIEW


OF LITERATURE


Previous


Studi


of Structural


Adjustment


Previous


studies


on structural


adjustment have


focused on


African


and


Latin


American


countries.


Interest


these


studies


been


on implications


agriculture


and


poor


, 1990;


Weissman,


1990;


Lineberry,


1989).


Also,


there


were


discus


sons


structural


adjustment


highly


-indebted


countries


politi


of stabiliz


action


and


structural


adjustment;


debt


relief


and


developing


countries


debt


crisis


(Sachs,


1989).


Several


studies


structural


adjustment

adjustment


structural


the


program


adju


World

3 and


stment


Bank


discuss


examine


living


effectiveness


relationship


conditions


between


developing


countries.


World


Bank


reviews


issues


and


lessons


signing and implementing adjustment programs. (i.e.


the World


Bank


, 1990a;


1990c).


There


are


some


papers


which


scuss


growth


adju


stment


strategies


of newly


industrialized


countries


Southea


Asia,


trade


regimes


and


export


strategic


, structural


adjustment


public


enterprise


I










performance,


experience


the


role


multilateral


titutions,


foreign


aid,


other


financial


sources


(i.e.


Azi


, 1990;


Streeten,


1988).


The


essence


development


structural


adjustment.


Developing


country


need


adjustment


sectors


order


to reach


their


own


country


s objectives.


Developed


countries


have


adjust


changing


world


and


new


technologies,


their


structures


are


more


stable


and


less


subj


change.


There


some


literature


structural


adju


stment


developed


countries.


The


Organi


zation


Economic


Cooperation


Development


(OECD,


1989)


reviews


adju


stment


indu


strial


structure


to the


changes


the


shocks of the


1970


1980


OECD country


describes


the rol


effects


changes.


OECD


different


scusses


policies


public


addressing


spending


these


issues,


reform,


structural


issues


arising


from


persi


stent


budget


deficits


Other


studi


have


discu


ssed


nature


stru


ctural


adjustment


process


individual


developed


country


such


Canada,


Japan,


France


(e.g.,


Ansari,


1989


Hayami,


1988)


Previous


Studies


Other


Centrally


Planned


Economies


Sociali


country


account


for about


a quarter


;










former


Soviet


Union.


Theoretical


analy


S1S


reform


market-oriented


economy


suggests


that


some


combination


tax


reform


debt


reduction


may


a precondition


market-


orient


ed reform.


The


reforms


may


have different


effects


under


different


trade


regimes;


small


price reforms may


have


perverse


effects,


foreign


investment


shortage


economy


may


immiseri


zing


(Dinopoulos


Lane,


1992;


Lane


and


Dinopoulos,


1991)


economy


different


In empirical


market


aspects


literature,


economy


discussed.


trans


different

Kovacs (1


ition


from


sectors


991),


planned


and

discu


from

ssing


transition


to a market


economy


in Hungary,


presented


goals


exis


ting


bottlenecks


reform.


Stark


(1989)


analyzed


Hungary


innovation


emerging


that


mixed


involves


economy


mixture


examining


elements


recent


from


Soc


iali


economy


private


economy.


Szelenyi


(1989)


explored


nature


current


crisis


of state


socialism


Eastern


Europe,


analyzed


reform


strategies


of the


last


decade,


future mixed


speculated


economy.


about


Some


alternative


literature


scenarios


concentrated


on the


former Soviet


Communist


party


economic


reform,


what


impact


attempt


reform


will


have,


and


empirical


dilemmas


interest


reform


(i.e.


Connor,


1989;


Gomulka,


1989;


Grossman,


1989;


Kaser,


1989).


I -


- -


1


J


I 1.


__










own


way


approach


problems


and


try


solve


them.


Chinese


government


watched


closely


the


evolving


reforms


in these


countries


tried


to learn


from


them.


What


been


happening


former


Soviet


Union


lately


a good


lesson;


These


major


changes


Soviet


Union


will


make


Chinese


government


more


cautions


about


political


reform.


extent


that


Chinese


government


can


learn


from


they


both


mistakes


will


successfully


successes


guide


possible,


similar


China


given


countries,


effectively


enormous


problems


and


they


Previous


Studi


Reform


China'


s Economy


mainstream


of recent


literature


on China's


economic


reform


been


concerned


with


issues


price


reform


and


impacts


reform


two-tier


plan/market


price


system


specific


commodity


trading.


literature


argued


that


-tier


price


stem


resulted


crease


direct


role


mandatory


planning


the


allocation


industrial


goods


, and


that


inherent


dynamic


tendenci


stem


are


ading


to a continual


increase


share


market


(Byrd,


1987;


Reynolds,


1988a).


Theoretical


analy


ses


have


suggested


that


mixed


system










economy


will


help


economy


move


from


constrained


toward


unconstrained


Pareto


optimal


equilibrium


(Sicular,


1988b;


Byrd,


1989).


Some


others


criticize


that


two-tier


price


system'


disadvantages


outweighs


advantages,


but


that


acceptable


as a temporary,


transitional


device.


Other


problems,


economic


such


concerned


Naughton


about


(1987),


China's


estimated


macroeconomic


household


saving


Applying


rapid


function


model


growth


1957


to the

of t


-78,


showing


post-1978


saving


period,


government


budget


concluded

deficit


rate.


that

was


accommodated


part


voluntary


saving


households


and


enterprises.


Balasa


(1987)


suggested


that


the


Chinese


economy


price


needs


reform:


take


linking


simultaneous


bonuses


action


work


areas


performance,


establishing


an effective


monetary


policy,


rationalizing


banking


system,


setting


reali


stic


interest


rates.


The


causal


relationships


macroeconomic


performance


between

e were


monetary

investigated


aggregates


Chen


(1989).


found


nominal


that


there


income,


a causal


budget


relationship


deficit,


currency


trade


deficit.


One-way


causality


runs


from


currency


total


inflation.


concluded


that


best


target


currency


control


monetary


policy.


-













commodities


(Yoon,


1988;


Halbrendt


Gempesaw,


1990;


Brown,


1989)


Even


though


there


are


quite


few


studies


China


economic


reforms,


ere


literature


that


discusses


China'


structural


adju


stment.


The


objective


s paper


clarify


secondly,


attempt


concept


analyze


fill


structural


nature


lacuna,


adjustment


of structural


firstly,


China,


adjustment


China


impact


ese


adjustments


China'


s free


market


demand


supply.


Agricultural


Supply


Response


1958,


Marc


Nerlove


published


study


the


supply


responsiveness


hypothesizing


U.S.


farmer


farmers.


reactions


The


based


Nerlove


price


model,


expectations


and/or


area


adjustments,


been


adopted,


modified,


even


extensively


revise


d by many


authors


last


years.


purpose


been


identify


some


the


factors


that


significantly


affect


supply


responsiveness.


Knowing


these


factors


can


help


answer


questions,


such


can


the


policy


maker


influence


supply


responsiveness


how?


In the


earlier


Nerlove


work


only


nonprice


variable


were


included


supply


model


employed.


However,


large










factors,


such


technical,


social


political


factors,


which


may


affect


magnitude


direction


farmer's


response


literature


greater

more im

(Lele


price


argues


than


iportant

1992).


(Askari


that


short-term


long-run


Cummings

aggregate


responses


long-run


Binswanger


state


response

ts that


1976).


lonprice

than p

the ov


Recent


responses


factors


)rice


erall


are


are


factors

supply


response


in agriculture


tends


to be


smaller


than


responses


individual


crops;


also,


aggregate output can


grow only


if more


resources


are


devoted


to agriculture


or if


technology


changes


Binswanger


1990).


There


are


few


studies


which


have


attempted


to model


reform


China


agriculture;


these


include


Lin


(1992),


McMillan


(1989),


Halbrendt


Gempesaw


(1990),


Carter


Zhong


1988).


All


these


studies


have


tried


analyze


impact


reform


on economic


growth


trade


diff


erent


ways.


Lin,


using


Cobb-Douglas


production


function,


quantified


differentiated


the


contribution


household


responsibility


system


(HRS)


from


the


contributions


other


reforms


upon


output


growth.


However,


he only


looked


impact


of growth


in agricultural


output


supply


side


neglected


examine


impact


growth


agriculture


output


on demand


side.


Halbrendt


.I -


I


_


m










reflect


specific


variable


of the


reform's


contribution


growth


failed


production


show


wheat.


distortion


consumption


because


side,


governmental


rationing


wheat


consumption


fixing


prices.


McMillan


used


Denison-Solow-type


growth


accounting


technique


analyze


national


aggregated


time-series


data


from


1978-1984;


however,


their


there


break


are


down


serious


of growth


drawbacks


total


this


factor


study.


productivity


First,

y into


a price


component


an incentive


component


required


strong


assumptions


about


reform


parameters


utility


function,


their


results


were


sensitive


these


assumptions.


Second,


prices


use


d in


their


analysis


were


above-quota


procurement


prices,


which,


theoretically,


should


have


been


the marginal


prices,


because


above-quota


price


fixed


government.


The


above-quota


procurement


prices


are


usually


lower


than


market


price,


and


these


two


types


prices


might


move


opposite


directions.


Carter


and


Zhong

yield


s grain production

equations. Their


model contained

approach used p


separate


acreage


populationn


policy


variable


sown-acreage


response


equation.


Their


yield


equation


was


specified


function


a price


and


time


variable


that


was


a proxy


technology.


Their


rural


urban


consumption


equations


were


specified


simply


I _










consumption equations


were


unable


to reflect


impact


reform


variables


on production


and


consumption.


Previous


Studies


of Agricultural


Demand


Halbrendt


Gempesaw'


consumption


equations


distinguished


between


consumption


behaviors


urban


and


rural


residents


modeling


urban


consumption


demand


function


of production


plus


imports


and


real


price


index,


rural


consumption


demand


as a function


production and


price


index.


Tang


Stone


(1980)


used


method


moving


averages


modeling


China


grain


consumption.


Their


underlying


assumption


was


that


total


grain


consumption,


including


human


consumption,


seed


feed


requirements,


industrial


uses


determined


government.


They


also


assumed


that


government


simply


sets


consumption


equal


average


supplies


current


year


and


the


preceding years;


this


multiplied


1.0235,


which


gives


the


long-run


growth


trend


grain


output.


After


1965,


percent


average


supply


was


aside


reserves.


grain


supply


calculated


as output


plus


imports.


After


estimation


supply


consumption,


consumption


difference


taken


between


change


current

i stock


reserves.


Carter


Zhong


(1988)


estimated


a simple


linear










function


income


quantity


consumed


last


year.


Their


model


fails


to distinguish between consumption habits


of urban


and rural


consumers;


also,


their model


does


reflect


demand


distortion


China


because


food


rationing.


Sicular


(1988b)


examined the interactions between markets


state


agricultural


commercial


sector.


planning


Using


the


context


theoretical


China's


model,


Sicular


analyzed


way


that


a mixed


commercial


system


sort


observed


China


functions.


the


sence


commercial


planning,


maximization


profits


industrial


producer


of utility


urban


consumer


imply


supply


and


demand


functions


which


can


be expressed


supply/input


demand


functions


qjk=Yk (P)


urban

rural


consumer

consumer


demand

demand


Xlk=dlk (P


=d2k(P,


P3W13 )

p3W23+r, (p)


where


j=0,1,2


(when


j=0,


aggregate industrial


production;


j=1,


aggregate


urban


consumer;


j=2,


aggregate


farm


household);


where


k=l,


when k=l,


manufactured goods;


k=2,


agricultural


goods


k=3,


aggregate


farm


household);


where


w is initial


endowments,


is price,


is production,


supply,


and


r is


maximum


profits


from


farming.


. U -


n


* *


I










demand


functions


are


identical


those


that


would


exist


absence


planning,


except


that


rural


income


now


includes


an extra component:


commercial


planning changes


rural


income


a transfer


equal


to the


sum


trade


levels


with


state


times


differences


between


state


market


prices.


behavior


urban


producer


consumer


is similar


that


rural


household,


the


urban


producer' s


supply


input


demand


functions


are


the


same


those


that


would


exist


absence


state


planning,


except


urban


consumer


demand


state


also includes


free-market


a function

government


an extra


component,


differences.


free-market


transfers.


Sicular


price


Urban


vector,


concluded


a transfer


consumer


wage


that


based


demand


income,


the


aggregate


demand


agricultural


product


mixed


economy


directly


affected


only


free-market


prices.


allowed


urban


consumer


choice


consume


both


the


state


market


(up t

case,


o the

her


rational


result


level)


always


lead


to urban


free market,

consumption


This

state


market


being


strictly


equal


to the


ration


level.


This


may


adequately


reflect


reality


urban


areas


1980s,


because


1980s,


majority


urban


consumers


accumulated


unused


grain


coupons


in the


state


market.


literature


on demand


includes


a number


of studies


II II


1 -lr-










goods will


increases


the consumption of unrationed substitutes


diminishes


demand


unrationed


complements)


may


hold


disequilibrium


situations.


Neary


Roberts


(1980),


using the duality


concept of


"virtual"


prices,


derived


Slut


sky-type


rationed

effects

simple


equations,


demand

Deaton


linkages


functions


between


considered


consumers


in the


brake


into


Muellbauer

restricted


question


presence


of quantity


down


income

(1981),


and

perfe<


the


derivatives


and


substitution


investigated


unrestricted d(

ct aggregation


restrictions.


Wa.


smands

over

ng and


Chern


(1992),


using


pooled


time


series


1981-87


cross


sectional


data


income


group


from


household


expenditure


surveys,


examined


impacts


of housing,


fuel,


food-grain


rationing on consumption behavior of Chinese urban


households.


results


show


that


rationing


on housing


grain


have


significant


impacts


on the demand


for unrationed


goods;


current


rationing


system


remains


unchanged,


Chinese


urban


households


nonstaple


reform


would


foods,

housing


continue


putting


increase


pressure


allocation


grain


their


food


demand


supply.


rationing


would


significantly


reduce


distortion


consumer


behavior


China.


Wang


and


Chern


quantified


the


impact


housing,


fuel,and


food


grain


rationing


consumption


other


*













implication


rationing


and


subsidies


using


extended


linear


expenditure


system


(ELES).


results


indicated


that


choosing


among


alternative


rationing models


nontrivial,


selection


prejudices


consumption


impact


unrationed


rationing


commodities.


on savings


There


some


literature


about


theory


mixed


demand


systems


and


empirical


application


which


expresses


demand


as a function


a mixed


prices


quantities;


studies


have


been


done


this


line


research


Barten


(1992),


Chavas


(1984)


and


Heien


1977).


There


another


type


demand


scussed


literature


that


conditional


demand


function


which


expre


sses


the


demand


particular


kind


goods


function


own


price,


price


some


(but


all)


other


goods,


total


expenditure


these


goods,


and


the


quantities


functions


directly


remaining

relevant


goods.


Conditional


analysis


demand


consumer


behavior


under


rationing


(Pollak,


1969


and


1971).














CHAPTER


ADJUSTMENT


PROCESS


China'


s as


well


as the former


Soviet


Union'


s structural


adjustment


second,


is rather


because


special


of the


: first,


centrally


because


planned


China


s size,


structure


the


Chinese


economy


Over


past


forty


years,


structure


Chinese economy


undergone dramatic


changes


in terms


sectoral


structure,


relationship


between


investment


consumption,


industrial


structure,


external


trade


stru


cture,


and


geographic


stribution


production


facility


Simon


Kuznets


showed


that


there


was


inverse


relationship


between


nation


size


, as


measured


population,


share


fore


trade


that


country


gross


research


national


product


(Chenery


1982,


(Kuznets


Wood


1959,


1986)


1960,


shown


1964).


that


Subsequent


a nation's


is also


diversified


cost.


correlated


natural


relationship


with


resources,


between


size


high


a country'


domestic


internal


size


market,


transport


economic


performance


is affected by


economic efficiency


and


equity.










consistently


low.


The


possible


reasons


causing


this


are


follows:


interior


regions


domestic


transportation


costs


are


lower


than


international


transportation


costs.


Governments


favor


import


substitution


and


closed


economies.


These


low foreign


trade


ratios


reflect


the


advantages


economies


scale


enjoy


ed by


large


nations.


Large


nations


typically


have


a closer


match


between


dome


stic


supply


key mineral


their


demand


those


mineral


most


important


reason


national


protection


provided


domestic


industries


large


country


dealing


with


high


cost


transport


from


border


interior.


However,


even


though


large


country'


s ratio


fore


small


trade


country,


to its


low,


volume


comparison


foreign


with


trade


that


still


high.


China


s export/GDP


ratio


was


12.7%


1989


(Table


which


s high


standard


large


continental


countries.


China


been


centrally


planned


economy


(CPE).


Traditionally,


CPEs


have


been


uncompetitive


the


world


market,


rec


ently


China


s external


trade


become


more


competitive.


principal


features


Chinese


CPE


were


* a


1


I


m l












TABLE


CHINA:


TOTAL


EXPORTS


AND


RELATIVE


SHARE


IN THE


WORLD


EXPORTS


1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

(Million US$ in current price)
China Exports 9750 13660 18188 22010 22330 22230 26129 27350 30942 39437
World Exports 1227170 1566610 1892520 1861440 1724730 1674610 1775830 1800080 1981390 22333200
(Growth Rate)
China Exports .. 40.1 33.2 21.0 1.5 -0.4 17.5 4.7 13.1 27.5
World Exports .. 27.7 20.8 -1.6 -7.3 -2.9 6.0 1.4 10.1 17.8
(Percentage Share)
China Exports into World Exports 0.8 0.9 1.0 1.2 1.3 1.3 1.5 1.5 1.6 1.7
China Exports into china GDP 4.6 5.3 6.1 7.9 8.2 7.6 8.8 9.4 11.0 12.9


Source


: China


Stati


stical


Year


Book


1988


1978


and


Stati


stical


1988.


Abst


Inte


rnati


onal


Financial


Sttstc Wol xot adEna


The


World


Bank


Was


hington,


D.C.


1990d


Stati


stics


World


and


Exports


Exchange


Rate.


.










rely


large


-scal


production


capital-intensive


hnology,


relative


neglect


investment


agriculture


consumer


goods


indus


try.


CPEs


constrain


the


rapid


growth


economy.


Frequently


mentioned


economists


as hindering


economic


growth


are:


low productivity


in agriculture,


lack


capital,


poor


management


skills,


and


shortage


energy.


Bureaucratic


management


with


rigid


planning


may


be another


constraint.


Chinese economy


is currently


character


as a mixed


structure


under


which


role


central


planning


been


substantially


reduced,


while


that


market


mechanisms


been expanded.


stinctive of


present


stage


is a two


-tier


price


stem


associated


with


extensive


use


bargaining


mechani


sms.


2 The Chinese


government


explain mixed


economy


as:


1 Perkins
bureaucratic n


bottle


necks


he Pacific,
.1-14.


agriculture


management


to rapid


Harrison


growth.


Brown


energy,


planning as
See China
(Boulder: WV


foreign


four


Amonq


tview


major


exchange,
economic


Nations


Press


, 1982),


The


two-tier


to alleviate


an abrupt


China'
state
market


shift


price


stem


shock


from controlled


s two-tier price


non-planned


(Hsu,


p.187)


system,


prices
Broadly


was


economy


signed


that


would


d to market-based


planned


are


prices


determined


speaking,


there


a technique


result


prices


are
by t
are


from
Under


fixed by the


four


stored
sets of


ces
ces


enterprise
portion of


: planned


(lis


ted)


free-market


are ri
their


required


prices
prices.


, floating


Under


to supply to


production


'a ~


fixed


the


prices


economic


Government
plannedd) 1


, negotiated


reforms,
a certain


Prices


- .


L.










value


proportionate


development


which


are


used


theoretical


bases


the


full


integration


of planned


market


economies


China;


planned


regulation


mainly


deals with problems


arising


at the macro-economic


level


while


market


regulation


mainly


deals


with


problems


arising


micro-economic


level.


Problems


aggregate


quantity


ratio


other


problems


of a long-term


nature


the


macro-


economic


field


should


solved


through


planning


while


simple


reproduction,


should


expanded reproduction and readjustment of


be regulated


assets


market.


Since


1978,


under


China


s "open


door"


policy,


trade


stem


stem


evolved


an integral


rapidly.


part


reform


general


the


reform.


foreign


Adju


trade


stments


agriculture


industry


pushed


foreign


trade


reform


forward.


Economic


structural


adjustments


in agriculture


and


industry


have


great


impact


on external


trade.


External


trade


enhanced by the more open


economic


policies,


improved


production


freer


marketing


these


basic


economic


sec


tors.


Also,


improving


performance


institutions


creates


possibility for efficient


production and marketing


better


external


trade.


Therefore,


important


examine


adjustments


in agriculture


in detail.










Adjustments


Rural


Area


Discussion


rural


adjustment


will


benefit


from


a brief


description


how


agriculture


was


structured


China


1978


measurement


structural


adjustment


in rural


areas.


In 1978,


million


people


were


employed


agriculture


total


laborers


rural


areas


million

(China


collective

Statistical


individual


Yearbook,


1984


p.109).


People


employed


agriculture


were


organized


into


54,352


communes,


each


of which


had


an average


thirteen


brigades,


which


turn


were


made


seven


production


teams.


total


population


the


communes


was


a little more


commune,


each


than


800 million,


production


team


averaging


averaged


about


about


15,000


thirty


per


-five


households


approximately


sixty


workers


(Johnson,1990).


need


reform


was


agreed


upon


Dec.1978


the


famous


Third Plenary


Session


Eleventh Party Central


Committee;


the major


reforms


announced were:


substantial


increases


chase


prices


eighteen


farm


products;


increases


agricultural


investment;


reinstatement


Chinese


Agricultural


Bank;


reaffirmation


three-level


ownership


communes;


approval


specialization


agricultural


production


according


to local


condition;


incentives


basic










control


of population


growth.


These


reforms


have


evolved over


time.


first


stage,


China


carried


out


structural


reform


rural


institutions


which


greatly


increased


farm


production


income.


second


stage


reforms


is intended


to lead


to a market-oriented


farm economy.


process


reform


was


then


directed


reinforcing


new


structure,


dismantling


redundant


collective


institutions,


commercialization


facilitating


higher


specialization.


degree


government


allowed


farm


laborers


to migrate


to market


towns


start


their


own


businesses.


1988,


million


Chinese


farmers,


one


quarter


nation


rural


labor


force,


were


involved


township


enterprises


had


taken


jobs


industrial,


commercial,


service


trades


(Beijing


Review


No.18,


1990,


p.18).


Many


these


have


become


town


residents.


Reform


housing


system


and


commercialization


real


estate


also


allowed


individuals


purchase


rent


homes.


addition,


the government allowed


informal


credit market


generate


cooperative.


higher

The l


lending


volume


freeing


than

market


the

for


rural

raw m


credit


materials


producer


goods


facilitated


creation


new


jobs


outside


state


domain


manufacturing


services.


-~~ a -


1 I


I










productivity.


Increases


standards


living


provided


obvious


evidence


effectiveness


these


rural


reform.


China,


with


over


20 percent


of the


world


population,


and


with


85 percent


world


largest


population


producer


in agriculture,


consumer


both


agricultural


products


consequence,


supply


and


demand


agricultural


products


China


will


have


a major


impact


world


agriculture


trade.


China


s agricultural


growth


before


1978


was


very


slow.


Despite


emphasis


self-sufficiency


grain


production,


agriculture


output


barely


kept


pace


with


population


growth.


Since


China


started


reform


rural


areas


1978,


growth


rates


major


sectors


agriculture


increased


dramatically


(see


Table


3-2).


China'


s rural


reform


been


multi-faceted,


including


price-quota


reform,


institutional


reform through adoption of


household responsibility system


(HRS


abolition


of the


people


s commune,


marketing


reform,


decentralization


output-mix


decision-making,


and


large


scale


rural


operative


industrialization


production.


these


based


private


reforms


rural


and


areas


co-


have


contributed


to agricultural


growth.


In the


past


years,


reform


raise


confidence


a majority


farmers.


survey


conducted


social


S. -


I


~rr ) I


- -


*


IAAA


*


F~ II


II


m










TABLE


AVERAGE ANNUAL AGRICULTURE GROWTH RATES,
(Percentage)


1952-87


Source:


. Lin,


, Rural Reforms and Agricultural Growth


China.


American


Economic


Agriculture Planning Bureau


Review,


(1989,


82(1)


. Ministry


112-5,146-9,189-92)


Ministry
Note: In


of Agriculture(1989


1952,


8,34).


the weights of the five agriculture subsectors


were:


crops,


fishery,
percent.


83.1


percent;
1987, tI


animal husbandry,


percent,


percent;


animal


forestry,
weights


22.8 percent;


sidelines,


husbandry,
percent;


were:


crops,


11.5


percent;


sidelines,


60.7


fishery 4.7 percent;


percent.


sidelines


percent;
forestry,
, outputs


from village-run enterprises were excluded.


a. The low base level in 1952 is the main reason for fishery's


high average annual


growth


during


1952-1978.


Sector 1952-78 1978-84 1984-87
Crops 2.5 5.9 1.4
Grain 2.4 4.8 -0.2
Cotton 2.0 17.7 -12.9
Animal Husbandry 4.0 10.0 8.5
Fishery 19.9a 12.7 18.6
Forestry 9.4 14.9 0
Sidelines 11.2 19.4 18.5

Overall 2.9 7.7 4.1










1990s


farmers


than


felt


that


was

rural


1980s;


reform


97.9


percent


development


1980s


raised


farmers'


living


standards


varying


degrees;


majority


farmers


were


confident


these


gains


will


continue


into


1990s.


Institutional


Adjustments


The


major


feature


institutional


adjustment


is the


introduction


"Household


Responsibility


System"


(HRS)


which


designed


improve


incentives


management


at all


levels


rural


economy.


Under


HRS,


land


assigned


family


family


then


responsible


meeting


procurement


village


goals

cover


assigned


certain


costs,


making

such


payments


welfare


the

and


maintenance


joint


facilities.


After


meeting


these


obligations,


family


full


control


over


net


income


realized.


1984,


agricultural


households


engaged


this


system


see


Table


3-3).


Another


feature


institutional


adjustment


abolition


communes.


In the


early


1980s,


government


intention


was


separate


commune


governmental


functions


from


their


economic


functions,


thereby


reducing their monopoly power.


communes


controlled


almost


aspects


lives


their


members.










essentially


complete;


only


communes


remained


which


the


commune


kept


governmental


power.


With


these


changes


commune


system


lost


much


of its


power


in governing


(see


Table


3-4).


These changes


administrative


structures


rural


communities


farm


clearly


family


increased


over


control


affairs.


that


Also,


ordinary


government


removed


almost


activities


constraints


1984.


on engaging


emergence


in nonagricultural


eventual


prevalence


HRS,


which


replaces


production


team system as


the


unit


production


income


distribution,


brought


about


dramatic


changes


China


s rural


areas


since


1979.


commune


system,


agricultural


work


there

within


were


difficulties


in a team,


so rewards


monitoring


to individual


farmers


were


tied


directly


their


efforts,


the


incentive


to work


was


thus


very


(Lin


1988a).


was


introduced


to deal


with


problems of


shirking


and mismanagement


that


were


associated


with


previous


communal


system.


Under


HRS,


individual


household


became


basic


unit


decision-making


agriculture


production.


Most


aspects


collective


management


have


been


dissolved


since


that,


with


only


land


ownership


remaining


within


collective.


1978,


small


number


produ


action


teams,


first


secretly


later


with


permiss


local


authorities,


I


1










TABLE


THE


EVOLUTION


OF OUTPUT-LINKED


AGRICULTURAL


PRODUCTION


RESPONSIBILITY


SYSTEMS


IN CHINA


Year


January

December

June

October

December

December

December


1980

1980

1981

1981

1982

1983

1984


All


output-


linked


ponsibility
tem


75.8*


No.
hou
res


agricultural


seholds


pon


in output-linked


sibility


stem


179,854,000a

183,979,000b


as
agri
house


of
cultural
ehold


.108

.90b


Source:


* Y.Y


. Kuch,


"China


s second


land


reform,


"The


China


Quarterly


No.101(N


. China
. China


Agric


cultural


Agricultural


Yearbook,
Yearbook,


1984,
1985,


68-69.


and











TABLE


DISBANDMENT


OF THE


COMMUNE


SYSTEM


IN CHINA


Source


: 1982


1983
1984


: China
: China
: China


Agricultural


Agric
Agric


cultural
cultural


Yearbook,
Yearbook,
Yearbook,


1983
1984
1985


Year



1982
1983
1984


Rural Production Brigades Production Teams Township (Xiang
People's Zhen)
Commune
54,352 719.438 5,977.000 neg.
40,097 550,484 5,475.000 16,252
249 7,046 128,000 91,175










later,


these


teams


brought


in yields


larger


than


those


other


teams.


central


authorities


later


admitted


existence


of this


form


farming,


1981,


full


official


acceptance


was


eventually


given


farmers;


that


time


percent


production


teams


in China


had


already


been


dispersed


(Lin


1992


p.37).


the


end


1984,


percent


Thus


Since


maintaining


of families


operated


institutional


1978,


under


adjustment


government


stability


HRS.


responsibility


was


completed


encouraged


During the


system.


1984.


and


first


emphasized


half


1980s,


agricultural


gross


output


value


(GVAO)


expanded


more


than


double


rate


previous


years.


Grain


produ


action


increased


volume


average


percent.


(1978-


89),


sector)


about


percent


to increasing


faster


discontent


than

with


before


(grain


stagnation


grain


production


recollectivization


after


emerged,


1984,


because


large-sizec


call

d farms


for

can


apply


advanced


technology with


big


tractors


thus


increase


efficiency.


disruption


consent


possible


some


localities,


contracts


farmers


that


before


(Yaping


farmers


this


their


Jiang


may


call


resulted


expiration


1988).


without


Therefore,


deprived


economic


independence


greater


freedom


they


past


years


. nan'


r __ I ..













Price Adjustments


The adjustment


of rural


prices


performed reasonably


well.


part,


this


been


because


the


farm


prices


that


prevailed


1978


less


distortion


than


many


industrial


prices.


independent


Because


commune


organizations


without


system,


direct


communes


claim


were


against


government


cover


their


losses,


the


prices


paid


them


farm products had to be sufficient to cover costs of purchased


inputs


food


shelter


most


the


peasants.


government


variety


prices


farm


products.


There are four different types of prices:


the quota


price


for required deliveries,


in excess


of the quota,


a higher price


a negotiated price,


for deliveries


and a free market


price.


The


prices


some


farm


products,


such


pork,


poultry,


eggs,


fruit and vegetables,


have been freed of price


controls.


When


price


inflation


became


serious


1988,


however,


number


cities


reimposed


price


ceilings


several


food products.


The government also has provided some


relief


way


food


or reduced


taxes


when


there


was


crop disaster.


- A m 1 1










obligations;


above-quota


prices


apply


crops


sold


in excess


obligation.


mandatory


minimum


delivery


quota


level


were


reduced


between


1978


-82.


Over


these


four


years


national


(Minis


grain


Commerce


quotas


1984,


taxes


p.386-87),


were


with


reduced


reductions


percent


to some


extent


targeted


regionally


benefit


low-income


disadvantaged


areas


Effective


1979,


state-planned


prices


quota


farm deliver


were


rais


ed by more


than


20 percent,


percentage


price


bonus


above-quota


deliveries


incre


ased


from


percent


percent


grain


and


bearing


crops.


new


30 percent


above-quota


price


bonus


was


instituted


cotton.


State


retail


prices


grain


edible


vegetable


remained


at their


original


levels


while


retail


ces


meats,


vegetables


several


other


nonstaple


food


stuffs


were


increased


Sicular,


1988a,


p.692).


compensate


this


each


urban


resident


received


yuan


subsidy


per


month


(State


Stati


stical


Bureau,


1988).


result,


government


price


subsidies


increased


substantially


(Table


3-5)'.


price


subsidy


increased


from


percent


state


budget


to 2


percent


state


budget


1984


(China


Stati


stical


Year


Book,


1988).


The


state


also offered


negotiated


purchase


ces


agreed


on jointly


produ


cers


local


state


commercial


agents


voluntary


S S U t


* 1 *


*


* J


I












TABLE


GOVERNMENT


SUBSIDY


(PERCENT


OF TOTAL


EXPENDITURE)


1978 1979 1980 1981 1982 1983 1984 1985 1986 1
Total Subsidies 9.3 13 19 26 25 25 21 22 22 2

Daily 6.4 11 16 21 20 18 16 14 10 1
necessities

Agricultural 0.0 0.0 0.0 1.5 1.4 0.8 0.5 0.6 0.0
input

Enterprise 2.9 2.4 2.3 2.9 3.5 6.1 4.4 7.7 12.3 1
Losses


source


: World


Bank,


1990b,


China


between


Plan


and


Market,


Washington


D.C.










they


were,


general,


exceed


local


market


prices


(Wang


1985,


P.53).


For


grain,


negotiated


price


procurement


rose


from less


than 3


percent of


net state


purchases


in 1978


to roughly


17 percent in 1983


(State Statistical Bureau,


Dept.


of Commercial and Price Statistics,


1984).


These price reform


policies


contributed


rapid


growth


level


agricultural


production and incomes,


but by


1982,


there were


some


problems,


such


evasion


of quota.


surplus


years,


increased state inventories of grain further aggravated state


losses


trade


problems,


state


agricultural


readjusted


products.


state


Facing


procurement


these


system,


beginning in 1983, by eliminating the price difference between


quota


and above-quota


deliveries


of oilseeds.


The new price


generally


was


weighted


average


percent


old


quota price plus 60 percent of the old above-quota price


(Wang


1985,


p.52).


Similar


reforms


occurred


cotton


1984


(Sicular,


1988a)


and then


grain in


1985.


Corresponding

government announced


replaced


these


that


contract


price


reforms,


grain and cotton


market


quotas


purchase.


the

were


The


state

to be


contract


price was


a weighted average of


previous


quota


price and


above-quota


price.


However,


contract


amounts


were


subject to negotiation.


This change resulted in a 9.2 percent


- S S 3 r *1 *


'I'l


I


1~


A 1.










Market Adjustments


Parallel with price reform, an exceptionally greater role


was


given


to markets


guiding


agricultural


production and


market decisions.


The market-guided allocation of


resources


was


introduced primarily for cash and export crops,


and,


to a


lesser


extent,


grain.


Because


grain


procurement


prices


were depressed to


levels


lower than prevailing market prices,


more


grain


area


sold


state,


the


more


tax


paid.


Provinces


with


comparative


advantage


grain


production


were


thus


reluctant


raise


their


grain


output


level.


contrast,


grain-deficient


provinces


were


often


forced


expand


area


sown


grain


expense


higher-valued


cash


crops.


national


self-sufficiency


policy thus


degenerated


into regional


self-sufficiency.


Since


1978,


state


government


realized


that


they


cannot


effectively


plan


allocations.


Although


planning is still considered essential for key products,


they


believe that markets may allocate more efficiently than state


plans.


The


government


gradually


loosened


restrictions


private trade for agricultural products,


permitting producers


engage


delivery


which


private


quotas.


coexist


trade


China


"mixed"


provided


they


developed


economic


fulfilled


plan


system.


and


Policies


their


market


on the










doubled,


rising


from


30,000


to 61,000,


the


volume of


trade


more


than


quadrupled.


1984


more


than


percent


purchases of


agricultural


products


took place


at market


prices


(Table


3-6).


a result


these


procurement


price


reforms,


production


and


intensification


both


grains


cash


crops


expanded


markedly


between


1979


-84,


with


much


the


change


cropping


pattern


being


accord


with


regional


comparative


advantage.


area


sown


in industrial


cash


crops


increased


from


percent


total


sown


hectarage


1978


percent


1984.


After


the


record


grain


harvest


1984,


mandatory


procurement


quotas


were


replaced


aforementioned


procurement


contracts


between


state


farmers


commodities


still


subject


to planned


production.


a result


these


adjustments


, agriculture


still


grew


at a respectable


rate of


percent


(4.1%


1984-87)


1985.


expansion


animal


husbandry


aquatic


products


was


even


faster.


present


scope


market


regulation


widening.


1978,


total


varieties


farm


produce


were


traded


according


state


guidelines.


Now,


except


price


only


products--grain,


cotton,


tobacco,


raw


silk,


tea


timber--which


are


still


state,


most


m


m


-1


I -










volume


fold,


times.


goods


passing


area


Rural


these


wholesale


through


markets


markets


these


markets


cover


did


risen


increased


exist


seven


1979,


1990,


there


were


9,111


such


markets,


which


counted


receipts


excess


million


yuan


each.


Statistics


also


showed


that


1990,


rural


markets


supplied


68.3


percent


aquatic


of the meat,poultry


products,


80.3


eggs,


percent


89.1


fresh


percent


dried


of the


fruits


75.8


percent


vegetables


domestic


consumption.


These


markets


have


become


important


source


fresh


produce


sideline


Socialist


Market


products


Economy--a


most


new


the


term


consumers.


reform--has


arisen.


Even


though


plan


market


combined


economy


began


important


early


statements


1980s,


was


during


until


South


Deng


China


Xiaoping


tour


early


made


1992


that


great


change


took


place


national


understanding


market


economy.


Deng


Xiaoping


pointed


out


that


a market


economy


necessarily


sole


criterion


to distinguish


between


capitalism and


socialism.


Under


capitalism,


there


economic


planning,


under


socialism,


there


should


also


a market


Party


economy.

China,


14th National


declared


that


Congress


reform


China


Communist

economic


structure


is aimed at establishing


a socialist market


economic


. a a


*


* *


1










statistics of the State Pricing Administration,


97 percent of


all retail


goods have their price set by government,


and only


3 percent subject to market regulation in 1978;


92.6 percent


agricultural


sideline


products


were


sold


fixed


prices,


percent


percent


market


government


regulatory


guided


prices.


prices,


contrast,


percentage


retail


goods


sold


prices


fixed


government


fallen


1991.


Prices


under


government


guidance


were


10.3


percent


retail


prices


market


regulatory


price


increased


68.8


percent.


production side,


36 percent of 1991 sales were at prices fixed


government


which


was


decrease


over


percent


1990


were


s figure.


18.3


Sales


percent,


made


under


which


government


percent


below


guidance


1990;


plans


sale


market regulatory prices were 45.7 percent,


an increase of 9.3


percent from 1990.


Table 3-7


shows the percentage changes


total


purchases


agricultural


sideline


products.


These


figures


indicate


that,


last


years,


the


government


regulatory prices have decreased, and market regulatory prices


have


been increasing.


These


institutional


and


price


adjustments


rural


area have


had the


following


effects:









TABLE
NATIONAL MARKET


3-6
L STATISTICS


Source:


Sicular,


1988b


Ministry of
* At current


Commerce
prices.


(1984,p.558


State


Statistical Bureau


(1985,


p.86-87;


+ Includes


purchases


commercial,


industrial,


and


other


sectors


at market


1977 1978 1979 1980 1981 1982 1983 1984
Number of
markets(total) 29,882 33,302 38,993 40,809 43,013 44,775 48,003 56,500
Urban 0 0 2,226 2,919 32,98 35,91 4,488 6,144
Rural 29,882 33,302 36,767 36,767 39,715 41,184 43,515 50,356
Volume of Trade
(billion yuan)t 10.5 12.5 18.3 18.3 28.7 33.3 38.6 47.1
% of Total
Purchases
of Ag.
Prod.Carried out
at Market Prices n.a. 5.6 n.a. n.a. 9.4 10.2 10.5 18.1+


19


pr










TABLE


PERCENTAGE


CHANGES


IN TOTAL
SIDELINE


PURCHASE
PRODUCTS


OF AGRICULTURAL


AND


Year Government Government Market regu-
Fixed Price guided Price latory Price
1978 92.6 1.8 5.6
1979 88.4 4.9 6.7

1980 82.3 9.5 8.2

1981 79.1 11.5 9.4
1982 78.3 11.5 10.2
1983 76.1 13.4 10.5

1984 67.5 14.4 18.1
1985 37.0 23.0 40.0
1986 35.3 21.0 43.7
1987 29.4 16.8 53.8
1988 24.0. 19.0 57.0
1989 35.3 24.3 40.4

1990 25.0 23.4 51.6
1991 22.2 20.0 57.8


sources


: Beijing


Review,


November


1992.










Effects


output:


From


1979


1984,


agricultural


output


grew


an annual


compound


rate


percent


and


increase


percent


(China


Statistical


Yearbook


1988,


p.35).


After


that,


growth


rate


declined


the


very


respectable rate


percent


1985-1988


(China Statistical


Yearbook


1988,


p.35).


The


production


growth


rate


from


1985-88


was


almost


double


rate


from


1956-78,


the


period


peoples'


communes


(annual


growth


rate


was


2.56%).


Effects


on rural


employment:


Before


1978,


less


than


percent


rural


labor


force


was


engaged


activities


side


agriculture;


1979,


nonagricultural


employment


increased


to 31.5


million


10.2


percent


the


rural


labor


force.


growth


nonagricultural


employment


continuously


increased


from


1977


to 1988;


agriculture


employment


increased


million,


while


number


workers


rural


areas


increased


million.


total


50 million


non-agricul-


tural


jobs


were


created:


15.6


million


industrial


jobs,


12.0


million


construction


jobs,


million


transportation


jobs,


million


jobs


commerce


trade,


representing


major


achievement


local


initiative


(Johnson,


1990,


p.40).


Change


in sources


income:


1978,


percent


income


of farm


families


came


from


people


s commune


27 percent


from household


operations.


remainder


came


from


'n fl- II I- -


I


__


r


__


L


I f\ ^\ ^t


*


*1 '










relative share


little more since that year


from household production has


(China Statistical


increased a


Yearbook 1988,


p.732).


Finally,


nonfarm positions have become significantly


higher


sources


income


than employment


in agriculture.










TABLE


SOURCES


OF FARMER


PER


CAPITAL


INCOME


IN PERCENTAGE


Year from the from the from the from other
collective united orga- household non-borrow-
nization management ing incomes
1978 66.3 --- 26.8 6.9
1980 56.6 --- 32.7 10.7
1981 52.0 37.8 10.2
1982 21.5 --- 69.4 9.1
1983 11.6 0.3 79.0 9.1
1984 10.0 0.8 80.3 8.9
1985 8.4 0.9 81.1 9.6
1986 8.5 0.7 81.5 9.3
1987 9.1 0.8 82.9 7.2
1988 9.1 0.7 83.2 7.0
1989 9.4 0.6 82.2 7.8
1990 8.8 0.3 84 6.9
1991 9.3 0.3 83.1 7.3


Sources
A Stati


: China


stic


Agricultural


Survey


of China


Yearbook


(1985,1990)


1992















CHAPTER


ANALYTICAL


FRAMEWORK


Behavior


of Producers


Under


Planned


Economy


There


were


different


kinds


rural


enterprises


Chinese


planned


economy:


state


farms,


which


were


state-


owned,


people


s communes,


which


were


collective-owned.


Before


1979,


agricultural


production


planning


China


was


very broad;


for crop cultivation,


mandatory targets


controlled


such


factors


sown


area,


yields,


levels


input


applica-


tions


, planting


techniques,


crop


types


other


aspects


produ


action.


Sown


areas


were


through


"local-central-


local"


process


that


involved


both


central


and


local


levels


government.


Sicular states


that


"The central


government


first


preliminary


targets


provincial


sown


areas,


the


proving


ces


then


targets


prefecture


counties,


counties


communes,


communes


production


brigades,


brigades


production


teams"


(1988b,


p.677).


theory,


adjustment


could


occur


each


level


targets


were


sent


down,


practice,


adjust.


adjusted


lower


targets


level


were


very


then


little


sent


choice


back










were


specified


sent-down


local.


this


process


central


government


played


a most


critical


role.


Chinese


planned


economy,


quotas


were


with


reference


average


yield


land,


that


amount


land


should


produce


in an ordinary


year;


once


set,


years


quotas


were


agricultural


revised


products


have


three


been


years.


divided


For


into


many


three


categories,


each


category


subject


explicit


commercial


planning


policies.


The


first


was


staple


foods


such


as grains,


edible


vegetable


oils


crops,


important


cash


crop


such


cotton.


quotas


nationwide


central

procureme]


government

nt prices


set

for


these


national

products


under


"unified


procurement


sales"


(tonggou


tongxiao)


program,


before


1979,


market


trade


these


products


was


prevented.


state


mandatory


minimum


absolute


quantities


to be


delivered


to the


state


at the


planned


prices.


second


category


products


was


subject


"designated


procurement"


(paigou).


Even


though


products


belonging to


this


group


were


also


planned,


provinces


had


some


choice


pricing


planning


implementation.


This


group


of products


includes


most


cash


crops,


animal


products,


and


side


products.


third


category


products


was


subject


state


procurement


plans


could


be exchanged


on the


market.


This













market.


Also,


there


was


no choice


in terms


buying


inputs.


Each


production


unit


acted


meet


planned


target


fulfill


fixed


quota.


Behavior


Produ


cers


Under


Plan/Market


xed Economy


period


since


1978


reforms


been


characterized


very


good


performance


the


agricultural


sector.


The


gross


value


percent.


agricultural


Since


1978,


output


GVAO


(GVAO)


1983


grown


grew


annual


average


exceeding


percent,


more


than


twice


rate


achieved


over


the

crop

fell


previous

area de


more


two


decades.


-clined


than


During


percent.


percent,


while


1979-83


Th<

the


area


area


period,


sown


under


China


grains


non-grains


rose


20 percent.


Factors


contributing


increase


production


included


increase


use


selection


land,


areas


labor,


planted


capital,


with


diffe


and


rent


a more


crops.


rational


Improved


production


incentives


incentives


greater


(which


use


include


purchase


price


ed inputs


and


(such


nonprice


as high


seeds


chemical


fertilizers


insecticide)


were


quite


important.


Since


1978,


quota


price


revisions


were


reinforced


higher


above-quota


price


bonuses,


reduced


quota


level


, and











grain


quota


tax


was


reduced


per


cent


(Sicular,


1988a,


p.10).


quotas


number


reduced


The government


corresponding


of farm products


first


still


prices


subject


second


set minimum fixed


first


category


to planned


categories.


quantity


products.


procurement


And,


was


number


agricultural


product


subject


to mandatory


procurement


plans


was


expanded.


The government also set


fixed above


-quota delivery prices


willingly


bought


much


farmers


wished


sell


above-quota


prices.


Produ


cer


faced


obligatory


above


quota


deliveries


state,


no information


is available on


level


these


obligations


trade


government

reviving p


increased


rocurement


participation


"negotiated


prices


market


" (Yijia


Shougou).


These


prices


were


follow


trends


demand


supply, but

(Wang 1985,


in general


p.53).


were


state


to exceed

commercial


local market

organs sold


prices

goods


purchased


at negotiate


ed retail


ces


which


were


equal


negotiated


purchase


price


plus


reasonable


transport


handling


fees.


Free


market


exchanges


were


encouraged


to develop.


And


number


products


that


could


be exchanged


free markets


was


enlarged.


However,


farmer


were


allowed


sell


their


SS a C C


- C


1( *





q


~1


*I


r


1










first


January,


1985,


Chinese


government


announced


that,


except


a few


products,


would


no longer


carry


unified


procurement


programs


and


will


direct


quotas


to farmers.


grain


cotton,


required


quotas were


abolished


altogether


and


replaced


program


contract


and market


purchases.


The


vital


points


purchasing


grain


through


contracts


were


according


state


purchase quota

purchased; fix


grain;


prices


specify the


at which


grains


varieties


were


grain


purchased.


to be


Put


price


according


an 70 percent


to be paid


according


former


over-quota


purchasing


price


and


percent


to be paid


according


to the


former


unifi


ed-purchas


price


(i.e.


quota


price),


surplus


allowed


portion


marketed


after


freely


fulfilling


prevailing


contract


market


prices.


However,


happens


that


the market


price


grain


lower


than


original


unified-purchasing


price,


state


will


purchase


original


unified


price,


whatever


quanti-


ties.


quantity,


variety


time


delivery


are


to be


determined


through


consolation


with


farmer.


The


complete


ects


second


stage


commercial


reforms


are


still


vague.


interview


other


literature


suggest


that


in practice


grain


contracts


are


always


optional


more


closely


parallel


procurement


quotas,


except


_


_ _










Agriculture


product


supply


demand


free


market


residual


agricultural


demand


and


supply


the


state


market.


Therefore,


government


was


able


use


policy


instru-


ments


alter


price


quantities


state


market


(both


fixed


quotas


and above


quota


prices


quantities),


hence


indirectly


alter


exchanged


quantities


and


prices


free


market.


mixed


economy,


both


price


quantity


distortions


were


reduced,


but


disequilibrium


feature


of the


state


market


still


existed.


Most


of the


prices


agricultural


goods


were


below


equilibrium


levels.


Hence


there


was


an excess


demand


which


was


controlled


rationing


coupon


system


in the


state


agricultural


market.


free


market,


supply


demand


interaction


determines


price.


producer


side,


government


used


quotas


quota


prices


as policy


instruments


to influence


both


state


free


markets.


following


conceptual


model


China


production


and


supply


household


level


based


plan/market


information


described


above.


= total


quantity


produced


in year


where,


i is


sum


vector


* S


* i,


I










= free market quantity


Since


quota


little


quantity


effect


fixed


decision


government


procedure


the


household level,


and there are certain amounts of each good is


kept


home


consumption,


therefore


will


used in


the discussion below


[Y2,Y4]*i.


Omitting


time


subscript


simplification


and


letting P stand for price with subscripts corresponding to the


, then


if P,


, and


= Yt


if P,2


< P4


= Yt


if P2


a P4


However,


during


period


which


data


used


this


study


were


generated


system,


each


year.


However,


some


sale


under


above


quota


system


which


were


made


simply because


farmers


felt


that


they


should offer some


production


program;


these


self


determined


sales


were


treated


constraint


optimization


process


subtracted


as were


fixed quotas.


Production for the free market was therefore


= f(x/z),


where x


is a vector of variable


inputs,


and


is a vector of


quasi-fixed inputs.


Given that price expectations were formed


or Y4













variable


input


prices


vector


define


the


expected


profit


function


Max


n=PtYt-xwltxlt


where


i=subscript


a particular


input.


first


order


conditions


assuming


unconstrained


profit


maximization


an/a X=Ptf-wi=O


where


=af/ax,,


i.e.,


marginal


product.


From


first


order


condition


we can


solve


factor


demand


function


X*i=g(Pt,


, z,)


stituting


this


factor


demand


into


the


production


function


we will


output


supply


function:


The


function


factor


are


demand


determined


functions


basis


the


output


supply


technology,


represented


production


function.


Concern


is with


effect


changes


input


wages


output


prices


factor


demand


functions


and


output


supply


functions.


Estimation


Chinese


Market


SuDDly


Function


The


national


level


supply


function


(4.1)


based


part


S


=Pt* f ( Xit/Zit)-eWltXlt


Y*=h(P,,


-1 I


I


( .


I


~I











economy


exist


there


most


were


changes


products.


The


prices


functional


and


markets


form


the


did


supply


function


after


adjusting


required


quota


is as follow:


where


subscript


indicates


time


= free


market


price


in year


FER,


= quantity


manufa


ctured


fertilizer;


LAt

LDe


labor

land


input;

input;


HRS,


=the


proportion


production


teams


that


have


changed


household


responsibility


system;


NGCAt


= the


percentage


total


sown


area


nongrain


crop;


MCIt


= the


multiple


cropping


index;


signs


below


parameters


are


the


expected


sign.


Where


error


s are


term.


State


parameters 9

procurement


to be e

prices


estimated,


are


announced


prior


beginning


produ


action


season


and


are


therefore


predetermined.


free


market


price


based


the current


year'


price;


this


is an alternative


specification


Nerlove


model.


obvious


use


Nerlove'


price


expectation


formulation


agricultural


studies


would


SI ~r Ia


Y,=Bo+B,Pt+B2FERt+B3LAt+B4LDt+BsHRSt+B6NGCAt+BMCIt+ut,


1


L ft


^


* 1


A-


J1 1 J










season.


expect


positive.


The


coefficient


chemical


fertilize input B, is expected have a positive sign.


From


above


profit


maximizing


function,


output


supply


derived as a function of input price,


not input quantity.


The


reason we did not


use


fertilizer price


that


price


fertilizer


manipulated


government


does


reflect market values; we treat the quantity of


fertilizer as


quasi-fixed


variable.


Fertilizer


allocation


problems


abound


China;


principal


problem


with


allocation


system is that it is too closely tied to procurement.


Almost


nationally


allocated


fertilizers


most


provincial


production is typically provided in exchange for procurement.


allocation


some


county


fertilizer


production


sometimes diverted by county officials who use allocations to


encourage compliance with


various


programs


such as


the birth


control


campaign


(Stone


1986).


We expect both labor and land


have positive relationship with free market supply,


so B3 and


are


expected


positive;


because


wage


rate


was


available


used


number


labor


in the


cropping


sector;


both


labor


land


treated


fixed


short-run.


addition to the conventional


variables,


three nonconventional


variables


(HRS,


NGCA,


MCI)


were


included


assess


farming


institutional


change,


changing


cropping


pattern


and










percentage


cash


crops


total


sown


area


(NGCA)


increases


as the


production


grain


crops


decreases,


since


most


cash


crop


is under


state


control,


therefore


as NGCA


increase,


market


is expected


supply


of agricultural


to be negative.


commodities


The multiple


decrease,


cropping


index


so B6


(MCI)


variable


institutional


included


adjustments,


capture th

state price


impacts


adjustments


farming


and market


reforms;


expected


to be


positive.


Behavior


Consumers


Under


a Planned


Economy


widely


agreed


that


there


are


differences


between


urban


rural


demand


China


agricultural


commodities.


Urban


ers,


demand


rural


derived


demand


from


mainly


behavior


derived


urban


from


household-


behavior


production

operated a


teams.


rationing


Under

coupon


shortage


system


economy,


for most


the

food


state

groups


such


grain,


meat,


edible


oil,


sugar,


tea,


other


industrial


rural


commodities


areas


such


rationing


as cotton,


cloth,


consumption


and

was


detergents.


designed


follows


Firstly,


grain


producers


were


supposed


feed


themselves

deduction


with

for s


what


was


eed


left


feed.


after


state


Secondly,


procurement


those


whose


grain










food


grain,


in some


area


also edible


oil.


Since


1955,


quantity


of this


planned


supply


been


fixed


as a component


"three-fix"


according

level. Cc


one's


consumption


income,


turn,


scheme.


This


age, occupation,

patterns in rural


was


scheme

and 1

areas (


determined


was


ocal

depend


production


determined

consumption

on income,


outputs;


under


People


s commune


system,


90 percent


rural


income


was


derived


from collective


farms;


therefore,


structure of


institution


a large


impact


on rural


consumption.


rationing


system


was


started


urban


areas


1955.


rationing


occupation.


standard


Coupons


was

such


set a

items


according


grain,


no one'

oil,


s age

meat,


sugar,


tea,


cotton


were


issued


to each


person


cla


ssified


urban


resident.


Usually,


these


coupons


were


area


specific.


A nationally


passable


grain


coupon


was


also


use


travellers


could


be substituted


the


area


specific


coupon.


Most


coupons


were


issued


monthly


and


some


were


only


valid


one


month;


others


were


valid


a year.


Most


grain


coupons


could


used


any


time


after


they


were


issued.


consumption


personal


income,


pattern

ethnic


group,


urban

and


areas


was


location.


determined


Personal


income


varies

years


with


occupation,


working


skills,


experience,


education,


age,


location.


number


However,


the


I 1


1





*


m













basically,


urban


inhabitants


consumed


according


the


state


issued


ration


coupons


basic


food


groups.


Behavior


Consumers


Under


a Mixed


Economy


mixed


system,


urban


rural


demand


was


also


considered


separately.


Since


price


institutional


adjust-


ments


started,


both


urban


and


rural


consumers


have


had


adjust

data D


to the


provide


new economy. China

some measure of the


Stati

extent


stical


household


income


survey


consump-


tion


gains


in rural


China.


In nominal


terms,


per


capital


income


Statistical


dwellers


farmers

Survey


rose


1991

China


about


was

1992,


percent


times


p.50).


during


The


1978


that


1978


income


urban


1991


was


58.6 p

Survey


percent


higher


of China,


than


P.47


rural

I 50).


income


real


1991


terms,


stati


rural


stical

income


may


have


increased


perc


while


urban


income


was


about


percent;


however,


urban/rural


income


ratio


real


terms


is still


well


over


Consumption


gains


have


been


stantial,


between


1979


to 1991


annual


per


capital


consump-


tion


grain


rural


China


increased


only


percent


while


capital


consumption


vegetable


s rose


more


than


percent.


Consumption


red meat


(excluding poultry)


on a per


head


basi


was


more


than


percent.


Consump-


* a *


Irr


~


rft










consuming


substantially


more


grain


and


less


meat


per


capital


basis,


patterns


have


been


converging.


Since


institutional


adjustments


the


rural


area,


basic


unit


of rural


consumption


production


become


individual


or household.


Their


income


consumption


levels


depend


on their


own


production,


there


are


more


incentives


working


hard.


As a result,


more


income


is generated


living


stru


standards


ctural


are


adjustment


improved.


started,


Table


income


shows


from


that,


household


since


manage-


ment


become


an increasingly


important


source


income.


rationing


system


also


gradually


changed.


Previously,


some


farmers


were


officially


recognized


nongrain


producers


and were entitled


grain


rationing.


They


paid


same


price


urban


residents,


price


only


covering


quota-purchasing


cost.


Now


they


purchase


grain


from


free


market,


or state


stores,


paying


the


full


cost


which


equal


above-quota


price


plus


marketing


cost.


In rural


areas,


only


selected


individuals


such


fisherman,


herdsman


government


officials


can


buy


grain


at the


ration


ce.


Ration


coupons


other than


grains


have disappeared,


consumers


can


purchase


freely,


either


in government


stores


free-market.


According


consumer


expenditures


survey,


per


capital


expenditures


in current


ces


incre


ased


r -


II


1


*


___










farm


household.


When


current


price


expenditures


were


flat


ed to account


inflation,


resulting real


expendi


tures


was


doubled


over


1978


1991


period.


This


was


remarkable


outcome,


especially


since


followed


two


decades


increase


in per


capital


private


consumption.


Another


indicator that


standard


of living of


pea


sants


increased


been


decline


in the


percentage


their


food


that


self


-produced


see


Tabi


4-1).


In 1978


peasants


produced


60 percent


food


they


consumed;


1991


they


only


produ


ced 33


percent


food


they


consumed.


index


per


capital


consumption


nonagricultural


residents


increased


percent


between


1978-


Stati


annual


stical


growth


Survey


rate


of China


perce


1992,


p.42).


compared


This


with


the


was


growth


rate


peasants


of 9.5


percent.


In urban


areas


with


institutional


price


adjust-


ments,


along with


opening


of the


free


market,


the


cons


ump-


tion


pattern also changed.


These


changes


were


based


primarily


on increased


incomes.


Incomes


increased because of


decentral


ized deci


their


sion


own


making.


Many


profit


entrepreneurs


losses


and


became


stributed


responsible


bonuses


according


to worker


performance.


Hence,


there


have


been


more


incentives


work


hard,


more


opportunities


improve


r 1


_










TABLE


FARM


HOUSEHOLD


LIVING


EXPENDITURE


PER


CAPITAL


Year Purchased Self-Pro-
Articles duced
Articles
1978 39.7 60.3
1980 50.4 49.6
1981 56.1 43.9
1983 58.8 41.4
1984 58.6 41.4
1985 60.2 39.8
1986 62.8 37.2
1987 64.5 35.5
1988 67.6 32.3
1989 68.6 31.4
1990 67.2










was


no longer


necessary


to present


grain


coupons


when


eating


in restaurants,


or when


buying


manufactured


food


stuffs


such


as cakes


or cookies.


The


majority


of urban


residents


accumu-


ed unused


grain


coupons.


consumer


side,


government


used


ration


coupon


in the


state market


to restrict


excess


demand


cheap


food by urban


dwellers.


As mentioned


above,


since


reform,


most


ration


coupon


agricultural


good


have


disap-


peared,


basic


food


coupon


still


exists.


After


shift


from


planned


economy


mixed


economy


there


been


a change


structure


consumer


demand


both


urban


rural


consumers.


The


amount


income


increased dramatically;


both


state and


free-market


prices


play


different


roles;


there


are


now


greater


variety


agricultural


commodities


that


consumers


can


choose


sence


rationing.


When


modeling,


need


consider


these


structural


changes.


Consumer


Demand
Under


a Mixed


Household


Level


Economy


assume


that


objective


consumers


maximize

consumers


utility

income


subject

consists


an income


of three


constraint.


components;


For


namely,


rural

income


from coll


ective business PiX,,


income


from cooperative business










goods.


For urban


consumers


income consists


two components,


namely,


consumer


basic


wages


expenditures


workers


are,


likewise,


bonuses


required


PbB.


to equal


Urban


urban


income.


When


maximizing


rural-consumer


utility,


need


cons


ider


home


consumption


goods.


other


hand,


when


maximizing


urban-consumer


utility,


need


consider


rationed


goods.


Following


on some


theoretical


research


on the


literature


. Latham


is to maximize utility,


Deaton),


assuming


an individual


standard


properties


s problem


i.e.,


strictly


quasi


concave,


differentiable,


and


increasing


function


arguments.


U=U(q,b)


where


is the


vector


of unrationed


free


market


goods


b is


rationed


quantity


home


consumption


rural


resi-


dents)


say,


goods,


subject


to budget


constraints


= Pq+Pnb,


where


i= r and


u (for


rural


urban


income,


respective-


* is


income,


(n-1)


vector


prices


free


market


goods,


price


rationed


goods.


Solving


the


problem


yields


demand


functions


qgi= f, ( I


,p,b)


(i=l,...,n-l).


above


result


suggests


that,


for this


study,


rural


--I. S -


* -


1


ly).


1










where


-= PiX


+ PX,


+ P3X3


= PwW


+ PbB


indicates


rural


urban


income,


respectively;


and


indicates


rural


home


consumption


urban


rationing,


respectively.


Estimation


of Consumer


Demand


Macro


Level


theory


household


was


used


basis


specifying


macro


model.


variety


functional


forms


have


been


utilized


literature.


In this


study


a simple


linear


demand


function was


used,


rural


consumer


demand


can


be written


=bot+btPt+b2tIrt+b3Y3t+b4HRSrt+Urt


where


qt=per


capital


quantity


demanded


agricultural


goods


rural


consumer


time


=free


market


price


index


agricultural


goods.


Irt=rural


consumer


per


capital


income.


Y3t=rural


capital


consumption


home


goods.


HRSrt


=the


proportion


production


teams


that


have


changed


to the


household


responsibility


system;


Urt=a


residual


term.


A negative


relationship


between


rural


demand


and


price


positive


relationship


between


rural


demand


and


per-capita


income


anticipated;


rural


home


consumption


is expected










(farmers


tend


to produce


more


home


consumption


goods


buy


less


when


negative.


opportunity


The


exists),


variable


4 1S


explains


how


expected


institutional


adjustment


impacts


on rural


consumer


behavior.


functional


form


of urban


consumer


demand


(4.3)


qut= at+aPt+a2 Iut+a3But+Uut


where qu=per


capital quantity


demanded of


the agricultural


good


urban


consumer


time


=free


market


price


index


agricultural


good.


I,t=urban


consumer


capital


income.


BBut=urban


capital


consumption


rationed


goods


ut=residual


term.


In the


urban


consumption


equation,


free-market


price


of the aggregated

negative relations


agricultural

lii to urban


goods


consumption


expected

i, or a,


have


is expected


to be


negative;


is expected


to be


positive


case


rural


demand;


rationed


goods


are


expected


to have


substitu-


tion


relationships


with market


demand,


or a3


expected


to be


negative.


Summarizing


Models


Discussed


Above


4.1)


supply:


Yt=Bo+BiPt+B2FERt+B3LAt+B4LDt+BsHRSt+BNGCAt+BMC It+ut


a a -


m -- h














Classification


Variables


This


system


consis


equations


endogenous


variable


exogenous


variabi


The


variables


are


ass


ified


sted


as below:


Endoqenous


variable


The


endogenous


variabi


include:


Rural


consumption


demand


(qr)


urban


consumption


demand


(qu),


free


market


price


(Pt) ,


total


demand


(Qo);


and


agricultural


commodities


supply


Exoqenous


variable


exogenous


and


predet


ermined


variable


include


urban


income


(Iu);


rural


income


(Ir)


rural


home


consumption


urban


rationing


per


hectare


demand
dent o


One might
equations
*


n price,


economic fa
and Mellor,


come


tion


expect


are


produce


actors


1978).


is a problem


test


was
scrib


can


parameters


obtained


that


endogenou
tion (in


policy


income


s as
rural


variable


To determine


in thi


conducted


as follow:


using


using


specification


estimation
equation,


method


first


as exogenous


treating


method
variable


study,
each
two s


same data


an effici


variables


is dire


income
areas)


(Lele


whether


a Hausm4
demand


ets of


are


in the


ctly


as well


and


or not


depen-


as other


Mellor,


1981


endogeneity


an (1978)
equation.


estimates


obtained and


estimation


correct,


which


obtain


or pr


income


(the


consis


estimates


determined.


as endogenous


instrumental


model


variable


except


another
tent.


treating


Then
using


re-es


then


specifica-


The
the


CO


technique a
*r obtained


each


income


timate


instrumental


include all


urban


rural


test
same


mpared:
assuming


demand


variable
equation
variable


other exogenous


income).


est involves


differencing the


two


sets


of parameter


estimates


standardizing


in the co


variance


vector


matrices


differences


two


sets


A- J


diff


estimates


erence


(the


x- -


l-


(Yt)


(Y3) ;


(B, );










fertilizer


supply


(FER);


per


hectare


labor


supply


(LA);


land


(LD);


percentage


(NGCA);


multiple


total


cropping


sown


index


area


MCI);


the


nongrain


crops


proportion


produ


action


teams


that


have


changed


to the


household


responsi-


ability


stem


(HRS);


imports


(NI).


Identification Problem.


of identification,


= number

= number

= number


introduce


endogenous

endogenous

exogenous


According to


the order condition


following


variables

variables


and


the


notation:

model,


a given


predetermined


equation,


variables


model


(excluding


intercepts),


= number


exogenous


and


predetermined


variables


given


equation


(again,


excluding


intercept).


K-k=m-1,


m-1,


equation


just


over-identified.


our


identified;


model:


but


K=10,


K-k


M=4.


equations


order


.1),


condition


and


suggests


k=6;


that


(K-k)


(m-1),


the equation


over


so the


identified.


In equations


.2),


k=3;


(K-k)


= (m-1),


so the


order condition


suggests


that


the equation


over


identified.


In equation


(4.3),


k=2;


(K-k)


=(m-l),


so the


order


condition


suggests


that


equation


also


over


identified.


The demand


equations


were estimated


as a system.


Systems


* S- -


L


..* *. *_


k


J .. 1


__


1


I.


_I










system.


One


method


estimation


over-identified


equation


the method


two-stage


least


squares


(2SLS).


2SLS


is especially


designed


for over-identified


equations.


name


indicates,


method


involves


two


success


applications


of OLS.


basic


idea


behind


2SLS


to replace


stochastic


endogenou s


explanatory


variable


linear


combination


(nonstochastic)


predetermined


variables


the model


use


this


combination as


explanatory variable


place


original


variable.


unique


feature


this


method


that


one


can


estimate


single


equation


simultaneous


model


without


worrying


too


much


about


other


equations


the model;


the estimates


obtained are


consistent;


that


sample


increases


indefinitely


the


estimates


tend


their


true


population


values.


2SLS


estimator


single


equation


multi-


equation


model


a limited-information


estimator


as complete


information


structural


equations


model


taken


into account.


In principle,


information


on the


complete


structure,


correct,


will


yield


estimators


with


greater


asymptotic efficiency than that attainable by


limited informa-


tion


methods.


Three-Stage


Least


Squares


(3SLS)


full


information


method.


A crucial


question


concerns


condi-


tions


under


which


3SLS


will


asymptotically


more


efficient


.1-1.~~ I Cr a- n -- a .


...rr. f


-1- T- -


A m l


* I


,..,,,!*


C


L A










mental


variable


method


estimating


a sy


stem of


simultaneous


equations


where


there


may


endogenous


variabi


well


contemporaneous


correlation


the


sturbances.


advantage


of 3SLS


over


FIML


that model


does


have


be completely


specific


the estimates


the


equations


parameters


intere


can


consis


tent


even


exact


form


rest


involves


first


the model


two


unknown.


stages


The


, with


3SLS


third


method


stage


application


of Generalized


Least


Squares


(GLS)


the


stem


equations


with


unknown


co-variance


matrix


the


stem


replaced


matrix


mean


squares


and


products


2SLS


residuals















CHAPTER


THE


MODEL


ESTIMATES


Data


The


national


data


used


s study


are


from


official


Chinese


sources


are


reproduced


Appendix


With


structural


adju


stment


1978,


free


market


was


opened


and


government


reduced


various


economic


constraints


produce


ers.


Though


data


sented


Appendix


date


from


1949,

data


only

covers


those

the


1978-91


period


when


are


used


there


here.


was


Thi

free


subs


market


et of

t for


agricultural


goods


under


quota.


"free


market


assume


that


producers


maximi


profits


and


consumers


maximi


utility.


Our


model


neoclassical


that


based


on maximize


behavior.


Before


1978,


no official


free


market


exis


ted.


However,


there


were


some


underground


market


activity


, though


stati


latter


market


are


available


A number


adjustments


were


made


with


the


data.


The detail


ed information


on sources


and


adjustments


are


given


below.


i


I 1 r


_


i










national


agri


level


cultural


was


crops.


calculated


Total


from


total


value


gross


value


agricultural


crops


includes:


value


grain


crops,


cash


crops


other


crops


reported


Chinese


1991


official


Statistical


procurement


Yearbook


prices


of China.


quantities


First,


grain


crops,


edible


vegetable


oil,


cotton


crops


were


used


calculate


total


aggregated


procurement


value


these


crops.


Second,


total


rural


home


consumption


was


calculated.


Finally,


aggregated


agricultural


commodity


per


capital


market


supply


was


obtained


subtracting


total


government


procurement


purchases


total


home


consumption


from


total


gross


value


agricultural


crops.


This


was


then


divid


total


calculate


aggregated


population.


agricultural


All


data


commodity


used


per


capital


market


supply


came


from 1983-92


Statistical


Yearbook of


China,


1987


Rural


Statistical


Yearbook


of China


China


Rural


Forty


Years.


summary


data


are


presented


Table


A-l,


Appendix


Total


per


capital


demand.


Total


per


capital


demand


was


calculated by


adding the


total


per


capital


supply to


per


capital


imports


aggregated


commodities.


This


was


then


divided


total


population.


imports.


The


per


capital


imports


aggregated


- ~ ~ ~ ~ I., -- --I- 2A


gross


_t _


-_ ^ ^ ^-L- -


t-1_ _


i I A










from


Trade


Data


temr


network;


data


derived


from


partner


country


(Table


, Appendix


Free market


consumer


goods


price


index.


price


index


came


from


1991


Stat.


isti


Yearbook


China.


original


series


interpretation,


index


series


was


1950


100.


converted


ease


base


year


1978


All


price


inde


xes


are


summarized


Table


Appendix


Percent


production


team


house


ehold


responsibility


sys


tem.


Structural


adjustments


of farming


institutions


were


measured by the


ratio of


production


teams


participating


in HRS


end


each


year.


households


were


in the


produc-


tion-team


stem


before


1979;


after


1984,


over


99 percent


teams


adopted


HRS.


These


data


came


from


Lin


(1992),


see


Tabi


, Appendix


Multiple


cropping


index


Thi


s index


was


obtained


dividing


total


agricultural


sown


area


total


cultivat


land.


data


were


from


USDA


Agricultural


Stati


People


s Republic


China


1949-90.


The


1991


data


came


from


Stati


stical


Yearbook


China


1991,9


Table


, Appendix


Percentage


area


devoted


nonqrain


crops.


This


centage


was


obtained


dividing


sown


acreage


non-


S


--


1~. .


-1


I


* 1


q










Statistical


Yearbook


China


(1987,


1991,


1992).


Table


A-l,


Appendix


A for


1978-91


data.


Land.


data


on cultivated


land


were


taken


from


USDA


Agri


cultural


Statistics


People


Republic


China


1940


-90,


which


is measured


hectares.


The


data


land


can


also be


found


Statistical


Yearbook


China.


Table


A-i,


Appendix


Labor


force


cropping


sector.


data


labor


force


cropping


sector


were


estimated


from


data


on the


farm


labor


force.


Data


on farm


labor


are


provided


USDA


Agricultural


Statistics


People


s Republic


of China


1949-90,


1992


A Statistical


Survey


China.


farm


animal


labor


husbandry,


force


includes


forestry,


those


fishery,


working


and


sideline


cropping,


production.


obtain


estimate


labor


force


cropping


sector,


farm


labor


forces


were


weighted


value


share


crop


output


total


agriculture


output.


Because


crop


agricultural


output


may


fluctuate


from


year


year,


values


three


year


averages


were


used


computing


weights.


Table


A-i,


Appendix


Manufactured


fertilizer.


This


national


applica-


tion


aggregated


manufactured


fertilizers,


measured


total


applications


nutrient


weight.


These


data


were


-'--.3-. C 1- i 4 a


fl-a- -_ -


, I hnan


~C,,,


rw 1 1


*k 4


- f










Per


capital


rural


demand.


Per


capital


rural


demand


was


calculated


using


percent


rural


population


total


population


weight


(Table


A-l,


Appendix


Per


capital


urban


demand.


Per


capital


urban


demand


was


calculated by


subtracting the


per


capital


rural


demand


from


total


per


capital


demand


(Table


A-l,


Appendix


Per


capital


income.


Data


urban


per


capital


income


came


from


Statistical


Yearbook


China


(1983-92).


The


rural


per


capital


income came


from


the Agricultural


Yearbook of


China


(1985,


1990,


1991).


These


data


are


sted


on Table A-i,


Appendix


All


data


in yuan


were


deflated


grain


market


price


index


impact


(Pgt).


price


data


was


institutional


used


analysis


adjustments


on agricultural


supply


demand


agricultural


goods


Chinese


free-


market


economy.


Model


Estimates


The


model


includes


aggregate


agricultural


supply


function


rural


urban


demand


functions.


The


three


equations


are


structured


below:


LDt,


LAt/LDt,


FERt/LDt,


HRSt,


NGCAt,


- -


Yt/popt) /Pt=f(PPt/Pt,










where


Yt=free


market


supply


of aggregated


agricultural


goods,


measured


billion


yuan,


POP,=total


population


measured


thousands,


Pgt=free


market


price


index


grain,


Pt= free


market


price


index,


LDt=cultivated


land


thousand


hectares


LAt=Labor


force


in cropping


sector


thousands,


FER,=application


manufactured


fertilizer


nutrient


weight


thousands


tons,


HRSt=percent


of production


teams


converted


household


responsibility


system,


NGCAt=percentage of


sown


area


devoted


non-grain


crops,


cropping


index


measured


in percentage,


=per


capital


demand


rural


consumers


aggregated


agricultural


goods


measured


billion


yuan,


POPt=rural


population


measured


thousands,


qut=per


capital


demand


urban


consumers


aggregated


agricultural


goods


measured


billion


yuan,


POPut=urban


population


measured


thousands,


=per

=per


capital income of

capital income of


rural

urban


residents measured


residents measured in


yuan,

yuan,


Bu,=urban


per


capital


consumption


rationed


goods


measured


in yuan,


7 -


ir ., --


MCIt=multiple


I


1


yy










Using


statistical


package,


three


equations


were


estimated


three-


stage


eas


squares


two-stage


east


squares,


respectively.


three-stage


least


squares


results


are


presented


Tabl


estimates


two-


stage


east


squares


are


given


in Appendix


Consi


stency


signs


estimated


coeffici


ents


with


theoretical


prior


expectations


significance


estimated


coeffi-


client


are


discussed


below.


Supply


Equation


estimated


coefficients


have


expected


signs.


One of the


strongest


explanatory


variabi


the


free-market


which,


expected
QYT-l~rT


, has


a positive


sign.


For


a given


agricultural


input,


higher


free


market


price


aggre


gated


agricultural


goods,


higher


supply


market.


This


confirms


hypothes


that


under


structural


adjustment,


producers


have


een


price


responsive


supplying


e-market.


Individual


economic


units


appear


to act


rational


economic


agents.


result


provide


strong


evidence


that


price


impact


s supply


surveys


conducted


social


research


center


Mini


stry


Civil


Affairs


during


1990


showed


that


about


percent


farmers


determine


their


planting


pattern


according


market


demand.


-r .. 1 .


-....


I


S


S


L/