A Breakthrough in Land Reform is Needed

By Jiang Yunzhang
Published: 2010-10-15

Nation, page 16
Issue 489, October 11, 2010
Translated by Ruoji Tang
Original article:

China’s three rural issues will take time to solve mainly because of the lack of funds. But, the deputy of the CPC central committee’s agricultural subcommittee, Chen Xiwen says that local governments are working to attract commercial investment, but China must closely monitor the interference of commercial enterprises in small-farm based agriculture.

Chen Xiwen says, “We are encouraging commercial investment in rural areas, encouraging them to provide services to agricultural businesses, help market agricultural products, and help create agricultural groups and enterprises that farmers cannot fund themselves. But we are not encouraging commercial investment to directly interfere with the function of the agricultural system.”

According to his analysis, commercial capital entering rural areas will raise labor conditions and the standard of living, but fundamental problems in rural areas will remain. Commercial investment will not create universal employment for farmers. Farmers will still leave for big cities. But what is important is raising the social position of farmers. Independent farmers are becoming employees for someone else’s business, a change that is creating deep psychological and social impacts on rural life.

As the top decision-maker for China’s agricultural affairs, Chen Xiwen’s words seem to anticipate future policies.

So why is the CPC Central Committee so worried about urban investment in rural areas? Are there deeper reasons that Mr. Chen has neglected to mention? For this, we interviewed Zheng Fengtian, the associate dean of Agriculture and Resources at Renmin University.

Farmers Welcome Commercial Investment

The Economic Observer: Right now, local governments are busy attracting commercial enterprises to rural areas and we are seeing the commercialization of small farms. Chen Xiwen has stated that the CPC Central Committee is not encouraging commercial interference in agricultural business. Why is there such a discrepancy between the views expressed by the local government and central government goals?

Zheng Fengtian: The central government is concerned about two things: the first is grain safety; the second is the social stability of rural areas.

A few years ago, a number of commercial businesses began developing in rural areas, taking advantage of policy loopholes for real estate development, for example building villas and golf courses. This has been stopped. Now, we see commercial investments flooding into rural areas and transforming agricultural businesses. But the bottom line is, with so much investment flooding into agriculture, the funds will not all go into growing crops, the returns are far too low.

The process of commercialization revives agricultural capital and increases both land and labor productivity, but there are also several problems. Some commercial enterprises, because of poor management, are harmful to farmers’ interests. Farmers have also damaged the interests of businesses. The central government is worried about these problems.

But for the local government, commercial land contracts revive the use of rural land and labor resources. Regardless of what the contract is for, industrial production GDP is always higher than agricultural production GDP; the local economy improves and governments look more accomplished.
Looked at this way, the central government and local governments do not fundamentally disagree about rural development.

The Economic Observer: What is your perspective on commercial investment in rural areas?

Zheng Fengtian: For farmers, urban investment in rural areas can bring development and wealth, which is a really good thing. Right now, national policies keep grain prices low, but planting costs are very high and fertilizer, water and gas prices increase every year. In many places, farmers labor for a profit of only 200 to 300 yuan/mu (unit of area equal to one fifteenth of a hectare). Sometimes, they are even losing money.

The income gap between working in cities and farming is huge; now, young farmers prefer to work in cities as a migrant laborer. On average, when businesses lease land from farmers, farmers can earn 500-800 yuan/mu. They are employed by a company, and can earn more money; it’s much better than working on a family farm.
For some businesses, the competitive pressure in urban areas is too much, whereas rural areas have an abundance of land, low prices, and room for development.  So investment in rural area also has benefits for commercial enterprises.

The problem now is with the insurance industry, which is extremely flawed. Once a dispute emerges between a company and a farmer, contracts prove ineffective, and there is nowhere to turn to solve the dispute.

Farmers Should not be Forced to Pay for “Grain Safety”

The Economic Observer: Why did the central government implement the “low grain prices” initiative?

Zheng Fengtian: The Central government implemented the “low grain prices” policy with urban residents in mind. The result being, the urban poor and the rich all have

access to the benefits of “low grain prices,” while the 800 million farmers pick up the check. “Grain Safety” has become a burden that the farmers have to bear.

I think the government should let grain prices rise and provide subsidies to low-income families. And for high income urban residents, they do not spend that much on grain compared to protein, meat, and dairy products.

The “low grain prices” policy will face more and more pressure in the future. Now, the economies of grain producing areas are lagging behind. The “smart farmers” no longer farm. We need policy reform to convince farmers that planting grain is profitable.

The Economic Observer: Considering the grain prices in other countries, prices in China are relatively high, especially compared to prices in the US. How do you explain that?

Zheng Fengtian: Agriculture in the US is based on huge, industrial farms, so China cannot be compared with the US. China should only be compared to South Korea and Japan and other countries with small-farm based agriculture. Both South Korea and Japan have had high grain price policies for a long time. Generally speaking, the income of farmers in these countries is about 80 percent that of urban residents. Since the cost of living for farmers is relatively low, there isn’t a huge gap in the standard of living for rural and urban residents.

The Economic Observer: Protecting grain safety is a huge issue, from China’s current standpoint, how can we ameliorate China’s grain protection concerns? What is your opinion of the 180 million mu red line for arable land?

Zheng Fengtian: Actually, the central government is too cautious about the grain safety issue. Since 2005 when a new strategy for rural development was established, every year, the country invests billions in rural areas, but their main resource——land——is off limits. That’s why the government implemented the 180 million mu red line for arable land. For many government officials, the non-agricultural use of land poses a threat to grain safety.

The way I see it, the central government policies on grain safety are self-defeating. The government does not need to limit land use and cut off possible sources of income for farmers. If the government can encourage capital to flow into rural places and improve agricultural technology, then there will never be an issue with grain safety.

Japan and South Korea both have limited arable land but their agricultural production still thrives  to the equivalent of ten times their actual arable land. By using greenhouse technologies to control the climate, they can speed up the grain planting process and harvest the equivalent of many seasons’ grain in one year.

Breakthroughs in Land and Grain Safety Policies

The Economic Observer: In recent years, the country has invested billions in rural areas. According to public data, in 2007, the central government spent 431.8 billion yuan on the “three rural issues”, in 2009, spending increased to 725.3 billion, and 818.34 billion in 2010. The country is intensifying its efforts at rural development.

Zheng Fengtian: It looks that way if you only look at central investment in rural areas. But what we cannot ignore is that the income gap between rural and urban residents is not getting smaller, it’s actually getting bigger. The reason is, compared to investment in urban areas, central policies are not enough. Also agricultural policies still have a lot of problems, such as leakages in agricultural funds.

For example, the government implemented “rural electrification” policies and farm equipment subsidies have benefited the rich but not the poor because in rural areas, even with government aid, only wealthier farmers buy electric appliances and farm equipment. Most poor farmers can’t afford it.

Also, our country has implemented an urban-rural two-tier system for a long time. The system works like a giant water pump, but because the income gap between urban and rural areas is so big, resources, labor and products all flow into urban areas. Much more flows out of rural areas than gets pumped in. 

The Economic Observer:  In this year’s “No.1 Central Document”, urbanization is the top priority. How should we speed up urbanization and produce the best outcome possible?

Zheng Fengtian: Compared to urban development, rural development has fallen behind and farmers are still living in rural areas. In particular, a lot of places are developing small-scale villages. As far as urban development is concerned, this is not normal.

According to official statistics, the registered urban population is 28 percent of the country’s total. If we take into account migrant workers, the figure increases to 46 percent. This is lower than many countries. Urbanization in China should have reached 70 percent by now.

To speed up small city development, the most important thing is to encourage the flow of capital into the area, investment, labor, technology etc. The second most important thing is to break the barrier between urban and rural communities, allowing farmers to become urban residents. So the key to encouraging industrial and commercial development in rural areas is a breakthrough in land reform, grain safety policies, and attracting various forms of capital. We should not restrict commercial involvement in rural areas.

EO interns Li Wenbo and Gao Boya also contributed to this article