Transforming the Dualism World of China 
From Observer, page 45 
Translated by Lam Li 

The Chinese planned economy has two legacies – one is the state-owned-enterprise (SOE), a hybrid of politics and business without a clear division of assets; the other is the dualistic structure (二元), which divides urban and rural production and resource mobility. These were two pillars once supporting the survival of the planned economy.

The dualistic, urban-rural structure has been in existence since the Song dynasty and dates back more than 1,000 years. The structure was not actually institutionalized until the 1950s though, when the planned economy called for separate household-registry (户籍) accounts for urban and rural residents.

From that day on, the urban and the rural have become two separate entities inaccessible to each other, as the institution of dualism places strict limitations on the mobility and flow of resources. It binds farmers to their farmland and traps them in rural areas, which keeps things in place for the benefit of the planned economy.

China’s economic reform in fact started in these rural areas with the introduction of Household Contract Responsibility System* (农村家庭承包制) among farming families.

(*Editor’s note: Under the system, farmland is still public-owned but farmers can use the land through long-term contracts; and they are allowed to plan their farm production, management and sales independently. They are also encouraged to diversify their production models by venturing into businesses)  

The contract system has motivated farmers’ initiative in becoming more productive and given rise to rural-run factories and township enterprises. The system may have removed the legacy of the planned economy and the people’s commune (人民公社制度), but it has not disposed of the mechanisms that maintain the urban-rural dualism--they remain intact.

In China’s rural areas, farmers have rights to land where they can build upon. The land doubles as rural residents' production resource and insurance for their livelihoods. This is the major difference between the lives of urbanites and villagers under the dualism structure.