The “Chinese economic miracle” seems to have captured the whole world’s attention, especially when it comes to production, manufacturing, sourcing, FDI inflow to China etc’. But do we know about the biggest sector in the Chinese labour market – the agricultural sector?

The PRC inherited a ruined country, exhausted from both man made disasters such as warlords, civil wars, occupation, and natural disasters, droughts, famine, and floods.

During the Mao era, the Chinese government carried out a wide ranging land reform in the rural areas. Farmers with little or no land were given land of their own, significantly arousing their enthusiasm for production. Overall in Mao’s period, China’s agriculture developed slowly, with some golden times such as 1953-57 when the yearly gross output increased by 4.5% on average.

Under Mao, the conceptual role of agriculture was imperative. The Chinese farmer was basically the equivalent to the Soviet blue collar proletarian, thus the importance of the farmers in the class struggle was fundamental.

After 1978 and under the reforms, China introduced the household contract responsibility system, linking remuneration to output, and started to dismantle the people’s commune system, eliminating the links between organizations of state power and economic organizations. Contracting land out to farmers altered the distribution form of land and mobilized the farmers’ enthusiasm for production. As a result, for six years following 1978, agricultural output grew more than twice as fast as the average growth rate over the previous twenty five years.

The reforms made the market play a basic role in adjusting supply and demand situation for agricultural products and allocating resources, and aroused the farmers’ creativeness and enthusiasm for production.

On the whole, the reformist thrust of China’s economic policy since 1978 has benefited agriculture, as it has benefited the economy in general. Nevertheless, after 30 years of reforms, the sector is still behind most of the other sectors in the Chinese economy.

The economic and political role of agriculture in contemporary China –

1. Food security. In an extremely large and populated country like China, the concept of food security is fundamentally important. The task of feeding its people has been perhaps the first priority of its rulers throughout history.

2. Political and social stability. The farmers of China are known to have a “rebellious spirit”, which is well documented in the history books. When famine, war, or other extreme conditions took place, the farmers of China, whom use to be the majority of the population, and remain to be the largest group of China’s people, chose to strike. Thus, there is a consensus that there is no stability without the farmers / agriculture, and in order to avoid “da luan” – big chaos, the farmers must be kept quiet and content. At present still, the farmers of China are the largest, yet under-represented group, which holds the keys to stability in China.

3. Employment tool. The concept of agriculture as an employment tool in China is a bit of a paradox. On the one hand there is a massive scale of labour surplus in the agricultural sector, resulting in underemployment or even unemployment. On the other hand, agriculture remains to be the biggest sector responsible for the employing feeding, and consequently keeping social and political order of around 60% of China’s population.

4. GDP share. The reforms in the early 1980s initially increased the relatively share of the agricultural sector. The share of agricultural output in the total GDP rose from 30% in 1980 to 33% in 1983. Since then, however, the share of agriculture in the total GDP has fallen fairly steadily, and by 2003 it was only 14%. These figures indicate a relatively small share of the agricultural sector, nevertheless a noteworthy one in the overall performance of the Chinese economy.

What are the main obstacles to the agricultural sector in China than?

1. Natural resources and disasters. At the beginning of the 21st century, China has still to face and deal with a number of severe ecological / environmental problems, some are the consequences of human mistakes, and some are simply a result of “mother nature’s” course. The main problems are water supply, i.e. shortage, wastage and quality. In the agricultural context, irrigation is likely to be the most important factor.

2. Education. Chinese policy documents state that national modernization depends on accelerating quantity-quality transition in the countryside, because a large “low quality” rural populace hinders progression from tradition, poverty and agrarianism to modernity and prosperity.

3. Technology. The standard of a country’s agriculture is appraised, first and foremost, by the competence of its farmers. Poorly trained farmers are not capable of applying advanced methods and new technologies. Deng Xiaoping always stressed the prominent of science and technology in the development of agriculture. He said – “The development of agriculture depends first on policy, and second on science. There is no limit to developments in science and technology, nor to the role that they can play….in the end it may be that science will provide a solution to our agricultural problems”.

Accordingly, China is seeking technology transfer in the agricultural sector, formed by joint ventures with international collaborators.

4. Limited investment from government. Between the Second and Fifth five-year plan periods (1958-1962 and 1976-1980), agriculture’s share of capital construction and other relevant forms of investment made available by the state remained a little over 10%. In 1998 agriculture and irrigation accounted, respectively, for less thsn 2% and 3.5% of all state construction investment.

5. Limited inflow of FDI – foreign direct investment. Most sectors in China enjoy an enormous inflow of FDI, which particularly helped in 2 dimensions – technology transfer and capital availability. The lack of an outside funding, accompanied with a reduced local funding contributed to the deterioration of the agricultural sector.

In conclusion, the agricultural sector in China, unlike other sectors in the Chinese economy, is still rather under developed, and requires a substantial boost from both the local and the international community. It is my prediction than, that more and more foreign investors will discover its enormous potential and act accordingly.