Challenges and Opportunities Coexist under the New Dynamics of Rural Development

Editor's note: After more than 30 years of reform and opening up, China's rural development has achieved remarkable results. The urban-rural relationship has improved significantly, the total output of agricultural products has increased severalfold, a large rural population has moved to cities, and farmers' incomes have grown markedly. But economic development is always accompanied by problems that need to be solved continuously. We have worked hard to solve some old problems, yet new problems now stand before us. Understanding the current overall situation of rural development is essential for formulating and adjusting relevant policies and better promoting rural development.

Challenges

Compared with earlier periods, China's rural development has indeed taken on a certain new dynamic: the absolute production capacity of agricultural products has increased enormously, but against the backdrop of an open international market, the relative advantage in the supply of agricultural products is insufficient, and changing the endogenous conditions of international trade in agricultural products still requires long-term effort; the vast majority of farmers have begun to engage in production activities oriented toward the market, and a socialized service system for production has taken initial shape, but the process of transforming part-time smallholders into professional farmers is far from complete; a large rural population has moved to cities and the urbanization rate has risen steadily, but after a large reduction in village populations, rural public service investment faces the predicament of declining efficiency; agricultural products have become highly marketized, but the low degree of marketization of rural production factors has constrained the improvement of the level of agricultural modernization. The above new dynamics of agricultural development contain enormous challenges.

First, agricultural costs continue to increase, and the competitiveness of agriculture is relatively low, threatening the dynamic balance of the overall supply and demand of agricultural products and bringing adverse effects on the overall operation of the national economy. As a major country, it is normal for agricultural products to both enter and leave the international market, but at present the domestic market prices of the vast majority of China's agricultural products are higher than international market prices, with some meats and cotton even more than double. In addition, the Engel coefficient of Chinese residents is far higher than that of developed countries, reaching above 36%, which also shows that the absolute level of agricultural product prices is so high that it has affected people's livelihood. High agricultural product prices indirectly affect residents' consumption capacity and employment choice tendencies, becoming a negative factor in the irrational economic structure.

Second, the model of agricultural technological progress has defects, and the task of adjusting the technological route of agricultural modernization is arduous. Agricultural production relies excessively on irrigation, and the scale of water-saving and rain-fed agriculture is too small; the linkage between livestock production and the grass industry is low, grassland productivity is extremely low, and feed consumption is enormous; there is friction between small-scale household management and socialized services, reducing the overall efficiency of the agricultural industrial chain; the material inputs in agriculture are “too much water, too much chemical fertilizer, too much pesticide,” bringing enormous environmental problems.

Third, the barriers preventing the rural migrant population from settling in cities are difficult to break through. A large-scale rural migrant population has lived temporarily in cities for decades, while their legal residences are far from their workplaces. This situation makes it difficult to deepen the social division of labor, difficult to raise the level of human capital, and constrains the modernization of the agricultural management system.

Fourth, rural construction faces a dilemma between efficiency and equality. When China's urbanization rate reaches 75%, it is expected that farmers' incomes and urban residents' incomes can be roughly comparable. Achieving this goal means not only that large numbers of existing farmers will move to cities, but also that large numbers of villages will disappear or shrink into small settlements of specialized farming households, a small number of villages will evolve into small cities, and another small number will transform into specialized villages. This means that carrying out “new rural construction” across millions of natural villages in parallel would be a huge waste. But if the public services of villagers who remain behind are completely ignored, that would also violate the socialist principle of national governance. If the government artificially accelerates the adjustment of population distribution through “village relocation and merging of residences,” it will inevitably increase social friction. How to conform to the requirements of urbanization, balance the relationship between efficiency and equality, and achieve human-centered urbanization still requires further policy innovation.

Fifth, rural social governance faces the difficult choice of institutional innovation. The Third Plenary Session of the 18th Central Committee of the Party proposed the grand goal of modernizing national governance. How to link rural governance with this goal will be an arduous task. After large numbers of villages disappear or shrink into small settlements of specialized farming households, the establishment of administrative villages will no longer have important significance, and in the future the governance mechanisms of cities and villages will be unified. Advancing this process gradually means a systematic adjustment of a series of policies, which is an unprecedented test for policymakers.

Opportunities

Although rural development faces many difficulties in moving further forward on a new level, it must also be seen that the conditions for solving these difficulties are fully in place.

First, the emancipation of mind among decision-makers has opened up greater space for deepening reform. The 18th National Congress of the Party established the reform guideline of letting the market play a decisive role in economic activities, encouraging decision-makers to march into the deep-water zone of land factor reform; the central leadership's concept of developing a mixed economy is also conducive to breaking the traditional fixed thinking of the rural collective economic system and exploring multiple forms of realizing farmers' land property rights.

Second, the development of the urban economy has greatly enhanced the capacity of cities to absorb the rural transferred labor force, which is conducive to the establishment of a modern agricultural management system. China's employment elasticity (the ratio of employment growth rate to economic growth rate) is far lower than that of developed countries during periods of rapid economic growth, and the potential for urban employment is still great. Calculated by purchasing power parity, China's per capita income level is about 1/5 that of the United States, the labor price advantage remains significant, and the potential for continued expansion of the urban economy is enormous. From the perspective of labor supply, there is still great room for the release of rural labor: the added value of agriculture accounts for less than 10% of gross production value at scale, while the share of labor used (calculated under the assumption of constant labor time and technology) reaches about 23%; it is expected that around 2035 the goal of equalizing farmers' household farming income with urban household income can be achieved, and by then China will need only about 30 million professional farming households, accounting for about 6% of the total number of households nationwide.

Third, there is great room for enhancing the potential of comprehensive utilization of agricultural resources, and agricultural technology has the advantage of latecomer development. China has vast land, and the potential for efficient development and utilization of land resources using advanced agricultural technology is great. China's grassland area is enormous, with more than 3 billion mu of grassland that can be well utilized. By comparison, China's total feed grain volume is already comparable to total food grain volume, and the potential for pasture grass to replace feed grain is enormous. The revolution in dryland farming technology that has emerged in northwest China in recent years has brought an input-output effect of 1 to 6 and has caused enormous increases in corn and potato yields. Overall, compared with developed countries, the average grain yield per unit area of China's existing cultivated land has room to increase by about 15%, and this alone can basically meet domestic demand for grain over a relatively long period in the future.

Finally, the state's capacity to support agriculture has been significantly strengthened. From 2011 to 2013, the total amount of funds invested by China's central government in the “three rural” fields was about 3.65 trillion yuan, with an average annual growth of 15%. At present, central plus local investment in the “three rural” fields is already about 3 trillion yuan per year. Of this, investment related to rural society accounts for 50%. Compared with developed countries and regions such as the European Union, China's total funds for supporting agriculture are not too few; the major deficiency lies in the structure and efficiency of these funds. For example, from 1978 to 1999, the funds invested by the state in grassland construction each year averaged less than 3 jiao per hectare, a drop in the bucket compared with investment in major agricultural production areas.

Reform

The greater driving force for agricultural progress and rural development is the deepening of reform. Reform measures have been introduced intensively over the past two years, already reflecting the determination and aspirations of decision-makers. Future reform should focus on the following areas:

With the development of family farms as the core, advance innovation in the agricultural management organization system. Consider implementing a “professional agricultural operator registration system” aimed at protecting the production enthusiasm of specialized farming households, so as to improve the targeting of state fiscal support for agriculture. Establish reasonable agricultural entry thresholds and support agricultural operators in achieving specialization and scale. It is necessary to gradually and steadily develop genuine farmers' professional cooperatives, help farmers' cooperatives become stronger and larger, and cultivate dozens of giant transprovincial cooperatives so as to better give play to the specialized service role of cooperatives.

Deepen reform of the rural basic land system and the national land management system. It is necessary to promote innovation in rural economic organizations. On the premise of ensuring the legal status of collective ownership, through solidly advancing the work of confirming and certifying land contract rights, make farmers' land contract rights truly become farmers' property rights, and on this basis develop the rural land market. It is necessary to establish a land planning and management system with clear functions, reasonable division of labor, effective supervision, and smooth operation, and intensify the protection of agricultural land. The state may implement a “national agricultural protection zone system” that is more conducive to protecting cultivated land, and delegate to local governments the land management authority in densely populated areas outside agricultural protection zones, so as to promote the healthy development of urbanization.

Transform the model of agricultural technological progress and adjust the management system for agricultural technology research and extension. It is necessary to vigorously raise the level of equipment for modern agricultural technology and take the development of water-saving agriculture and dryland farming technology as the main direction of agricultural technological progress. It is necessary to use more active policies to encourage private capital to develop contiguous deserts. It is necessary to take property rights protection policy as the core, with state support funds as a supplement, vigorously introduce market factors, encourage private capital to enter the field of desert transformation, and expand various types of dryland farming.

Further activate the urban economy and lower the threshold for the rural transferred population to enter cities. First, deepen reform of the population registration system, simplify the population registration system, and as soon as possible implement the “residence permit system” on a large scale among the rural transferred population. Second, strengthen scientific planning and guide the rational distribution of urban and rural populations according to the needs of industrialization and agricultural modernization. In about ten urban agglomerations, realize the simultaneous development of large and medium-sized cities and small cities (towns); in areas outside urban agglomerations, moderately merge agricultural counties, control urban expansion, and support large-span transfer of the agricultural population. Support specialized farming households in living in dispersed locations and develop modern farmsteads.

Reform and improve the state fiscal and financial system for supporting agriculture, and improve the economic efficiency of support for agriculture. First, distinguish the categories of “three rural” investment and establish an independent agricultural support account system. Gradually reduce fiscal support for “leading enterprises” in the circulation and processing of agricultural products. On the basis of the “agricultural protection zone system” and the “professional agricultural operator registration system,” improve the targeting and transparency of fiscal support for agriculture. Second, formulate regulations for fiscal support for agriculture as soon as possible and realize support for agriculture according to law. Third, vigorously advance agricultural financial innovation and improve the agricultural financial system.

Realize the unification of urban and rural social governance. Consider no longer distinguishing between “village committees” and “residents' committees,” revise relevant laws, and promulgate an “Organic Law on Residents' Committees” that does not differentiate between urban and rural areas. Consider establishing most existing designated towns and a small number of villages of a certain scale as “county-administered cities,” and along with the advancement of agricultural modernization, gradually transform existing natural villages into small settlements of specialized farming households under the direct jurisdiction of “county-administered cities,” so that farming households become residents of residential areas that do not distinguish between urban and rural areas, and on this basis establish a unified urban-rural social governance structure.