Exclusive: Infrastructure construction, solution to peasants' income increase

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Last updated at: (Beijing Time) Friday, November 28, 2003

Exclusive: Infrastructure construction, solution to peasants' income increase

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At present, the primary importance in China's economy is to increase the grain output, develop agriculture and rural economy, and raise peasants' income. In an exclusive interview with Lin Yifu, a prominent economist in the "three issues concerning China's agriculture" and director of China Economic Institute with Peking University, he considers that improving the infrastructure in China's rural areas is the best possible way for increasing peasants' income.

(Notes: The middle part of China mentioned in the article does not refer to the geographic location, but to the 10 provinces, municipalities, and autonomous regions with dense population, economic concentration on traditional farm produces yet scarcity of land resources endowed by nature. Though with half a total of rural population of the country its GDP per capita and share of agriculture in the GDP are both higher than the national average. If the rural population of the region is transferred smoothly, it will do a lot of good to the readjustment of China's national economy)

Q: As an expert focusing on China's agriculture for years, what's your opinion on the fluctuation of grain prices in China now?

A: At the initial stage of China's opening-up and reform, the grain output was only about 300m tons a year. It exceeded 500m tons in 1996 and leveled off for several years and 1998 saw it hit the record high. Since then, China's agriculture entered into a new stage featuring a balanced gross output and surplus stock in years of good harvest. This change in supply and demand kept grain prices low for six years in succession. The price curve plummeted to the bottom-line. Peasants got low profits in deduction of the cost and in turn they had less initiative to invest in grain growth. This is why land was left uncultivated in some areas. The present grain price hikes should therefore be regarded as a recovery within the normal range and this is a relative decline both in gross grain output and stock resulted from the previous years and the change in supply and demand.

Q: Is there any possibility in your point of view for the present grain price rise to help motivate the peasants' initiative in grain-cultivation, thereby leading to a new change in grain supply and demand?

A. Absolutely possible, this is the role of the market.

Q. What's your opinion about the rise of grain price this time for increasing the peasants' income?

A: It will play a positive role in increasing peasants' income in major grain growth areas in China, I agree with that. But in consideration of the limited arable land and grain output per household in rural areas, the grain price rise is far from enough to help raise the peasants' income. The only way to ensure a long and sustainable growth in peasants' income is to reduce population in rural areas.

Q: Speaking of the "three issues concerning agriculture in China", an unavoidable topic is the peasants' income. During the Ninth Five-year Plan Period, the increase in peasants' income in China was decreasing year on year. The last three years in the period only saw an annual increase of 3.4 percent on average. The peasants' income was less than half of the disposable income of urban residents. What do the slow growth of peasants' income and the widening of urban-rural gap mean for China?

A: I worked with Asia Development Bank since 1994 and especially during recent years have been dwelled upon a systematic research on the key strategies and sustaining problems in regard with China's rural development. We have found that the problem at the kernel in China's "three issues concerning agriculture" is that of peasants' income. Of course, there are many factors that are affecting the growth of peasants' income. But the fundamental reason lies in the surplus of rural population and excessive rural labor-force. The development of the agriculture can never stimulate fast growth of income among 900m peasants. At the present stage, agriculture itself is not enough to solve all the problems in rural areas and the readjustment of agriculture polices will not turn out to be the only means that we should turn to for speeding up the increase in peasants' income.

Q: Under the circumstances, China's agriculture presents a strange phenomenon, i.e. the agricultural productivity is of low efficiency and staple farm produces has poor competitiveness in the global market whereas the staple farm produces are sold at unreasonably low price for years.

A: The upsurge of farm produces output and the slow growth in consuming farm produce by urban residents have made the situation even more serious. This also shows that the policy of simply encouraging peasants to invest in producing good farm produce can only play a limited role. As a result of the policy, a certain farm produce will enjoy a fair price for the first year in the market, followed by a price decline for the second year and no cost recovery for the third year. In this case, an increase in output does not necessarily means an increase in income.

Q: The income gap is still widening between the urban and rural areas, so is the cleft between the regions and among the rural population. Some scholars asserted that the income gap among the rural population is even wider than that between the urban and rural areas. Do you think it's necessary to make a classified research on the peasants' income?

A: Beyond doubt. The research should be made how to motivate the participation of the broad masses of peasants and for rural population to get the benefit of economic expansion.

Q: Obviously, 70 percent of the total rural population has become the bottleneck for all issues in rural areas. A very popular opinion holds that to bring prosperity to the peasants the only way is to reduce the number of peasants. Do you agree?

A: Historical experience at home and abroad shows that a richer rural population can only be achieved by way of transferring the rural labor-force into that for non-agricultural industries. But the deflation caused by excessive production capacity has made it even more difficult to solve the problem of surplus productivity. Specifically, the chances to make the rural labors pull out of their old haunts or give up their land without relocating are getting more and more restricted than ever. The pressing task to solve the "three issues in China's agriculture" is to eliminate the excessive production capacity in the national economy and put a halt to the deflation which seemingly is still gaining impetus.

Q: Does that mean a proactive financial policy should be adopted to temper the deflation? In fact, we have stuck to this proactive financial policy for years. But it doesn't seem to effect getting the peasants richer as expected. Why?

A: This needs specific analysis. Take the Large-scale Development of the West of China. In this campaign, we are investing aggressively in projects of road, railways, airports, medium and large water conservancy facilities, and natural gas pipelines. But it needs further consideration on whether the investment is proved good enough to solve the most pressing problem we are facing now.

Q: Then where do you think we should begin with?

A: In my opinion, efforts should be focused on the improvement of small-sized infrastructure in the rural areas, including roads construction, and water and power supply. Careful planning and direction should be made available to channel the investment to the right fields. Infrastructure projects in rural areas are featured with small investment, short construction period and quick return and generous social and economic benefits. They can create many job opportunities to the rural labor-force which is very cheap, thus directly adding to peasants' income sources. Furthermore, it can improve the living conditions, help boost consumption, and absorb the excessive production capability in rural areas. In this way, our national economy can walk out of the woods of deflation and in turn peasants' income will keep on upturn in a sustainable way. Generally speaking, accelerating the infrastructure construction through proactive financial policy is the most effective measure that can be adopted to boost the domestic demand and eliminate the excessive production capacity. So it is the best solution to the rural employment, restructuring of rural industries, and bringing more earnings to peasants.

(Background: The rural population in China, accounting for 60.9 percent of the total population and two thirds of the households are still living a daily life in poor and backward condition. The power is transmitted through outmoded grids with volatile voltage yet is highly priced and with no tap-water available for the rural households. )

Q: The gap between the east, west, and middle part of China is also getting wider. Some experts pointed out that solving the problem of middle China development means the solution of 80 percent of the "three issues of China's agriculture". Do you agree with them?

A: The middle region in China has the biggest rural population and faces the least favorable policy, limited natural resources, most serious poverty, and the fastest ecological deterioration. In the next 30 to 50 years to come, the traditional farm areas in this region will have a direct bearing on the style and structure of China's economic development. The Central government should create a better condition to favor the labor-force flow in this area. The rural population in the east is largely enjoying a better living and production conditions. The rural areas in the west also received a lot of support policies to alleviate the poverty. The middle of China is the main source of peasant workers. Industrialization and urbanization is the choice for us to successfully transfer the rural population and help the development of this area.

Q: What's the advantage expectable from this strategy?

A: It can bring about several benefits. The outflow of labor-force from the rural areas can leave more land to those staying in the rural areas to till so that they can expand their operation on land and their farm produces can be more commercialized. The labor-force transferred from the rural areas will be changed from suppliers of the farm produces to consumers, thus boosting the demand for farm produces and pushing the prices up. The combination of the two forces will keep the peasants' income rising fast. Also, among others, it will help to stop the ecological deterioration as government at various levels will be able to invest more on poverty alleviation and natural resources protection.

Q: But the prerequisite is that there is a unified market for farm produces and labor.

A: Surely. Only when a national unified market for farm produces and labor is established can it be possible for region around to choose a particular industry to focus on according to their competitive edge. When the east part loses its advantage in grain growth due to its higher land and labor opportunity cost with economic development, it will naturally choose to reduce its grain production and purchase more grain from the middle part which is relatively strong in grain growth. This will lead to rise of grain price. As a result, peasants living on grain growth in the middle areas can get more benefit from the grain production. The economic development in the east will in turn become a motive force to help peasants in the middle engaged in grain production to make more money. By this token, the more prosperous in the east, the greater a motive force it will become for the grain-growth areas in the middle to supply it with more labor-intensive products from the west. And this will help the peasants in the west increase their income. In the end, the east, west, and middle of China will achieve a harmonious pace of development.

The article was carried on People's Daily, Nov.26 and translated by Li Jia

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