China: Rural Reform: Opportunities for the UK

British Embassy Beijing

May 2012

Summary

The gap between urban and rural China has grown over the period of reform and opening up. The new leadership is developing plans to tackle this over the next decade. This will bring commercial opportunities for the UK. The visit of DEFRA Minister Jim Paice is a timely one in this context.

Poor And Left Behind

China’s Communist Party came to power as a rural movement. But the model for China’s thirty years of economic reform and opening up has in effect extracted maximum surplus value from China’s rural population to build prosperity for China’s urban population. Last year rural per capita income was under RMB 7,000 (GBP 700), less than a third of the figure for urban residents.

The 200+ million peasants who have left rural regions to work in China’s factories remain designated as rural residents, with inferior entitlements to social welfare, healthcare and education services. And while a majority of China’s urban population own property, China’s peasants still only have limited rights over the land they farm.  Poor governance and disputes over land appropriations are often the cause of local unrest around the country.

Premier Wen has been a prominent advocate of rural reform. The income gap has narrowed slightly over the past two years helped by subsidies and the abolition of agricultural taxes. The government has expanded social expenditure, creating a rural medical insurance scheme, pension programme and eliminating primary school tuition fees.  It plans to expand provision in these areas.  But current policies seem unlikely to be sufficient to solve the fundamental imbalances between rural and urban China.

And as China banks on a further wave of urbanisation to sustain growth, fixing the rural economy has become more pressing. Policymakers face three challenges:

• Firstly, low competitiveness: China’s farms lack economies of scale and are unable to absorb new technology. Productivity of Europe’s sugar farms for example are double the Chinese average. 

• Secondly, the agricultural workforce is dwindling; the combined effect of China’s ageing demographics compounded by migration to urban areas.

• Thirdly, land is being lost to urbanisation while environmental depletion and water scarcity adds to the pressure on remaining agricultural land.

Meanwhile, China is determined to be self-sufficient and is reluctant to rely too heavily on imports to feed its ever hungrier urban population. China is now home to 55% of the world’s pig population as a wealthier urban populace consume more meat. Poor standards leading to a high incidence of food safety scandals is severely testing public confidence.

Modernisation with Chinese Characteristics

Faced with these pressures ,improving agricultural productivity could be a key priority of incoming leader Xi Jinping. He is likely to push for a policy mix that encourages farmers to pool their land in cooperatives (by 2011 nearly 15% of rural households had already done so).  The Party sees both practical and political benefits: 

Practically, larger units should improve negotiating power for farmers and enable economies of scale. They promise to open up a route for finance, training and technology to enter the rural economy. Policy planners also hope large cooperatives will create some white collar managerial jobs to attract young graduates back to rural areas easing unemployment pressures in urban areas. Better land management could bring other benefits, e.g. lower greenhouse gas emissions. A recent Prosperity Fund project showed that part-time smallholders were using fertiliser inefficiently leading to unnecessarily high GHG emissions.

The Party will have cells in each cooperative.  But policymakers stress that, unlike the collectives of the past, these cooperatives will be kept separate from local government control and participation will be voluntary.

Opportunities for the UK

Many UK companies are already working with local producers to raise standards.  Associated British Foods are working with 500,000 rural farmers growing sugar beet and cane; and Tesco are working with their supply chain to promote safe and sustainable production.  Longer-term, given China’s policy priorities of upgrading its rural economy, its demand for UK expertise in food safety (such as whole supply chain industry assurance schemes), agricultural technology (seeds and arable inputs, food processing, animal nutrition etc), education (vocational and scientific qualifications), energy efficiency and environmental protection will grow.

In January 2012, UKTI, DEFRA and UK industry launched ‘Driving Export Growth in the Farming, Food and Drink Sector: a plan of action’ to open international markets.  DEFRA Minister of State Jim Paice, joined by representatives of the UK food and drink industry, is currently visiting China to drive forward this agenda.  He has a programme of meetings with UK business, and is participating in an animal husbandry exhibition in Nanjing.

Disclaimer

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