Towards a Modern Industrial State and the Evolution of China's Labor Markets during the Reforms Scott Rozelle, UC Davis Transformation Path Percent of Pop’n in Ag. Sector Income per Capita Overall Increase in Off-farm Work 0% 20% 40% 60% 80% 100% 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Ye ar off-farm busy season part time farm only In 2000: 45% of rural labor force have jobs off the farm … more than 80% of households have at least 1 person working off the farm In 1980: only 4% worked full time off the farm Percent of Workforce Off-farm, by Age Range Age Range 1990 2000 16-20 23.7 75.8 21-25 33.6 67.2 26-30 28.8 52.5 31-35 26.9 47.6 36-40 20.5 43.3 41-50 20.8 37.6 Comparison of Off-farm work, by age range Workers Aged 16-20 0% 20% 40% 60% 80% 100% 1 99 1 1 99 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 Ye ar Workers Aged 41-50 0% 20% 40% 60% 80% 100% 1 99 1 1 99 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 Ye ar Specialize in off farm work Change in Type of Off-Farm Work 0% 4% 8% 12% 16% 20% 1 9 81 1 9 82 1 9 83 1 9 84 1 9 85 1 9 86 1 9 87 1 9 88 1 9 89 1 9 90 1 9 91 1 9 92 1 9 93 1 9 94 1 9 95 1 9 96 1 9 97 1 9 98 1 9 99 2 0 00 Ye ar Percen t o f T o t a l W o rk f o rc e migrants self-emp. migrants self-employed village wage earners Migration Self employed Percent of Workforce Off-farm, by Age Range and Gender, poor areas Age 1990 2000 Range M F M F 16-20 15.8 8.8 68.3 69.8 21-25 39.6 5.4 70.3 40.4 26-30 38.0 4.1 67.3 31.7 31-35 35.8 2.3 64.1 17.1 36-40 26.9 2.7 61.0 14.4 41-50 26.9 2.4 52.1 10.3 Transformation Path Percent of Pop’n in Ag. Sector Income per Capita China: with only about 30+ percent of population in urban areas … if it is successful in developing … it will necessarily move along this rural-urban transformation path … clearly the progress during the reforms has been great … Necessary but not Sufficient ? Shifting labor to off farm sector / shifting population from rural to urban is necessary ? But not sufficient … – Need to make sure those who are left behind are taken care of … – Need to make sure those who do not get jobs off the farm are being invested in … –So: process can continue … –So: there is no rebellion Role of Agriculture in Development ? Provide Inexpensive Food (does not need) ? Provide Labor for Industry (it is happening) ? Provide Export Earnings (does not need) ? Provide Other Commodities (does not need) ? Provide Income – Demand for Domestic Markets – Maintain or Increase Rural Incomes – Poverty Alleviation Goal of Presentation ? Understand how healthy is the agricultural sector … is it developing in a way that is going to facilitate the nation’s transformation into a modern economy ? Can it provide those in the sector the resources to: – Invest to raise income – Invest in human capital of children – Maintain minimum standard of living Indicators ?Rise in Productivity of Agriculture – Institutional Change and Technology (for rise in productivity) ? Emergence of Commodity Markets – Domestic and International – and Rise in Specialization (for shifts to specialization and rises in allocative efficiency) ? Emergence of Land Markets and Changes in Farm Size (for increased access to resources for raising incomes) Limitations … … do not plan on examining: ? Rural Finance ? Fiscal Problems ? Rural Governance Agricultural Productivity and the Technology that is Driving it TFP for Wheat in China, 1979-95 50 80 110 140 170 200 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 17 year period: 3.5 - 4% annually Recent 10 years: 2% annually Growth of Wheat, Rice and Maize TFP in China, 1979 to 1997 Rice Wheat Maize Contributions to Productivity ? Before 1984: – ? property rights reform – ? technology – a bit to extension and education ? After 1984 – ZERO to decollectivization – a bit to market emergence and education – none to extension – MOST to technology Average Number of Varieties per Province per Year Planted by Farmers, 1982-95 0 5 10 15 20 25 30 Rice Wheat Maize Question: Does China have to technological base to continue its record in TFP in future? Number of “Major” Varieties per Province by Year Average Variety Turnover 0 0.1 0.2 0.3 0.4 0.5 1983 1989 1995 Rice Wheat Maize All varieties turnover every 2 to 5 years!!! Varietal Turnover in China’s Agriculture, 1983 to 1995 (proportion of area planted to new varieties) Yield “Frontier” of Rice, Wheat, and Maize, 0 2000 4000 6000 8000 10000 12000 1982 1984 1986 1988 1990 1992 1994 1995 Tons per Hectare Rice Wheat Maize Sown area weighted of sample provinces Rise of “Yield Frontier” in China’s Experiment Stations for Rice, Wheat, and Maize Around 2 percent per year growth Plant biotech research expenditure (million yuan in 1999 price, 22 institutes) 0 10 20 30 40 50 60 70 80 90 100 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003 Total--1999: $100 million US Total—2003: $300+ million Table 1. The number of cases in agricultural biotechnology submitted and approved for field trials, environmental release, and commercialization in 1997- July 2000. 1997 1998 1999 July 2000 Total Plant Field trial -- Submitted 7 21 14 na -- Approved 5 20 27(18+9)* na 52 Environmental release -- Submitted 35 16 53 na -- Approved 29 8 28 na 65 Commercialization -- Submitted 6 9 30 na -- Approved 4 2 24 1 31 Total (plant + microoganism + animal) -- Submitted 57 68 126 102 353 -- Approved Approved rate (%) 46 81 52 76 101 80 52 51 251 71 GM rice commercialized in China? Introduced trait Field Trial Environmental release Commercialized Insect resistance Stem borer (Bt) Yes Yes No Stem borer (CpTI) Yes Yes No Rice planthopper Yes Yes No Disease resistance Bacteria blight (Xa21) Yes Yes No Fungal disease Yes Yes No Rice dwarf virus Yes Yes No Herbicide resistance Yes Yes No Salt tolerance (BADH) Yes No No Ac/Ds (rice mutant) Yes No No Source: Huang, Wang, Zhang and Zepeda, 2001. Performance of GM Rice in Field Trial ? Reduce pesticide use: 40-50% ? Reduce labor input: 6-9% ? Impacts on yield: + 6-8% Scenario B: Bt cotton + GM rice Impacts on Welfare (EV, million US$) in 2010 0 1000 2000 3000 4000 5000 6000 Bt cotton GM rice Total Comparing scenarios B, C, and D Rice net export changes (million US$, relative to baseline) -50 0 50 100 150 200 B: GM cotton & Rice C: ban D: labeling But share of export is only about 1% of production Impact on trade due to ban of East Asian nations and EU on imports of China’s rice Comparing Scenarios A, B, C, and D Impacts on Welfare (EV, million US$) in 2001 0 1000 2000 3000 4000 5000 6000 Bt cotton Bt cotton + GM rice Trade ban C+labeling Impact of “ban” on national welfare / almost ZERO Improvements to Domestic and International Markets Corn and Soybean Marketing Regions and Flows Distance from port y = -0.0002x + 2.0022 0 1 2 3 4 0 500 1000 1500 2000 2500 km P r i c e ( y ua n) Changes in corn price across China as markets increase its distance from port, 2000 Port--NO Location of Major Corn Markets in Greater Mississippi Valley “We are here” U.S Soybean (1985) price 480.00 490.00 500.00 510.00 520.00 530.00 540.00 550.00 560.00 570.00 580.00 Sample markets: distance from coast P r ic e ($ /1 0 0 b u ) U.S Soybean Price. 1985 Percentage change in price for every 1000 kilometers of distance from port na-3.5%-5%US – 1998 -7%-8%-3%2000 -9%-11%-4%1999 -10%-10%-4% China 1998 RiceSoybeanCorn Dalian Guangzhou (Shekou Port) Soybean Market Integration between Regions -4.83*-4.33*-4.01*-3.93*-4.84*-5.87*-5.36* 1996 -3.84*-3.82*-3.21*-4.15*-5.21*-4.33*-3.88* 1997 -4.02* -4.84* AH=> NX -----3.73*-3.57* 1999 -4.05*-4.85*-4.67*-4.72*-5.56*-4.13* 1998 GD=> GS GD=> SaX HLJ=> DL JL=> TJ AH=> SaX AH=> SD Year Dicky-Fuller Test critical value rejecting null of no integration @ 5% (10%) level is -3.3 (-3.0) Integration in China’s Markets (percent of markets that have integrated price series) 9346Maize 9665Rice 9556Soybean 1997-001991-92 Nominal Protection Rates (%) -20 0 20 40 60 80 100 78-79 80-84 85-89 90-94 95-97 98-99 Rice Wheat Maize Soybean Huang, 2001 WTO commitments are “radical” ? Aggressive tariff reductions on most commodities ? Fairly sizeable TRQs and strict rules to make sure they operate on market principles ? Low above-quota tariff bindings (around 60 to 70 percent … more like Australia than Japan, Korea, or Indonesia) ? Strict rules against “dumping” ? Liberalize many rules that are keeping inputs out Agri. Trade Balance by Factor Intensity (mil US$) -8000 -6000 -4000 -2000 0 2000 4000 6000 85 86 87 88 89 90 91 92 93 94 95 96 97 Land Labor Domestic Shifts--Dramatic ? Examine the move to specialization … inside China: producers are moving toward comparative advantage … – Zhejiang: “no agriculture” in 20 years – Parts of Hebei: vegetable basket of North China ? Rapid rise in mechanization … as wages rise in certain areas Land Markets Land Facts ? Land still belongs to state, but property rights have proved to be flexible … ? Initially rights thought to hurt productivity: – Carter et al.; Kung et al.; Jacoby et al.; Benjamin and Brandt; Li et al; Chen and Du and others … all find some impact of land rights on investment (almost all of analyses have been on “manure”] ? May not be as bad as initially believed: – Of 1200 households surveyed about 20 years of history on land, only 6 reported cases of expropriations of fixed land investments … ? Improving: – Over 90% of farmers and village officials report no restrictions on rental transactions – Restrictions on land conversions almost gone Rising Rental Markets in China ? China (unlike Japan, Korea, and Taiwan) is going to need to expand farm size to solve part of its rural income problem ? Rapidly increasing over time ? Nearly 30% in Zhejiang Province Land Rented-In 0 2 4 6 8 10 1988 1995 2000 2001 Percen t New Policy Initiatives -- Land ? 2003 Land Law – 30 year lease (no adjustments) – Long term rental transactions encouraged ? But, still serious implementation problems … ? Need land titling … or private ownership? Summary -- Progress ? Labor is beginning to shift from ag to non- ag / rural to urban … ? Substantial progress already in areas of agricultural productivity, commodity market and trade liberalization, land (rental) market emergence … Per capita income in rural Average:330%; Bottom 10%:180%; Top 10%:407% -500 500 1500 2500 3500 4500 5500 6500 7500 1980 1985 1990 1995 2001 Average -500 500 1500 2500 3500 4500 5500 6500 7500 1980 1985 1990 1995 2001 Botton 10% Top 10% Summary – Signs of Weaknesses ? Farm incomes are still low / still substantial poverty ? Farm sizes are still declining ? Unimaginable quantity of labor still needs to be shifter to non-ag / urban sector Summary – Key Constraints ? But not done yet … -- Land rights far from full -- Remaining restrictions on urban migration -- Huge discrepancy in fiscal expenditures Health / Edu / Welfare -- Problems with fiscal and financial systems ? In some sense, more like development problems faced by all developing countries … done with transition / now the development challenge!