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Hu Shuli

After the publication last week of China's preliminary economic data for 2014, much fuss was made over the greater contribution of the services sector to overall growth. However, one equally important statistic was overlooked. 
According to the figures, agriculture's share of gross domestic product fell to 9.2 per cent from 9.4 per cent in 2013 (this figure was itself revised down from an initial estimate of 10 per cent), and the downward trend is likely to continue.
This is an indisputable outcome of China's economic restructuring. At the same time, the numbers accentuate the unfair treatment of rural and urban areas in official policy, and the so-called " san nong problem" - the three rural issues of agricultural industry, farmers' livelihood and countryside concerns. 

This is because the cheap farm labour that has given Chinese growth such a boost has by now been exhausted, absorbed by its industries. China has reached the famed Lewis Turning Point. 
How Beijing deals with its  san nong problem will determine whether the country can escape the middle-income trap that awaits it. Thus, we eagerly await the release of the "No 1 central document", the leadership's annual policy document which is expected this year to focus on the  san nong problem, as it has for the past 11 years. 

China's  san nong problem is unusually complicated. It's partly inevitable, given the current stage of China's development, and partly the result of its peculiar administrative system. Since  hukou registration was introduced in 1958, China has adopted a clearly demarcated, dual system of administering its rural and urban areas. Notwithstanding the changes made over the past three decades, the system has survived largely intact for 60 years. 

 The problems are numerous: a huge and widening income gap between city and village; outdated rural management; lack of basic infrastructure in the farming industry; the inadequate provision of public goods in the villages; and so on. Meanwhile, the slow pace of land and  hukou reform has also held back overall reform and urban development.

It's true that farm harvests have grown for 11 consecutive years, but how much longer  can this last? The outside environment is rapidly changing. Within China, problems created by an investment-led development approach are beginning to emerge. 
At their recent work conference on rural issues, policymakers identified four major problems. First, the prices of major farm produce are higher domestically than the global prices. Second, farming costs are steadily rising. Third, China is probably  flouting World Trade Organisation rules, as initial calculations show it is granting more of the direct, trade-distorting subsidies to the farm industry than it is allowed to. Fourth, farmland degradation is becoming critical. 
Beijing cannot subsidise its way out of these problems. It must overhaul farm management and unleash the creativity of its farms and farmers. As they stand, China's agricultural subsidies are already higher than America's, approaching the OECD average. There's a broad consensus within China that it cannot follow the Japanese and Korean examples of heavily supporting this sector. 
Rural investment is a must, but the money must go towards improving basic infrastructure, boosting education and health provision in the villages, and investing in research and development. It must also promote market development. Elsewhere, this holds the key to modern agriculture; China can be no exception.
A year ago, the government abandoned its stockpiling programme for cotton and soya beans, opting instead to let prices fluctuate, subsidising farmers when incomes fall too low. This will help narrow the gap between local and global prices, as well as the gap between supply and demand. 
In the first year of its pilot scheme, the plunge in cotton prices led to the problem of hefty subsidies. Despite the setback, the government must press on, making adjustments along the way. 
In the days ahead, the government must begin to address the problem of property rights. Only an open market with low transaction costs and high protection for property rights can energise the farm sector. Unfettered powers at the top can result in the loss of land for millions of poor farmers - this is a lesson China must learn from history, its own as well as others'. 
In the process of addressing the  san nong problem, China must also consider the related issue of food security. For this, Beijing must widen its outlook and consider food security from a global perspective. 

While food security meant self-sufficiency in the old days, today it means a diversity of sources, both local and foreign. The government must widen its import of food, and encourage local companies to invest abroad. This is the only way to ensure food security for China. 


China must look beyond subsidies to improve the lot of its farmers

Beijing must overhaul farm management in China and unleash the creativity of its farms and farmers. Photo: Xinhua

Opinion

Hu Shuli says China can unleash the creativity of its agricultural sector by modernising it - through market development and rights protection


Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

China must look beyond subsidies to improve the lot of its farmers

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Hu Shuli says China can unleash the creativity of its agricultural sector by modernising it - through market development and rights protection

Hu Shuli says China can unleash the creativity of its agricultural sector by modernising it - through market development and rights protection