The success of the responsibility system in the countryside enabled Deng to further legitimize and institutionalize the “Baogan Daohu”, the system of leasing land owned collectively by the township under contract. The duration of household contracts are 30 years. This gives the peasants a sense of permanence and stability in their contracts, thus making them more willing to investigate and cultivate on their contracted lands. Furthermore, those who are less successful at farming are encouraged to lease and even sell their land to others to start up services sorely needed in the countryside. This has encouraged the emergence of rural industries.
Rural industries in China are closely related to “special households” and “key-point households”. These households engage not only in agricultural production, but also in services like transport and commerce. Typically a specialized household signs a contract with the collective village for a piece of land. A part of the income is obligated to turn over to the collective, and the specialized household can keep the rest, in exchange to the risk it bears, as the specialized household is giving full responsibility over that piece of land without any help from the township except when loans and credit are needed. Usually these specialized households engage in service trades, commodity production, manufacturing, and transportation of locally produced goods to distant locations. This arrangement allows diversity of goods produced: peasants can now grow any type of high-yield commercial commodity crop / cash crop suitable to the land and effectively produced, as long as the state’s grain quota is met. This is vital, as these rural industries absorb off-season peasants to factories and subsequently allowed them to become prosper. Rural industries also serve as a way to reduce the number of peasants, as currently 44% of China’s total population is engaging in farming activities in the limited amount of arable land. As each household is distributed a piece of land, and with the enormous number of households in rural China, currently the farming industry is suffering from serious diseconomy of scale. Rural industries can absorb a number of these surplus peasants, and through this, the economy of scale would improve eventually. Rural industries provide a possible solution to make peasants more prosper and reduce hidden unemployment. Even though some of them collapsed due to poor managerial skills and lack of entrepreneurships, the rural industries continue to contribute around 1/3 of total GDP in China. Furthermore, hidden unemployment is relieved on a certain extend, as rural industries absorb over 127 million peasants, i.e., 1/5 of the total labor force in rural areas. This is vital as less people working in farms could reduce the labor intensiveness, hence increasing the incomes of households and increase production efficiency due to better economy of scales. Further more, a new registration system was enacted in 1st October 2001 which standardized the registration status of peasants as to those who live in county level cities, thus allowing them to work in there. By containing peasants to work in rural industries instead of those already overpopulated cities, this can prevent the rise of slums, and at the same time allowing them to become more prosper.
With the implementation of local village elections and open administrations, villages could elect their village heads that could bring prosperity to their villages as well as to prevent unnecessary levies from being imposed on them. Many rural cadres who remained in the posts as production team leaders, as reported by provincial media, took the initiative by becoming “the middlemen brokering business deals and acting as entrepreneurs.” Local village election has thus provided a channel for talented people to lead the village out of poverty through making business and setting up rural industries.
III. Problems in Rural Reform
Nevertheless, the rural sector still has a lot of problems and issues yet to be solved. Due to the diseconomy of scale, the output of grains is sub-optimal and pushing up the production cost. The annual income of peasants is averaged to $2126 RMB, comparing to the annual income of $28,000 RMB in a developed city, thus the living conditions of peasants are poor. With the price level of grains decreasing, productions of cash crops are regarded as a way to improve the living standard of peasants. In areas where the urban sector is more developed, peasants can earn a much higher returns due to higher prices resulted from higher on agricultural products. Furthermore, a more developed transport network can assist the peasants to sell their products to nearby urban sectors before they spoiled. However, generally speaking, the transport network in China is still largely undeveloped in rural areas.
Another major problem the peasants are facing is the expensive social services like education and medication. Even though the state has promised a 9-year compulsory education, education fees are still too high for ordinary peasants. Peasants could only afford primary education for their children, as the money they retain each month after spending on food is limited: a household on average spent 60% of its income on food. For poorer households, their children simply could not attend schools. The lack of a comprehensive social security system in China also increases the burden of rural peasants, as the public medication service is not well-developed, peasants have to pay for their medication fees, which are expensive to them. Thus internal consumption by peasants is low.
With China’s entry into World Trade Organization (WTO), the peasants now face a more serious challenge. China has to open up its agricultural market and allow foreign agriculture products to sell in China with low tariffs. Due to extensive employment of labor, agricultural products from China are more expensive then foreign products, particularly from the United States and Australia. A decrease in demand of local produced grains may be possible, and further affecting the local grain price, making peasants earn less. A possible solution to this problem is to grow cash crops. Of course, it is too early to conclude the exact effects of WTO to peasants, as China is having a very slow progress, if not reluctant, in opening up her agricultural market.
IV. Urban Reform Policies
Similar to the rural reform, the core of urban reform is to reactivate the industrial sector after the devastating Cultural Revolution. The reform, instead of exercising “excessive and rigid control”, a state-owned enterprise “should be truly made a relatively independent economic entity.” Each enterprise must operate and manage their own affairs, assume responsibility for their own profits and losses, and develop themselves into “legal persons with certain rights and duties” and incorporate the concept of business entity. The factory managers had assumed “full responsibility”, and the party leaders in factories and service enterprises would “provide active support” instead of involving into decision-making process literally.
Besides of this managerial reform, another closely related reform was the introduction of the industrial contract responsibility system. Under this system, the workers and the factory director sign a contract with the state obligating them to turn over “a certain amount of taxes and profits to the state” and allowing them to keep for their own use “any or almost any amount above the set quota.” The ultimate objective of this system is to enable each state-owned large enterprise to “either turn out cheap commodities of good quality or lag behind and be eliminated.” Based on that, the most qualified directors are highly demanded in the market, and they are selected competitively through public biddings. It can be regarded as the industrial incentive system, similar to the responsibility system current working in rural sector.
For large-scale state-owned enterprises that are not engaged in vital productive activities like defense industries, they could voluntarily become joint stock enterprises with limited liability. Stocks are sold to workers and individuals outside the enterprises. Some non-vital enterprises are also privatized.
The urban reform is basically the introduction of market mechanism into industrial productions. Since 1979, the state decontrolled prices which had been held stable for 22 years on more than 10,000 products, except on a broad range of essential products, notably energy, producer goods and raw materials.
V. Problems in Urban Reform
An overheated economy was resulted immediately following the introduction of the urban reform: 23% growth rate for the first quarter of 1985, and the food prices rose by 37% with the lift of price control, and the overall inflation rate at that year was 6%, while at least 20% for retail goods in urban areas. Inflation is still the most troubled problem for Chinese leaders to cope with.
The reestablishment of the nomenklatura system in 1984 has profound impact on the managerial autonomy of state-owned enterprises. The appointments of the heads of these enterprises are controlled by the Chinese Communist Party Central Committee, local party committees or party core groups, and the major criteria in approving these people to take charge of these enterprises are their political correctness in abiding the Communist ideology and their loyalty towards the CCP. This move has undermined the autonomy of the managers, and also created conflicts between the party cadres and the managers. The party bureaucrats have consistently dragged the pace of reforms, and some of these cadres have fallen into corruptive practices due to their unique status in obtaining information, power and resources.
Another major problem is unemployment. In 2001 the registered unemployment in urban area is 4%. But this figure has neglected the so-called “Xiagang” (下崗) workers: a Xiagang worker is one who was laid off whom still receive the wage from the state-owned enterprise he / she formerly worked for, as according to the law. However, many employers did not follow the laws and refused to pay these Xiagang workers their wages, or unable to do so due to bankruptcy. There were widespread protests by workers and independent trade unions in China in response to these unlawful situations. With the Xiagang system cancelled in late 2001, the unemployment rate of urban China has immediately reached 6%.
With the entry to WTO, many more state-owned enterprises would be forced to layoff redundant workers, to merge, and to privatize themselves in order to survive the increasing competitiveness of foreign products. Without a well-developed social security system, unemployment would also become a source of instability to China in the near future. Furthermore, with the highly centralized control of state-owned enterprises on the hands of the Party, the responsiveness of these enterprises is in doubt, and could become financial burdens to the state instead.
VI. Education Reform
The single most important event that changed the education system should be the Tiananmen crackdown at 4th June 1989. The brutality of the Party had feared many intellectuals, causing a serious brain drain: out of 64,000 who studied aboard, only 22,000 had returned. Intellectuals were silenced and some of them were forced to exile to other countries, particularly to the United States. The state also experienced severe financial problems due to the austerity program aimed to halt the overheating economy, suspension of foreign investments and loans, and bankruptcy of SOEs due to trade restrictions and international sanctions. China experienced a short period of recession, and at that time, there was a tremendous pressure on the already under-financed education funding. In order to prevent a repeat of Tiananmen incident, the party exerts tighter control over universities by including them into the nomenklatura: the promulgation of the nomenklatura in 1990 had explicitly stated the importance of further tightening the control of higher educations in China.
In 1985 to 1989, the Party called for a 9-year compulsory education throughout the entire country. Nevertheless, the state failed to implement it because of the lack of money. Many families were not affordable to pay the tuition fee; rural dropout rate is high, as they have to feed themselves up instead of having education with the limited amount of money they have. Salaries of teachers are consistently increasing, however, there is still a general lack of teachers, particularly for qualified ones. There are reforms in higher education as well. Due to the growing economy and lifting the job placements by the state upon graduations, more educated workers are needed for agricultural, industrial as well as the service sector. Vocational and polytechnic schools rose quickly to 3,982 in 1990, with total enrollment of 2.2 million under such high demand for educated workers. In 1993, there were 1.8 million people enrolled in a variety of adult education. Some key universities, particularly for those located at developed coastal areas, received further funding by the Central government. Scholarships are provided for those needy, so that they could enter universities with less financial burden from their families. Awards are given by the state to reward outstanding researchers as well as to encourage more innovations: one engineer in the Zhuhai SEZ received a case reward of $200,000, a car, and an apartment for designing a method of extracting a clotting agent from animal blood and helping to open a factory to produce it.
Even though China nowadays is more open and less restricted than before, but suppressions for those who urged for political reforms remain. Ironically, intellectual freedoms and other basic political rights are guaranteed by the state’s constitution (Article 35). Intellectuals are not respected politically, particularly for those who do not have a political affection towards the state and the CCP.
VII. Conclusion
These reforms are aimed to increase the prosperity and living standard of China. However there are many obstacles towards these reforms, notably the Party’s reluctant to give up its monopoly of power in industrial and education sectors. Severe unequal distribution of wealth exists, making those living in poorer areas suffer while the state’s economy is continuously driven up by the more prosper areas. Political reforms are deemed necessary in order to facilitate further reforms in the institutional levels of the Chinese government in order to allow the market to be more vivid, innovative, and free, and to address grievance of peasants and unemployed workers, so as to further increase the advancement of the modernization and prosperity while maintaining the stability in China in the 21st Century.
J. Wang, Contemporary Chinese Politics: An Introduction, NJ: Prentice Hall, 2001, 7th ed., p.302.
S. Ogden, China’s Unresolved Issues — Politics, Development, and Culture, NJ: Prentice Hall, 1992, 2nd ed., p.92.
樊平, <<變動中的中國農村与村民>>, 2002年: 中國社會形勢分析与預測, 中國, 2002, p.256.
中國社會科學院,《當代中國社會階層研究報告》, 2002-02-01
J. Burns, Contemporary China’s Nomenklatura System, NY: M. E. Sharpe, 1998, p. 6.
Lecture 7 notes, as cited from Prof. Joseph Cheng.
Lecture 11 notes prepared by Dr. Hon S. Chan on the course Chinese Public Administration.