Like other lower developed countries, China’s a

Another major reason for the low productivity that China saw between the 1950’s and 1970’s was due to the labour arrangements that existed at this time. Before reform began, China did not have labour markets in the conventional sense. There was absolutely no labour mobility and all wages were centrally fixed. China’s government adopted the strategy of mutually exclusive rural and urban labour markets. Rural people could not work in the cities and also were given no social security benefits (Meng, 3). The reason for this was due to the nature of china’s traditional farming techniques. Farming was labour intensive, with small-size plots. This technique meant that that the marginal rate of technical substitution between land and labour was relatively high. Therefore, it’s possible for the agricultural sector to absorb the abundant labour supply and avoid unemployment. As a result, China’s government left rural residents out of the development of social security arrangements. Another reason why rural-urban migration was prevented also exists. China had very low grain output in the early 1950’s. Preventing rural-urban migration had the advantage of keeping people in the country side to increase agricultural production as well as limiting the number of people in urban areas who needed agricultural products. These two reasons are both responsible for China’s highly restrictive labour mobility policies in the pre-reform era (Meng, 4).

Even though agricultural growth did occur during this time (see table 1), it grew too slowly and grew slower than other comparable less developed countries were growing at this time. China was investing too much into the industrial sector and too little into the agricultural sector. Before 1979, China’s investment in agriculture as a percentage of total investment in capital construction accounted for between six and eleven percent. This small investment into agriculture was made possible by keeping the standard of living of farmers at the lowest possible level. In 1978, the per-capita net income of a farming family was only 91.64 Yuan (equivalent to $10.29 American today), of which 72.26 Yuan was distributed in food produce and only 19.38 Yuan in cash. In the twenty years prior to 1978, an average farmer’s net income increased at an annual rate of only 2.8 percent (DesForges, 100). During this period, central planning was the basis of the relationship between China’s agricultural and industrial sectors. The circulation of agricultural products and all industrial and commercial activities tool surplus funds form agriculture and relocated there funds into industry. This loss of rural funds contributed to the poverty of the farmers, which lowered agricultural investment, which further slowed down China’s agricultural production.

Combined, a growing population, the drain of rural funds, plus the laws that restricted the flow of rural laboures to cities, resulted in the slowing down of China’s agricultural development. China’s agriculture had stagnated to the point where it was preventing the overall development of the economy. In addition, the continuing poverty of the Chinese farmers made it clear that something needed to be done and a new agricultural system need to be put into place.

In 1993, China adopted an investment policy, which also contributed agriculture growth. This policy called the “Agricultural Law of the People’s Republic of China” states that the government

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