The sustainability dilemma of China’s township and village enterprises: an analysis from spatial and functional perspectives

Journal of Rural Studies 18 (2002) 257–273

The sustainability dilemma of China’s township and village enterprises: an analysis from spatial and functional perspectives Simon X.B. Zhaoa,*, Kenneth K.K. Wongb a

Department of Geography, The University of Hong Kong, Pokfulam Road, Hong Kong b Department of Geography, Hong Kong Baptist University, Hong Kong

Abstract The spectacular development of China’s township and village enterprises (TVEs) has been highly praised by both Chinese and western scholars. The TVEs and rural non-agricultural sector were widely regarded as the most dynamic sector in the Chinese economy during the reform era. However, such a successful story and optimistic view had changed tone since 1997, seemingly from the robust boom to a deep recession. Evidently, China’s present TVEs development must be confronted by deep-seated problems that created the fundamental sustainability dilemma. To better understand China’s unusual process of TVEs development, this paper focuses on the sustainability dilemma from the functional and spatial perspectives. It analyses the internal conflicts between TVEs development and agricultural production and explains why the present mode of China’s TVEs development cannot be sustained. Within the rural economy, agricultural production and the TVEs themselves have created severe conflicts that have led to a fundamental sustainability dilemma: further encouragement of TVEs or maintaining a stable agricultural output, especially of food supply. The underlying causes for the sustainability dilemma are diagnosed, primarily based on a consideration of functional and spatial division. The paper argues that the conflict is inevitable due to the dysfunctional nature created by TVEs in the rural sector. That is, farmers simultaneously perform two different functions: agriculture and industry, both of which should be functionally and spatially separated. According to Lewis’s Two-sector Structural-change Model, this paper attempts to seek a possible solution that aims at an overall functional clarification between the urban and rural sectors. r 2002 Elsevier Science Ltd. All rights reserved. Keywords: Township and village enterprises; Spatial function division; Rural development in China

1. Introduction The dynamic sectors of the Chinese economy are agriculture and rural industry, the latter often owned by Township authorities or labour collectivesy. China’s gerontocracy will not only reverse the verdict of Tienanmen Square, but do so without further bloodshed and without the economic devastation and social regression which threatens many parts of Eastern Europe and the former Soviet Union. (Blackburn, 1991, p. xv) Rural enterprises or township and village enterprises (TVEs1) in rural China have been highly praised by both *Corresponding author. Tel.: +852-2859-2836; fax: +852-25598994. E-mail address: [email protected] (S.X.B. Zhao). 1 Although it includes all rural enterprises or all township and village enterprises in rural China, the notion of TVEs in this paper is particularly denoted to those rural enterprises which are widely spread in vast townships and villages in rural area. It may include those TVEs

Chinese and western scholars2 and have experienced spectacular growth since the incipient of the reforms in 1978 (Walker, 1988; Field, 1988; Byrd and Lin, 1989; Kirkby, 1994; Leeming, 1994). The total number of TVEs had increased from about 1.5 million in 1978 to almost 25 million in 1994, i.e., an increase of 1537%. In terms of economic contributions to both national and rural economies, TVEs have played increasingly important roles in the Chinese economy (Carter et al., 1996; World Bank, 1999; Huang, 1998; Vermeer et al., 1998). For instance, a review of the Chinese Statistics showed the following characteristics of the TVEs (footnote continued) in large towns, such as county centers, and urban areas, such as in cities, particularly in statistics, but it generally does not mean these enterprises. It may also include some private enterprise, but it generally does not relate to or mean these enterprises. 2 In ‘‘TVEs solution on Several Questions about Speeding up Agricultural Development’’ (Draft), the State Council declared that TVEs ‘‘should strive for great development’’, December 1978.

0743-0167/02/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved. PII: S 0 7 4 3 - 0 1 6 7 ( 0 2 ) 0 0 0 0 5 - 0

258

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

(China’s Statistic Yearbook, 1995). Firstly, the share of TVE gross output in the national gross industrial output has increased from merely 9% in 1978 to 42% in 1994. Secondly, the share of TVE gross output in the national gross social output grew from 7.2% to 32.2% and the share of TVE gross output in the gross social output of the rural society grew from 24.3% to 66% respectively. Thirdly, the percentage of taxes paid by the TVEs in the total state revenue increased from 4% to 22%. Lastly, TVEs had employed more than 130 million or 35% of the rural labour force in 1995. Apart from their economic contribution, TVEs had shown their many comparative advantages, such as a low level of governmental and planning control, market mechanism actually in operation, small scales and large feasibility. Thus, TVEs seemed to have great vitality and competitiveness. It has been ubiquitously regarded that their future development would play an important role in shaping China’s economic success in and beyond the 21st century. However, such an optimistic view has been gradually fading since 1997. In 1997, investment shrunk for the first time by a notable 5.6% and since then the growth rate of TVEs has been dropping continually. According to Prof. Chen Jianbo, an expert on the rural economy at the State Council’s Development Research Centre, the countryside has lost 20 million jobs over the past two years in China (Becker, 1999). By the mid-1990s, TVEs had produced a share of industrial output as large as state-owned factories in cities. But the bubble has burst over the past 3 years. Once considered as a dominant part of China’s economic miracle, such enterprises appeared to come out of nowhere but stumbling deeper into trouble and further recession. Profits drop and bad loans rise. Once contributing about 45 billion RMB profits from the TVEs (in 1997), now it is found that most of them have closed or are operating in the red, and that they cannot pay their employees and officials who were working months without wages. It is a common phenomenon nowadays that many TVEs are trapped deeper into debt. Some have debts of around 5 million RMB, while others are smuggling to pay rollover debts of 10 million RMB, particularly those provinces in the central and the west (Becker, 1999). There are many reasons accounting for the TVEs’ robust boom and burst. One of the reasons has been the long neglect of rules and regulations on safety, pollution and quality standards. Products produced from TVEs are notorious for being shoddy and in some cases dangerous. Reports of exploding beer bottles, poisonous medicines, dangerous liquors, serious water pollution and so on are thus phenomenal and legion. Another reason which has been seen is the sluggish development in the urban sector, such as the prevailing inefficiency and in-competitiveness of state-owned enterprises. However, the state-owned enterprises naturally com-

plained that the rural enterprises enjoyed unfair advantages. China now faces a difficult choice between closing down some TVEs at the cost of jeopardising rural jobs and rural stability or favouring industrial development in cities (Becker, 1999). Evidently, something must run wrong in China’s TVEs development. This paper attempts to analyse the sustainability dilemma of China’s TVEs from the functional and spatial perspectives. This paper analyses the internal conflicts between TVEs development and agricultural production in the rural areas. It is widely recognised that China had suffered from the stagnation of grain production since the mid-1980s and there is a huge difficulty in maintaining a stable food supply both at present and in the future (Dwyer, 1994; Harper, 1994; Leeming, 1994; Smil, 1993; Brown, 1995). Some scholars have begun to question how firm a foundation has been established in the TVEs sector (Kirkby, 1994). Most importantly, it is increasingly evident that within the rural economy, TVEs have created severe conflicts, which have led to sustainability dilemma. For instance, while TVEs enjoyed drastic growth and great prosperity, particularly from the mid-1980s to early 1990s, agricultural production, in contrast, has experienced a down turn, heading for stagnation. There are, of course, many other reasons accounting for problems confronting the agricultural sector in China. The most notable recent debate on this issue can be found in a special issue on food and agriculture in China during the post-Mao era published in The China Quarterly (Vol. 116, 1988). However, the papers in the special issue failed to address the conflict between agricultural production and TVEs. Leeming (1994) in his analysis on relationship between grain production and TVEs also neglected to elaborate as to how TVEs could help the growth of grain output, and failed to recognise the potential internal conflict created by TVEs in the agricultural sector. This internal conflict within the rural sector will lead to a fundamental policy dilemma: whether to sustain the growth of TVEs or to maintain a stable agricultural output, especially of food supply. Many Chinese scholars have commended the development of TVEs (Zhang Yi, 1990; Dong Zhongzhi, 1992; Zhongguo Gongnong Guanxi Xuehui, 1988; Zhonghua Renmin Gonghehuo Nongmu Yuyebu, 1988). A few scholars have recognised the negative impacts of TVEs on the agricultural sector (Hou Jianqiu, 1992; Lao Bian, 1989; Liu Jianchang, 1988; Ma Xiaohe, 1988), although most of them still failed to address this conflict directly and seriously. Therefore, one of the aims of this paper is to examine the extent of, and the underlying causes of, the sustainability dilemma of China’s TVEs. It focuses on an examination of the negative impacts of TVEs on agricultural production and their internal conflicts within the rural sector. The underlying causes for the

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

259

Table 1 The changes of cultivated land in China, 1957–1995 Cultivated land (1000 ha)

a

1957 1978 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

111830 99390 99305 96846 96230 95889 95722 95656 95673 95654 95426 95101 94967 94971

Per capita land (ha)

0.173 0.103 0.101 0.097 0.090 0.088 0.086 0.085 0.084 0.083 0.081 0.080 0.079 0.078

Annual lost (1000 ha)

801 941 1598 1108 818 645 518 467 488 739 732 709 621

% of lost total

0.81 0.95 1.65 1.15 0.85 0.67 0.54 0.49 0.51 0.77 0.77 0.75 0.65

% of lost by sector State construction

TVEs

Peasant housing

n.a. n.a. 8.39 9.93 12.84 13.80 13.51 14.13 14.75 17.86 21.99 18.76 18.04

n.a. n.a. 5.82 5.32 6.36 5.89 6.76 6.64 6.97 8.66 11.75 11.28 13.69

n.a. n.a. 6.07 7.67 7.09 5.89 5.41 7.92 4.30 3.25 3.28 4.65 5.15

a Note: China’s historical high figure. Source: Processing from China Statistical Yearbook, 1996.

dilemma are diagnosed, primarily from functional and spatial perspectives. This paper argues that the conflict between TVEs and agriculture is inevitable. This is because of the dysfunctional nature of TVEs in the rural sector. That is, farmers simultaneously perform two different functions: agricultural and industrial, which should be functionally and spatially separated. Following Lewis Two-sector Structural-change Model (TSSC Model) (Todaro, 1989), this paper attempts to seek a possible sustainable solution which aims at an overall functional clarification between the urban and rural sectors.

land. They gradually become the dominant forces of economic development and prosperity in the rural areas. While TVEs per se have been successful and impressive as discussed earlier, the growth of TVEs within the rural sector itself is beginning to impose a threat to agricultural production and the environment. However, the successes of TVEs may be offset by their negative impacts, such as the shrinking of cultivated land, increase in pollution and waste, and a drain of financial capital and labour force from agricultural production. The following sections will examine the various negative impacts of TVEs on agricultural production. 2.1. The shrinkage of cultivated land

2. Impacts of TVEs on the agricultural sector In China, about 65–70% of 1.3 billion people live in rural areas. China has only 1.4 billion mu (93 million hectares) cultivable land, which covered about 10% of its total area. Therefore, shortage of arable land is a pressing problem in rural China. On the one hand, food supply is always vulnerable (Taylor, 1988; Smil, 1993; Brown, 1995; World Bank, 1997) due to the extremely low per capita cultivated land area, which is currently about 1.1 mu (0.07 ha) per head (Wong and Zhao, 1999a, b). On the other hand, there is always a chronic shortage of employment opportunities on the land because of the shortage of cultivated land. The lack of rural employment has been exacerbated by the introduction of the Household Responsibility System in rural areas in the early 1980s. Under this new system, cultivation on land can only offer jobs for half of the total 0.4 billion rural labour forces. Thus, TVEs become a major source of jobs for people displaced from the

Although statistics (see Table 1) have shown that the area of cultivated land in China has been declining since 1957, the rate of decline has accelerated since 1979 particularly in the early 1990s (Huang Xiaohu, 1989; Wong and Zhao, 1999a, b; World Bank, 1997). During the past four decades, China’s cultivated land dropped from 112 million to 95 million hectares and per capita figure reduced by a half, from 0.173 to 0.078 ha. Since 1978, China lost about 784,000 ha (or about 1%) of its total cultivated land every year. Among the cultivated land lost, TVEs’ share has increased steadily and substantially, from 5.8% in 1985 to 13.7% in 1995 (Table 1). As pointed out by Chen Chunsheng, a State Councillor, cultivated land was seriously occupied by TVEs’ construction and the actual amount of land occupied by TVEs was far more than the official statistics reported (Xiao Zhuoji, 1989). Obviously, the development of TVEs was one of the major direct and indirect causes for the loss of cultivated

260

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

land in China. According to a survey conducted by the Ministry of Urban and Rural Construction and Environmental Protection (the present Ministry of Construction), China lost a total of 34 million hectares cultivable land in the 1980s, of which urban development occupied 2%, county town development 5%, TVEs 19%, the state infrastructure construction 15%, and farmer’s self-usage (such as building new houses) and abandonment 60% (Ye Wejun et al., 1988). If the land grabbed by county town development can be partly attributed to TVEs, then TVEs directly occupied more than 24% of the lost cultivated land. One of the major reasons for TVEs encroaching agricultural land is that ‘‘Rural enterprises were able to compete with urban enterprises by making use of their cheap labour and land and more relaxed environmental and development controls’’ (Yeh and Li, 1997, 1999). Indirectly, TVEs were also one of the major reasons for the abandonment of farmland by farmers, because most owners of abandoned land had engaged in non-agricultural activities, particularly in TVEs.3 The abandonment of land by farmers is becoming increasingly serious. For example, 45,000 ha of cultivated area in Shanghai has been abandoned, which was equivalent to the total cultivated area of a medium-sized Chinese county. In Xu Zhou, Anhui Province, a county with 7300 agricultural households had abandoned 3200 ha of its cultivated land by 1993.4 Another important reason for cultivated land loss was the unprecedented land development or land speculation in the early 1990s. The problem was particularly severe in the Pearl River Delta and the coastal regions of China (Wong and Zhao, 1999a, b; Yeh and Li, 1997, 1999). In Dongguan City alone, for example, real estate has grown nearly 1000% during the 1988–93 period. Moreover, construction sites took up over 30% of the total land stock of Dongguan City, and most of the land was classed as the highest quality farmland of the region (Yeh and Li, 1997, 1999). 2.2. Rural capitals and financial resources Over the past four decades, the State investment in agriculture has been seen as a symbolic gesture, varying from only 3% to 10% of the total State investment. The urban industrial sector has always taken the lion’s share of State investment, ranging from 50% to 60% for most years. China’s agricultural investment largely comes from peasants’ own capital, the so-called rural collective-owned investment and bank loans from rural credit 3

It is reported that 58% of the farmers in Hunan are not willing to become engaged in farming, and 27% of them gave up their land and try to find jobs in non-agricultural sectors, see Hewing Kong, Economic Times, 24th October 1992, p. 5. 4 See Wen Hui Daily, 13th April 1993, p.14.

Table 2 Rural collective-owned investment in fixed assets by sectors (Unit: %) Years

Total

Agri.a

TVEs

T.C.a

E.H.C.W.a

1982 1983 1984 1985 1987 1990 1991 1992

100 100 100 100 100 100 100 100

39.6 30.1 16.6 10.4 11.6 17.0 14.6 8.8

30.4 43.3 50.2 50.9 59.4 52.0 57.1 69.6

n.a. n.a. n.a. n.a. 6.5 3.9 3.7 4.1

8.8 15.3 16.1 13.1 9.4 15.6 13.7 7.9

a Agri.—agricultural production; T.C.—transportation and construction; E.H.C.W. —education, health, culture and welfare. Source: Processing from China’s Statistical Yearbooks, 1983–1993.

co-operatives (Ash, 1991). However, TVEs drastically took this very limited capital since 1982 (see Tables 2 and 3). As Table 2 shows, in 1982 farmers invested nearly 40% of their collective-owned capital in agriculture, and with about 30% invested in TVEs. However, in 1992 agriculture only received 8.8% of the investment, while TVEs took away nearly 70% of the investment. Undoubtedly, TVEs have taken away the largest share of the very limited and valuable rural capital. This situation becomes even worse if the distribution of loans of Rural Credit Co-operatives is included. There is clearly an acute competition for loans between TVEs and agricultural production and the latter is obviously the loser (see Table 3). In 1978, TVEs obtained 1.21 billion RMB of loan from Rural Credit Co-operatives, accounting for 27% of total loans. Since then, the amount of TVE loans increased in absolute and relative terms. In 1988, TVEs received a total of 45.61 billion RMB, which accounted for 50.2% of the total loans. In 1991, the loan increased to 100.73 billion RMB, which accounted for 55.7%. The annual growth rate was 2.4%. Meanwhile, the proportion of agricultural loans decreased from 48.3% in 1978 to only 9.4% in 1991. The situation was particularly severe between 1979 and 1984, when the share of agricultural loans decreased 6.5% per year (see Table 3). The data shown in Tables 2 and 3 are in sharp contrast to some assumptions that China’s agricultural production has received attractive financial returns from the rapidly developing TVEs (Leeming, 1994). There is no doubt that these shifts of the rural collective-owned capital and the credit loans from agricultural production to TVEs have hindered agricultural productivity and the infrastructure development in rural areas (Field, 1988).5 Consequently, since 1980, rural infrastructure projects, 5

The decline in agricultural investment will lead to the deterioration of agricultural infrastructure including fallen areas of both irrigated and mechanically cultivated land.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

261

Table 3 Loans from rural credit co-operatives (1 billion RMB) Year

Total loans

TVEs loans

Agri. loans

% of TVEs in total

% of Agri. in total

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

4.51 4.75 8.16 9.64 12.12 16.37 35.45 40.0 56.85 77.14 90.86 109.4 141.3 180.9 245.4 314.4 416.9 523.4

1.21 1.42 3.11 3.55 4.23 6.01 13.5 16.44 26.59 35.93 45.61 57.19 76.07 100.73 147.18 200.12 227.94 277.91

2.18 2.24 3.45 3.57 3.48 2.82 3.84 4.14 4.46 6.45 8.01 40.73 13.41 16.99 22.26 26.21 80.84 109.49

26.83 29.89 38.11 36.83 34.9 36.7 38.08 41.1 46.77 46.58 50.2 52.25 53.84 55.70 59.98 63.65 54.67 53.10

48.3 47.2 42.3 37 28.7 17.2 10.8 10.3 7.84 8.4 8.8 9.8 9.5 9.4 9.1 8.3 19.4 20.9

Source: Processing from China Statistical Yearbook, 1996, p. 617.

such as irrigation, water conservancy and road construction, and their maintenance have largely ceased (Ba Shan, 1991). This neglect augmented the impacts of natural hazards in the rural areas, such as the numerous disastrous flooding that occurred in the 1990s (Wong and Zhao, 2001). Furthermore, farmers lost their incentive in farming and cultivation, which further drained the rural capital away from agricultural production to TVEs. However, a recent report has shown that the substantial financial resource drains from agriculture to TVEs would not do any good for both TVEs and rural banks. Currently, it is reported that the 50,000 agricultural co-operative banks that take peasant savings and lend money to invest in these failed ventures now have liabilities exceeding their assets. At the end of the day the state is going to have to bail them out and shoulder the cost (Becker, 1999). 2.3. Breaking the traditional beneficial relation with the agricultural sector Unlike most rural industries in other countries and in China during the commune era, China’s present TVEs have eroded away the traditional beneficial relations within the agricultural sector. Normally, local small mills and factories dominate rural industries in developing countries. These industries target mainly at providing goods and service to serve agricultural production and rural communities. This mutual beneficial relationship between the agricultural sector and rural enterprises could be found in China during the

commune era before the 1980s (Leeming, 1985). During the commune era, rural enterprises were restricted to producing low-value-added goods such as the making of farming tools and local food processing (Kirkby, 1994). Evidently, the rural enterprises at that time did provide substantial support to local agricultural production and local rural services by supplying them with production materials such as farm tools, fertilisers, mechanical and wooden repairing, and food and agricultural by-product processing.6 The TVEs have undergone tremendous transformation since the launching of the economic reforms in the 1980s when the commune system was dismounted. When the past restrictions were totally lifted, the new TVEs were encouraged to do whatever they considered most profitable, including lucrative production and manufacture such as tobacco processing and TV set making (Kirkby, 1994). As a result, some of the former low profit but important industries, such as tools making and fertiliser production reduced drastically. Table 4 shows that the production of nitrogenous fertiliser dropped from 132,000 tons in 1979 to 20,000 tons in 1984. Although there has been a steady rise from 1984 to 1990, fertiliser output in 1990 was still lower than that in 1979 when there were far fewer TVEs and lower grain output than that in 1990. Almost the same pattern can be observed in rural phosphate fertiliser 6 The first author of this paper had been sent to China’s countryside for 3 years (1974–77), as one of million of rusticated urban youth. During this period, he had experience in both farming in agricultural production and working in commune factories.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

262

Table 4 Production of chemical fertilisers and farm tools by TVEs Year

Nitrogenous (1000 tons)

Phosphate (1000 tons)

Iron tools (million pieces)

Wooden tools (million pieces)

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

132 65 28 29 27 20 47 47 48 50 70 80

1946 1010 861 947 1092 1674 1329 633 655 1260 2220 1200

478 331 n.a. n.a. n.a. 246.7 272.8 287.3 268.3 262.1 258 260

111.86 54 n.a. n.a. n.a. 53.6 75.5 95.2 78.4 61.9 52.6 45.1

Source: Processing from China Statistical Yearbook, 1985–1991.

Table 5 Distribution of TVEs’ profits in rural sector in selected years Year Enterprise expansion

1978 1985 1995

Rural infrastructure

Rural social welfare

Rural education

Township establishment

Billion RMB % of total Billion RMB % of total Billion RMB % of total Billion RMB % of total Billion RMB

% of total

3.09 7.94 28.0

n.a. o1 o1

35 28 27

3.09 8.31 19.0

35 29 18

0.4 1.97 4.5

6 7 4

n.a. 0.6 3.29

n.a. 2 3

n.a. 0.25 0.98

Source: Processing from China’s Agricultural Statistical Yearbook, 1996.

supply, which fell from 1946 thousand tons in 1978 to 633 thousand tons in 1985, a decline of 33% in 7 years (see Table 4). The situation with respect to the supply of iron and wooden farm tools by TVEs is even worse. Table 4 also shows that the production of iron farm tools dropped almost 50% from 1978 to 1990 while wooden farm tool output fell 60% in the same period. Further evidence of the change of the formerly beneficial and reciprocal relationships between TVEs and agricultural and rural sectors can be seen in Table 5, which summarises the distribution of TVE profits. Table 5 shows that TVEs’ contribution in rural social, educational, and infrastructure development is minor. Although TVEs contributed 18% of their profits to infrastructure development in 1995, it represented a radical decrease from 35% in 1978. In social welfare and educational development TVEs only spent 3–5% of their surplus. In terms of township development, TVEs spent o1%. Hence, it is widely seen that vast agricultural and rural infrastructure have experienced a serious deterioration and rural social and educational development have not been improved substantially since the economic reforms introduced in 1978. However, during exactly the same period TVEs enjoyed spectacular growth and unprecedented prosperity.

This sharp contrast can only be explained by the fact that TVEs had substantially changed their formerly beneficial and reciprocal relations with the agricultural and rural sectors, from which they were born and grew. Most current TVEs had radically changed their production direction and produced manufactured goods and industrial commodities, such as TV sets, refrigerators, air-conditioners, electric and electronic commodities, building materials, and textiles and garment products which were not different from urban manufactory industries (Goujia tongji ju, 1992)7. For example, in the 1980s TVEs produced more than half of the national output of garments and building materials and one-third of China’s massive coal output (Kirkby, 1994). Many of China’s big names of trademarks, such as Jianlibao soft drinks, Penda electronic products, and Meidi home appliances come from TVEs. The TVEs are not only competing with the agricultural sector in terms of resources allocation, but they are also competing with the agricultural sector on acquiring talented personnel. This is because the TVEs often employ the most highly skilled labour and the best educated people in the village, leaving farms to the 7 It shows that the majority of products that TVEs produced cannot be used in agricultural production.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

263

Table 6 Breakdown of per capita net income of rural households (Yuan) Basic annual net income (%)

1978 1980 1985 1990 1992 1993 1994 1995 1997

142.27 (100) 193.82 (100) 517.40 (100) 954.59 (100) 1110.1 (100) 1278.1 (100) 1705.66 (100) 2231.12 (100) 2883.24 (100)

From all rural enterprisesa

From household agri. & by-product productions (%)

Total (%)

TVE (%)

88.26 (62.04) 106.38 (54.89) 72.15 (13.94) 138.80 (14.54) 184.38 (16.61) 194.51 (15.22) 262.98 (15.42) 353.70 (15.85) 536.56 (18.61)

3.01 (2.12) 5.94 (3.06) 27.71 (5.36) 54.06 (5.66) 67.52 (6.08) 138.58 (10.84) 198.78 (11.65) 256.63 (11.50) 361.04 (12.52)

54.01 (37.96) 87.44 (45.11) 445.25 (86.06) 815.79 (85.46) 925.71 (83.39) 1083.6 (84.78) 1442.7 (84.58) 1877.42 (84.15) 2346.68 (81.39)

a

All rural enterprises include TVEs located in urban area and TVEs in township and village area. ‘‘Total’’ means all rural enterprises no matter where they located, while ‘‘TVE’’ means those rural enterprises specifically located in township and village area. Source: China Statistical Yearbook 1998, p. 345.

elderly and women behind, therefore leading to an erosion of the quality of human capital in agriculture (Carter et al., 1996). This would heavily undermine the development of the agricultural sector, as they lost all the talented people working in the agricultural sector to the TVEs. Many western scholars highly praised the successful story of China’s TVEs and assumed that they contributed substantial financial and material support to the agricultural sector (Leeming, 1994). The preceding analysis (see Tables 2, 3 and 5) clearly revealed that TVEs have not only taken a lion’s share of rural financial resources with little returns, but also substantially altered the former mutual beneficial relations with the agricultural sector. 2.4. Detached from rural economies In addition to Table 5, which has already shown the lack of contribution by TVEs to the rural social, infrastructural and welfare development, Table 6 further elaborates this phenomenon by depicting the TVEss contribution to the economic well-being of the rural population. As Table 6 shows, although the per capita net income of the rural households earned from enterprises, which includes the TVEs, had increased from 3.01 yuan RMB in 1978 to 361 yuan RMB in 1997, it nonetheless was only about 12.5% of the basic net income of the rural households. In 1997, rural household income from all rural enterprises accounted for only 18% of the total. The largest component of rural households’ per capita basic net income is the household’s agriculture and by-product productions, which is not in any form related to the TVEs, accounting for about 85% in 1990s. These numbers imply that the TVEs have only been a minor income source of the rural population. Both Tables 5 and 6 post the puzzle that the

development of TVEs in rural area has been increasingly detached from rural economies. Bearing these questions in mind, the first author of this paper recently conducted an investigation into a former commune brigade (now called Xiang), where he had spent 3 years there about 20 years ago as one of the millions urban youths rusticated to the countryside during the Cultural Revolution. The brigade (Xiang), namely Aio, is a typical Chinese rural production unit with about 2000 households and 10,000 population. Like most countryside, it had moderate development of TVEs during the reform era. There are four small factories: a producing brick, a quarry, a tool-making workshop and a chemical raw materials factory. The annual output of the four factories range from 0.6 million to 1.5 million RMB and each of them employed 10–20 labours. The total output of the four factories is more than 3 million RMB and the total non-agricultural employment is about 60 workers. The then brigade total output, including agriculture and non-agriculture production, was not more than 20,000 RMB. Therefore, compared with the commune era, an extraordinary amount of fortune has been generated. According to these figures, this brigade (Xiang) should be very wealthy and hence the overall rural social and welfare development should have at least progressed. However, the reality is very illusive. In contrast to one’s imagination, the revisit to his second hometown 20 years later was a very depressing and unpleasant one. The overall observable scenery, apart from some newly built houses, is bleak and dreadful. In some cases the condition had worsened compared to 20 years ago. The roads, the village houses, the fishing ponds, the nearby streams, the sanitary conditions, all public facilities and infrastructure are either rotted or deteriorated. After a lengthy chat with the cadre of the brigade, the author found that there was simply no public fund available for

264

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

Table 7 Results of the survey of pollution sources of TVEs (1990) Categories of pollution

Quantity

Percent (%)

Frequency of polluting TVEs, in which: Serious polluting TVEs Total amount of waste water discharged, in which: Serious polluting waste water Total amount of waste water disposal in which: Meet required standards Total amount of solid waste discharged in which: Serious polluting solid waste Total amount of solid waste disposal in which: Meet required standards

36372 (number) 19830 (number) 3.2 billion tons 2.43 billion tons 1.37 billion tons 0.16 billion tons 0.39 billion tons 0.16 billion tons 0.17 billion tons 0.11 billion tons

64 of the sample TVEs 35 of the sample TVEs or 55 of the polluting TVEs 76 of the discharged 43 of the discharged 5 of the discharged or 12 of the disposed 41 of the discharged 43 of the discharged 28 of the discharged or 65 of the disposed

Source: Guojia Huanjing Baohu Ju (The State Environment Protection Administration) Huan Jing Bao Hu (Environment Protection), 1992, 2, pp. 4–5.

public facility and environmental improvement inspite of more than 3 million RMB generated by TVEs. The total revenue collected from the four TVEs was o20,000 RMB per year. The revenue received was barely enough to pay the wages to cadres and other workers of the brigade. The main reason for this is that the four factories do not belong to the brigade. They were subcontract to some individuals call baogontao (or contractor), who might not be a member of the brigade. The brigade can only charge them utility fee, such as land use fee or materials fees that are usually and understandably very low. Paradoxically, there is almost no collective economy in the countryside of a so-called ‘socialist’ country. Thus, it is understandable as to why no money is available for the public and infrastructural development in many rural communities in China. The above case well illustrated the fact that the development of TVEs may not necessary be beneficial to the majority of farmers and the rural societies.

2.5. Pollution and other environmental problems The rapid growth of TVEs created vast pollution problems in both rural areas and the country as a whole (Carter et al., 1996; Smil, 1993). According to a survey jointly conducted by the State Environmental Protection Administration, the Agricultural Ministry and the State Statistical Bureau in 1990 (Guojia Huanjing Baohu Ju, 1992), of 57,300 TVE samples in 29 provinces, 64% were generating pollution problems and 35% generated serious pollution problems (see Table 7). As Table 7 shows, 76% of discharged water waste created serious pollution while only 5% of water waste disposal met the required standards; 41% of discharged solid waste generated serious pollution while 28% of solid waste disposal met the required standards. The survey also reveals that most TVEs had not installed waste disposal or treatment facilities.

This survey result shown in Table 7 reflects the tip of an iceberg in China’s serious environmental problems. Edmonds (1994) argued that TVEs have contributed substantially to China’s mounting environmental degradation. Unlike traditional TVEs in other developing countries, China’s existing TVEs consisted of an overwhelming amount of polluting industries, such as produce garments, shoes, plastic products and electrical appliances. Today, rivers are largely polluted (Douglas et al., 1994) and threaten the sufficient supply of drinking water for a substantial proportion of the rural and urban populations. These pollution problems have seriously degraded the rural environment and its living standards (Wong and Zhao, 2001). Apart from pollution problems, TVEs have also been widely criticised for their waste of natural resources (particularly mineral resources), low economic efficiency, and the destruction of the ecological environment (Edmonds, 1994; Wong, 1999). This is primarily because most TVEs can only afford to use primitive technology and substandard equipment. The dispersed nature of their locations also deprived them from basic urban infrastructures, which in turn exacerbated the pollution problems of TVEs. In 1997, the central Government ordered the closure of many rural factories, which were responsible for massive water pollution of the country’s scarce water resources. Many rivers have been seriously deteriorated by the uncontrolled discharge of wastewater from TVEs (Becker, 1999).

3. Fundamental reasons for the conflicts between TVEs and agricultural production Farmers are keen to develop TVEs and TVEs have taken away substantial key rural resources and left behind serious pollution and other environmental problems. The reason for this is broadly ‘‘economic’’, i.e. the high economic return generated by TVEs. It is a

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

265

Table 8 The labour productivity by different rural sectors Labour productivity

1980 RMB/ person

1985 RMB/ person

1988 RMB/ person

1990 RMB/ person

1993 RMB/ person

1994 RMB/ person

GOVa of Agr. GOV of TVEs GOV of Construction GOV of transport GOV of commerce & services

668 2800.7 6359.4

1138.2 5863.7 5258.7

1833.6 14250.9 6056.1

2274.8 20726.2 6470.1

3240.6 62010.3 14392.1

4818.2 93105.3 19008.8

5237.8 837.5

5074.5 6096.6

7427.6 8836.7

9277.6 10096.6

19051.1 21374.4

27826.7 30848.8

a GOV: gross output value. Source: China Statistical Yearbook, 1990, p. 181. China Statistical Yearbook, 1991, p. 171. Rural Statistical Yearbook of China, 1995, p. 273.

Table 9 Land productivity by different land use categories Productivity index

Grain

Cash crop

Fruit

Fishery

High class fishery & animal husbandry

Industry

RMB/mu US$/ha

500 940

1000 1880

2000 3760

5000 9400

10,000 18,800

>100,000 >188,000

Note: The high class fishery & animal husbandry productivity refers to raising expensive fish and animal husbandry such as duck, goose and terrapin in pond. The figure of industrial productivity is estimated in a most general term. Source: Personal field survey in September 1996 in Chashan Township, Dongguan County, Peal River Delta Region.

common practice that agricultural production generates less cash value than the non-agricultural production and farmers earn less than factory workers. But, this difference or discrepancy is exacerbated by China’s distorted price system, the so-called ‘‘price scissors’’ policy.8 As a result, the state purchase price for agricultural products is chronically much lower than the actual or market value of agricultural products, by as much as 59% in 1978 (Field, 1988; Sicular, 1988). This distorted price system, which had arisen from the price scissors policy, had led to a disparity of economic return between agricultural and non-agricultural activities within rural sectors (see Table 8). Table 8 shows that in 1990 the labour productivity of TVEs was 10 times more than that of agricultural production, the highest productivity in the rural sector. The labour productivity of agricultural production was the least, about three times lower than that of construction and transportation, and five times lower than that of commerce & food service. There was an increasing tendency for the disparity of economic returns between agricultural and non-agricultural activities (Table 8). The disparities of land productivity are even greater (Table 9). In September 1996, the authors conducted a field survey in Chashan Township, Dongguan County, Peal River Delta Region and the results were sum8

Price scissors (jiage jian daocha) is the difference in the price between agricultural and industrial products in the process of exchange, with the former being much lower than that of the latter.

marised in Table 9. As Table 9 shows, the land productivity of grain production is 50% of the cash crop, 10% of fishery, 5% of high class fishery/animal husbandry and 0.5% of industrial activities. Under such circumstances, it is rational for farmers to engage themselves with all their resources into TVEs, particularly when they find that their real income has in fact decreased since the mid-1980s, and find that there are other alternatives available. This economic argument has partially explained why farmers prefer to pursue non-agricultural or industrial activities. It alone is still not able to explain the creation of the conflict between TVEs and agricultural production. The higher economic return of non-agricultural over agricultural activities is a universal phenomenon, irrespective of whether the price system is distorted or not. The price scissors policy has only exacerbated the problem. The fundamental reason for the conflict is the contradiction between two incompatible functions— agricultural and industrial—performed in the same place and at the same time. By going back to basics, one must recall the fundamental reasons for the evolution of industrial and urban systems. For instance, Johnston (1984) depicts a historical chain of urban growth from nomadic or semi-nomadic activities to settled or paddy cultivation and than to the evolution of primate cities based upon commercialisation and mercantile socio-economic system, and finally to industrial and capitalist urban system. Although there are many forms of urban system

266

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

today, the ‘‘industrial town’’ inserting into or compounded with ‘‘mercantile’’ systems, which are characterised by ‘‘primate urban centres’’, holds the major features of the modern capitalist urban systems. From this chain, one can see that cities or urban settlements are nuclear and non-agricultural in nature, mainly manufacturing and industrial, which was born or originated from vast rural and agricultural settlements (Johnston, 1984). More specifically, industrial or manufacture functions were historically separated from agriculture, i.e. the socalled second social division in human history. Industrial activities need to be concentrated because of the business threshold requirement and the principles of the external and scale economy (Zhao and Zhang, 1995). Thus urban areas were formed by the industrial agglomeration. Cities or urban areas are in fact the spatial concept of the industries. Similarly, urban areas are often defined by their size (a settlement of a certain population size before it could be called a town or city)9. Hence industry and city had finally separated from agriculture and rural areas, both functionally and spatially. This is just a basic historic fact about the evolution of human settlements. Apparently, exceptions do arise in the development of urban settlements. That is, the globalisation forces have brought many manufacturing industries to the rural area, particularly in Southeast Asia and recently also in the Pearl River Delta in South China. This has resulted in a mixed land use zone and combination of functions of industry and agriculture, which was named by McGee as desakotasi pattern (McGee, 1989, 1991). The desakotasi literally means the ‘‘village-town-process’’, and later it was widely called the ‘‘extended metropolitan regions’’ or the ‘‘extended metropolis paradigm’’ theory (Ginsburg et al., 1991). However, it must be emphasised that this mixed or desakotasi pattern or the ‘‘extended metropolis paradigm’’ does not fundamentally conflict the world’s urban growth experience that separates the ‘‘urban/ industrial’’ land use from the ‘‘rural/agricultural’’. China’s TVEs experience in the rural areas is, however, a completely different phenomenon. The desakotasi pattern or process is basically about the global/ external/exogenous manufacturing/industrial forces incorporating with rural labours, land, and functions into a ‘‘urban’’ domain. However, the process has not been completed, and is still in a transitional stage. The functions and activities in the mixed or desakotasi area are not confined to the traditional ‘‘agricultural’’ activities, but the ‘‘modern’’, ‘‘manufacturing/industrial’’ activities with an ‘‘international’’ orientation. China’s TVEs are merely local/indigenous forces that

cannot compare to, or is completely different from the global forces, in terms of their power and functions. Another fundamental difference between desakotasi and China’s TVEs experience is their spatial location—the desakotasi takes place very selectively in the ‘‘extended metropolitan regions’’, while the TVEs are everywhere across rural China. Chinese TVEs seem to contradict the world’s urban growth experience by bringing industry back to the agricultural domain. Being so widely dispersed in rural areas, TVEs can rarely form new urban centres and become urban enterprises. Because they are so close to agriculture financially, spatially, and emotionally they can hardly divorce themselves from their farmers’ characteristics. Many TVEs, due to village equality, practice a shifting employment system, whereby their workers rotate from family to family, from season to season. Thus, TVEs would most likely remain ‘‘rural’’ enterprises, and their workers would always be farmers. Apparently farmers appear to have more choices in developing their economy. In reality this is not the case. Farmers have to choose between agricultural and industrial business. Undoubtedly, farmers prefer industrial to agricultural development for it is more profitable to them. That is why TVEs continued to drain the resource from the agricultural to industrial sector. Furthermore, because of their peculiar location characteristics, TVEs have no way to divorce themselves from their agricultural origins.

9 In China, a ‘‘city’’ refers to a settlement with 100,000 people or more, and a ‘‘town’’ with at least 20,000 people.

Fig. 1. China’s rural–urban division and the malfunction of TVEs in the rural sector.

Predominant Rural Society

Agri. output decreasing

Rural agri. sector stagnating&shrinking

Rural agri. sector

TVEs sector stagnating in the long-run

TVEs growing with continuous draining of rural resources

Urban sector shrinking if no other resource input, e.g. FDI and urban capital formation

Urban modern sector stagnating due to lack of natural rural-urban flows

TVEs Urban sector

Long-term or perpetuate transfer of rural capital and labour

Rural - urban division and isolation

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

The central issue is that the continuous transfer of rural capital from agriculture to TVEs would endanger the sustainability of the farming economy in China. It is legitimate, and should be encouraged, that farmers invest their surplus capital in the industrial sector, but it should not be at the expense of the farming sector. Therefore, a channel must be set up to transfer farmers’ surplus capital into the industrial sector in the urban areas. Otherwise, it would be unavoidable that farmers would continue to use most of their resources in the more profitable TVEs and neglect farming. Fig. 1 has thematically summarised how China’s TVEs created internal conflict within the agricultural sector. The existing urban–rural division makes TVEs man-made separated from the ‘‘urban’’ and cannot divorce them from their ‘‘rural’’ origins, which led them ceaselessly to drain off rural and agricultural resources and to cut off the natural flows and relationship between the rural and the urban. As a consequence, the growth of TVEs is in fact a major reason for the stagnating and shrinking of both the agricultural and urban sectors that forced China to be a predominant rural society in the foreseeable future, if there is no other resource injection, such as foreign capital and urban own capital formation (see Fig. 1). Based on the above reasoning and arguments, the authors would question or challenge the very influential viewpoint of Fei Hsiao Tung10 that farmers should leave the earth but not the countryside (litu bu lixiang) for their pursuit for economic betterment and prosperity (Fei Hsiao Tung, 1985, 1986). Fei’s viewpoint had in fact become the national policy that had stimulated the rapid development of rural industrialisation and TVEs in the countryside. But, it is now widely accepted among Chinese scholars that the policy is wrong as it is very costly and destructive to the sustainability of both rural economy and natural environment (Yeh and Li, 1997, 1999; Wong and Zhao, 1999a, b; Kirkby and Zhao, 1999). Some may argue that Chinese urbanisation is ‘thriving’ under economic reform period, and the indigenous rural-based TVEs are the major forces behind this ‘thriving’ urbanisation process. This perception, however argued in this paper, is neither entirely correct nor appropriate. Firstly, the ‘‘thriving urbanisation’’ assertion is highly questionable. Based on the newly released data of the 2000 Census, China’s current urbanisation level reached 36%, up about 5% from official statistical figure. However, even with this new census figure of 36%, many scholars, including a renowned expert on Chinese urbanisation, Professor Zhou Yixing of Beijing University, found that China’s urbanisation develop10

Fei Hsiao Tung, a well-known sociologist and former deputy leader in People’s Congress of PRC, was very influential in formulating China’s rural industrialisation and rural urbanisation policy.

267

ment is not really ‘thriving’ since the launch of the economic reform in 1978, and China’s current level of urbanisation of 36% can be regarded as ‘‘extremely low’’ comparing to other developing countries (Zhou and Ma, forthcoming). According to 2000 World Population Data Sheet, complied by the United Nations, the average urbanisation level for ‘‘less developed’’ countries, excluding China, in 2000 is 40%. China is lagging not only behind many transitional economies such as Poland, Hungary and Russia, which have urbanisation levels of 62%, 64% and 73% respectively, but also behind other socialist countries, such as North Korea and Cuba, which are 59% and 75%, respectively (Zhou and Ma, forthcoming). Many scholars in the field of urban studies, based on the analysis on the correlation between GDP and urbanisation levels, even found that when comparing countries with a similar level of income, China has been experiencing ‘‘under-urbanisation’’ not only in the prereform but also in the reform periods (Zhang and Zhao, 1998), and the urbanisation lag (that is, the percentage behind its GDP growth and industrialisation) is, in fact, gradually increasing since the launch of economic reform in 1978. Some scholars have quantified about 5–10% of under-urbanisation rate compared with China’s economic growth and with other countries of similar level of income. This could be explained by the fact that, although China’s national income has substantially risen during the reform period, its urbanisation level did not rise at a rate as fast as the level of income. The studies also claimed that the strict hukou system, has resulted in the blocking of China’s urbanisation growth. Secondly, even if one accepts the notion of thriving urbanisation under the reform period, the assumption that TVEs are the major forces behind the thriving process is also not entirely appropriate. A part of China did experience thriving urbanisation process, but this thriving process is spatially limited and selective, which is highly concentrated in the eastern coastal region, particularly the Pearl River Delta and Yangtze River Delta regions, where urbanisation level reached 40% and even 45%. However, it is argued in this paper that, rather than the TVEs, it is the injection of foreign capital, particularly foreign direct investment (FDI), which is the driving force behind urbanisation in this eastern coastal region. In current China, foreign capital, particularly FDI, has play increasing important, even dominant role in China’s economy, as it contributed 37% of total GDP, 31.5% of total exports and 47.7% of total imports, 18.9% of the total industrial output and 13.2% of total employees employed in the country (Sun, 1998). At the same time, the foreign direct investments are concentrated predominantly in the eastern coastal areas, particularly the population agglomeration areas of the Pearl River Delta and the Yangtze Delta regions.

268

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

The eastern region housed 87.8% of the total FDI in China (OECD, 1999). Out of that, 29.1% went to the Guangdong provinces, 11.9% went to the Jiangsu province and 8.6% went to the Shanghai, representing the Pearl River Delta regions and the Yangtze Delta respectively. The coastal region constituted 88.1% of the realised FDI in China between 1990 and 1996, in which the Guangdong, Jiangsu and Shanghai shared 29.1%, 11.9% and 8.6% of the total realised FDI, respectively. (Sun, 1999) The foreign invested enterprises contributed 25.5% of the industrial output in the coastal areas (in which the same figures for Guangdong is 50.3% and for Shanghai 33.7%), the FIEs involved in 23.8% of the total employment in the Guangdong province, and 13.9% in Shanghai (Sun, 1999). The FIEs made up 43.6% of the total amount of exports and 55.5% of imports in the Guangdong province (Sun, 1999). These figures have suggested the dominance of foreign direct investments in the eastern coastal areas of China, and being the foreign direct investment is the engine for employment, industrial development and trade in such areas, it results in the concentration of population in the eastern coastal regions in China. Consequently, the ‘thriving’ nature of the urbanisation process in China, if not an ‘illusion’ for the country as a whole, is highly skewed in the eastern coastal region, especially the Pearl River Delta and the Yangtze Delta regions, as FDI may assume to be the major driving forces for economic and urbanisation growth in China. Under this globalisation scenario and framework, it is highly unlikely to claim that the indigenous, rural-based TVEs are the major driving forces for the rapid transformation in the highly urbanised eastern coastal region. We shall endorse a pessimistic view over the future of the indigenous, rural-based TVEs, which sprawled in the countryside areas, as they are located far from the urbanised or suburbanised setting, and it would be very difficult for them to attract foreign capital. On the contrary, however, the suburban-based TVEs, are able to attract FDI and foreign know-how, and therefore, are capable of establishing joint ventures with foreign capital, which would constitute one of the best development models for China. (see later discussion in the next Policy Options section).

4. Policy options It has become apparent that a policy that encourages TVEs and seeks to maintain stable agricultural supply at the same time is bound to be self-contradictory. This is not only because of the principle of sectoral uneven returns, but also because of contradiction of farmers being engaged in two different industries at the same time and in the same place. This contradiction results from a broader overall dysfunction within the State

system. In China, there is a long-term administrative division between rural and urban sectors with a predominant urban bias (Nolan and White, 1984). For half-a-century, peasants are immobile and have had little chance to migrate to cities to become urban citizens. Fig. 1 portrays the state of rural–urban isolation, within which TVEs developed with continuous draining of rural resources, which would, in turn, led to the shrinking or stagnation of agricultural output, rural and urban economies, if there is no other resources injection, such as foreign capital (FDI) and urban own capital formation (see Fig. 1). However, the separation of rural and urban sectors not only harms both the rural and urban economies, it also leads to many negative effects of TVEs on the agricultural sector. Although the distorted price system should be blamed for propelling the TVEs development and the resulting negative impacts, the ultimate solution to the problem should be focused on amending the dysfunction within the rural sector itself. Thus, the resolution suggested here is to return to the basic functional division between industry and agriculture as suggested in the Lewis Structural-Change Model (Lewis, 1955). In Lewis’s two-sector-change theory, he suggested firstly that economic change must experience a continuous transformation from subsistence rural sector, characterised by overwhelming surplus rural labour, to modern urban industrial sector with high productivity. He defined ‘‘surplus’’ labour as marginal labour productivity equal to zero, which means that they can be withdrawn from the agricultural sector without causing any loss of agricultural output. Secondly, Lewis maintained that the modern urban sector would

Agricultural output growing and sustaining

Urban/industrial modern sector growing and sustaining

Supply of industrial support and absorption of rural labour-forces

Rural/foreign capital

Rural and agri. sector

Urban and indust. sector

Urban/foreign capital

Initial investment Long-term transfer of rural labour Passive status

Dominant status

Fig. 2. The normal functional division and the dynamic relationship between rural and urban sectors.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

gradually absorb this surplus labour from the subsistence rural sector. The process of labour transfer from rural to urban sectors is determined by the rate of industrial investment and capital accumulation, including foreign capital injection and participation, in the modern urban sector. The further development of the urban sector will absorb rural surplus labour and finally achieve the national economic structural transformation, with a balance of economic activity and equalisation of income between rural and urban sectors. Lewis’ two-sector model has been schematically summarised in Fig. 2. Lewis’ model was criticised for many reasons, such as his unrealistic assumptions, constant wages and full employment in the urban sector (Todaro, 1994). However, it gives us at least one important insight, that is the urban industrial sector will absorb rural surplus labour, but not the reverse—surplus rural labour building up industry, as currently emerged in China. This insight also implicated that industrial activities should be in cities rather than in the rural areas. The relationship between the urban industrial sector and rural surplus labour is complex. It means that farmers should play a ‘‘passive’’ role in this sectoral transformation, waiting for absorption by the urban sector (Fig. 2). Farmers should not use their own initiative and set up industry within the countryside. It is the urban sector, and not rural labour, which plays an active and dominant role in this historical rural–urban transition (Huang, 1998; Carter et al., 1996). Otherwise, the functions of industry and agriculture could be disturbed. The relationship between the rural and the urban and its associated underlying meanings depicted in Fig. 2 represent the dynamic rural–urban relationship. Some leading experts on agricultural issues in China, for example Cai Feng, Zhong Funing, and Huang Yiping,11 have justified the contribution of the Lewis model in explaining the development of rural China, as they stated ‘‘there is a problem of surplus labour in China’’. They attack the critics of this model, claiming the assumptions the critics made on that ‘‘surplus labour cannot exist, due to the fact that when the labour market is fully functional, and thus workers leaving the farm could always find some type of work’’, is not the case in China (Carter et al., 1996; Huang, 1998). They argued, according to Johnston (1970), that what Lewis implied in his model is that following the departure of the surplus labour from the agricultural sector, the workers who stayed in the agricultural sector could maintain 11

Cai Feng, Zhong Funing, and Huang Yiping are leading experts in China’s rural and agricultural development in The Chinese Academy of Social Science. They published widely in international acknowledgeable journals, including that by the Cambridge University Publisher (see Carter et al., 1996; Huang, 1998).

269

output through their willingness and ability to work harder. (Carter et al., 1996) They also pointed out that some may argue that the main contribution of TVEs are to absorb these ‘surplus workers’, but they also stressed that the TVEs’ ability to absorb rural surplus labour is decreasing from the early 1990s. (Carter et al., 1996). One might ask, ‘‘what is the difference between rural and urban areas?’’ ‘‘Does the latter come from the former?’’ Farmers could certainly bring about the transformation, as well as transform themselves into urban citizens. However, in China, farmers are not allowed to migrate freely to cities and to become urbanites. Therefore, they are compelled to run TVEs in rural areas (see Fig. 1). As previously discussed, this has threatened the agricultural production and national food supplies and resulted in vast environmental degradation in China. Moreover, it should be noted that the dysfunction would eventually weaken TVEs to be real industrial enterprises. This is because they cannot separate themselves, financially or physically, from the realities of agriculture. On the other hand, if TVEs were not assuming the role that urban enterprises play and they exist merely to process local agricultural materials and to provide local rural services, it would be a blessing to the Chinese agriculture. They would not be dysfunctional. Instead, the TVEs and agricultural development would be mutually beneficial. Unfortunately, this is not the case. The Chinese TVEs have gone beyond the ‘‘rural’’ domain. Chinese farmers want to benefit more by draining their resources to the rural industries. They also want their TVEs to become fully fledged industrial corporations. Evidently, ‘‘rural problem’’ in China cannot be resolved within the rural sector alone. It demands reforms in both the rural and urban sectors and the mutual supports between farming and industries. Therefore, the Chinese government must find ways to transform the dysfunctional situation shown in Fig. 1 to a normal relationship between the two sectors. In fact, China’s household registration system has been loosening since the introduction of reforms, and the mobility of the massive rural population has largely increased. Some studies estimated that about one-third of the present urban population are rural migrants (Kirkby, 1994). However, China’s rural–urban separation policy still prevails and the household registration system or hukou system is still in operation (Chan and Zhang, 1999). As a result, most TVEs and their rural households cannot easily and legally settle in cities. Their family members are denied access to some essential urban facilities, such as education, housing and health care. Particularly rural children are not allowed to enrol in the schools located in the cities, because they do not possess the urban hukou. Today, the hukou system still

270

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

imposes a substantial barrier between urban and rural population and intensifies the rural–urban separation (Chan and Zhang, 1999; Rozelle et al., 1999). On the other hand, urban municipal authorities are generally antithesis to rural immigrants. They normally impose strict control over and restrictions on rural settlements in urban area (Ma and Xiang, 1998; Chen and Zhao, 1999; Rozelle et al., 1999). The recent crackdown of Zhengjiang Cun, a relatively well-established ‘‘rural’’ settlement within Beijing city, by the Beijing municipal government, followed by a cleaning movement of rural villages/settlements nation-wide, is the best evidence and support of such an argument.12 Under such separation policy Chinese farmers are very difficult to set up their own enterprises in the urban area. This has, nevertheless, compelled them to set up TVEs in a predominantly farming environment. The hukou system, due to its restrictions on labour mobility, caused the existence of the problem of surplus labour in China (Carter et al., 1996). Beyond the rural–urban framework or in the global perspective, the urban-based or suburban-based TVEs, which combine both urban and foreign capital, knowhow, and other resources, will certainly strengthen their competitiveness and facilitate their development under the globalisation process. This model—the combination of the ‘‘rural’’, ‘‘urban’’ and the ‘‘international’’, would represent a powerful force behind further transformation of the economy in China. These TVEs would be located in urbanised or the suburbanised area, such as extended metropolitan region, while the expansion of urban areas would be able to incorporate, upgraded, and transformed TVEs, with urban and foreign capital and know-how. In this connection, the development in the Yangtze Delta in the Jiangsu and Zhejinag provinces and in the Pearl River Delta region in the Guangdong province (Selden, 1998) presents an ideal example for the rural– urban transition, as both urban and foreign capital 12 In Nov 1995, Beijing municipal government ordered its municipal policemen and security forces to crack down a rural settlement in its Dahongmen District—nick named Zhejiang Village. This event involved violence, shooting and bloodshed (but public media did not report the detailed casualty figure, and only the resulting crackdown of the village was reported). The Dahongmen District, which is situated in the north suburb of Beijing and consists of 26 natural villages, is the largest and the most well and long established clustering settlement of rural–urban migrants in Beijing, and perhaps in China. Since 1983, it has been gathering temporary rural–urban migrants, the so-called ‘‘blind floating people’’, particularly from the Zhejiang Province. For this reason, it is also called the ‘‘Zhejiang Village’’. By 1995, it had gathered 37,800 temporary residents who live there for more than 1 year, and about 100,000 temporary or, say floating people, each day from outside Beijing. This event led to a citywide, in fact, a nation-wide forced deportation of the temporary residents/rural–urban migrants and a large scale of demolishing and cleaning movements of the rural clustering settlements in urban China. See Beijing Daily 28/11–24/12/ 1995.

and know-how provide the necessary financing opportunities, management methods and technological advancement for the TVEs and assist them to enter the global markets necessary for further growth of the TVEs. To name a few examples, the ‘Kelon’ and ‘Meidi’ brands of electronic appliances in Guangdong are former TVEs, with the injection of foreign capital and the agricultural TVEs seeking foreign investments (including Hong Kong investments), for example a former TVE named Euro-Asia agriculture, which is now listed in the Growth Enterprise Market in the Hong Kong Stock Exchange. The TVEs, as long as they combine both urban and foreign capital and learn from the ‘global norm’ of business operation under the globalisation framework, will excel and play an important role in China’s economic and rural–urban transformation. Such a natural combination among the ‘rural’, the ‘urban’ and the ‘international or global’ in a reciprocal nature or bearing a mutually beneficial relationship, is perhaps the best or the optimal alternative policy option for the country’s economic development and the rural–urban transition in general, and for the healthy development of the TVEs in particular.

5. Conclusion China’s TVEs was, and should still be regarded as, a great innovation and undertaking of farmers in China as they still contribute to a significant share of the national economy. However, under the present peculiar Hukou system of China, the strict and antithetic population control in urban areas and the virtually non-regulated rural domain (Kirkby and Zhao, 1999; Rozelle et al., 1999), such an undertaking, no matter how grand, dooms to be unsustainable. In 1997, the PRC State Council still required all local governments to sustain the growth of the TVEs.13 Today, the central government of China faces a difficult choice between closing down some unsuccessful TVEs ventures and favouring developing industries in cities (Becker, 1999). This paper has analysed the internal conflicts between TVEs and agriculture within the rural sector. It has portrayed the deep-seated problem or sustainability dilemma inherent in China’s TVEs development process, which helps to understand the present difficulties confronting TVEs. In order to achieve sustainable development, this paper maintained that the TVEs must undergo reforms or transformations in at least two aspects. First, TVEs must maintain themselves as dominant ‘‘rural’’ industries, which aim primarily to process agricultural goods and to provide local rural services—a policy similar to 13 See South China Morning Post, 17 June 1997, p. 10, and 27 August 1999.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

former Mao’s commune practice. Rural industries that have beneficial relations with the agricultural sector should be encouraged to sustain in the rural area. They should not develop at the expense of agriculture development or at a level in which they might begin to harm the agricultural sector. Secondly, TVEs that produce goods or services unfitted into the ‘‘rural’’ domain should be allowed to separate from their ‘‘rural origin’’ and to be urbanised into an extended metropolitan area. Unfortunately, the long-term urban and rural population isolation policy of China has become the major obstacle for the proposed development. For example, the on-going urban household registry system effectively prevents farmers from setting up enterprises in cities. Therefore, the ultimate solution to the problem is to abolish the existing stringent rural–urban separation policies. First, the Chinese government should cease the urban–rural separation policy by gradually abolishing the urban household registry system. The Government also has to remove other forms of discriminative policies that restrict farmers’ freedom of movement and their right to do business in urban areas. Secondly, city governments should welcome peasants to build industries in urban areas. The influx of investments and surplus labours from the rural areas are the crucial elements to vitalise the urban economy. By encouraging the development of non-‘‘rural’’ nature or suburbanbased TVEs in extended metropolitan areas, TVEs could access better urban infrastructures (such as transportation, communication and information technology) and better laws and regulations, enjoy external and scale economies, learn modern managerial skills, and benefit from foreign capital and know-how. Thus, it would not only facilitate the process of China’s industrialisation, urbanisation, and modernisation; at the same time, the negative impacts of TVEs on the agricultural development in rural China can be avoided. Otherwise, China’s agriculture production and food supply could continue to be uncertain and vulnerable. China’s TVEs are also facing a serious constraint, as rural areas are lacking the conditions for their further advancement. This paper would finally argue here that in any developing country, the state must address a thorny but profound sustainable development issue of how to keep farmers on the land and to ensure a stable national food supply without jeopardising farmers’ incomes and living standards. In this regard, this paper would, on the other hand, argue and advocate that the natural combination among the ‘rural’, the ‘urban’ and the ‘international or global’ of a mutually beneficial relationship could be the best model or the optimal alternative policy option for the country’s grand rural– urban economic transition and for the healthy development of the TVEs.

271

Acknowledgements This paper is a partial product of the research project ‘‘Settling ‘Rural Villages within Cities’ in China: Problems and Planning Strategies’’, financed by Hong Kong Baptist University (Grant Ref: FRG/97-98/II-51). The authors would like to acknowledge financial supports Hong Kong Baptist University and data processing by Tang Weiyin. Special gratitude is due to much help from officials in PRC State Planning Commission, Ministry of Finance, and State Statistical Bureau.

References Ash, R.F., 1991. The Peasant and the State. The China Quarterly 127, 518–519. Ba Shan, 1991. Ji’e de Guodu—Zhongguo Liangshi Weiji. Pai Shing Cultural Enterprise, Hewing Kong, pp. 166–171. Becker, J., 1999. Slump in countryside deepens as bubble burst for rural enterprises. South China Morning Post, 27/8/1999 (Notes on China section). Blackburn, R. (Ed.), 1991. After the Fall—The Failure of Communism and the Future of Socialism. Verso, London & New York, p. xv. Brown, L.R., 1995. Who Will Feed China? Wake-up Call for a Small Planet. W.W. Norton & Co., New York. Byrd, W.A., Lin, Q., 1989. China’s Rural Industry: An Introduction in China’s Rural Industry—Structure, Development and Reform. World Bank, pp. 3–4. Chan, K.W., Zhang, L., 1999. The Hukou system and rural–urban migration in China: processes and changes. The China Quarterly, 160. Chen, T., Zhao, X.B., 1999. Floating population settlement and its shaping mechanism. Dili Xuebao (Journal of Chinese Geography) 2, 66–73. Carter, C.A., Zhong, F., Cai, F., 1996. China’s Ongoing Agricultural Reform. The 1990 Institute, San Francisco, US. Dong Zhongzhi, 1992. Xiangzhen Qiye Jishu Kaifa Yu Duice. Renmin Chubanshe. Douglas, I., et al., 1994. Water resources and environmental problems of China’s great rivers. In: Dwyer, D. (Ed.), China: The Next Decades. Longman, London, pp. 186–202. Edmonds, R.L., 1994. China’s environment: problems and prospects. In: Dwyer, D. (Ed.), China: The Next Decades. Longman, London, pp. 156–185. Fei Hsiao Tung, 1985. China’s Road to Rural Industrialization. Beijing Review, 28(14), 24–26. Fei Hsiao Tung, 1986. Small Towns in China: Functions, Problems and Prospects. New World Press, Beijing. Field, R.M., 1988. Trends in the value of agricultural output 1978–86. The China Quarterly 116, 563. Ginsburg, N., Koppel, B., Mcgee, T.G. (Eds.), 1991. The Extended Metropolis: Settlement Transition in Asia. University of Hawaii Press, Honolulu. Goujia tongji ju, 1992. Zhongguo tongji zhaiyao. Zhongguo tongji chubanshe, Beijing, p. 69. Guojia Huanjing Baohu Ju (The State Environmental Protection Bureau), 1992. Report of Investigation of the Pollution Sources on Townships and Village Industries. Huanjing Baohu (Environmental Protection) 2, 4–5. Harper, S., 1994. China’s population: prospect and policies. In: Dwyer, D. (Ed.), China: The Next Decades. Longman, London, pp. 54–76.

272

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273

Hou Jianqiu, 1992. Fangzhan Xiangzhen Qiye de Jidian Yijian. Huan Jing 10, 14–15. Huang, Y., 1998. Agricultural Reform in China: Getting Institutions Right. Cambridge University Press, Cambridge, UK. Johnston, R.J., 1984. City and Society: An Outline For Urban Geography, 2nd Edition. Penguin Books, Harmondsworth. Kirkby, R., 1994. Dilemmas of urbanisation: review and prospects. In: Dwyer, D. (Ed.), China: The Next Decades. Longman, London, pp. 128–155. Kirkby, R., Zhao, X.B., 1999. Farm sector versus off-farm sector: sectorial and structural considerations in China’s rural development. TESG (Journal of Economic and Social Geography) 90, 3, in press. Lao Bian, 1989. Lun Xiangzhen Qiye Nongye Fazhan De Pinghang Du. Nongye Jingji 9, 84. Leeming, F., 1985. Rural China Today. Longman, London, New York. Leeming, F., 1994. Necessity, policy and opportunity in the Chinese countryside. In: Dwyer, D. (Ed.), China: The Next Decades. Longman, London, pp. 77–94. Lewis, W.A., 1955. The Theory of Economic Growth. George Allen & Unwin, London. Liu Jianchang, 1988. Dui Xietiao Xiangzhen Qiye yu Nongye Fazhan Guanxi de Xiting Sikao. Nongye Jingji 1, 117–120. Ma Xiaohe, 1988. Pinglun Muqian Nongye yu Feinongye Jian de Shenceng Maodun. Problems of Agricultural Economy 4, 27–31. Ma, L.J.C., Xiang, B., 1998. Native place, migration and the emergence of peasant enclaves in Beijing. The China Quarterly 155 (3), 546–581. McGee, T.G., 1989. Urbanisasi or Kotadesasi? Evolving patterns of urbanization in Asia. In: Costa et al. (Eds.), Urbanization in Asia: Spatial Dimensions and Policy Issues. Univ. of Hawaii Press, Honolulu. McGee, T.G., 1991. In: Ginsburg, N., Koppel, B., Mcgee, T.G. (Eds.), The Emergence of Desakota Regions in Asia: Expanding a Hypothesis. Nolan, P., White, G., 1984. Urban bias, rural bias or state bias? Urban–rural relations in post-revolutionary China. Journal of Development Studies 20 (3), 52–81. Organisation for Economic Co-operation and Development (OECD), 1999. Agriculture in China and OECD Countries: Past Policies and Future Challenges. OECD Publications, Paris, France. Rozelle, S., Guol, L., Shen, M., Hughart, A., Giles, J., 1999. Leaving China’s farms: survey results of new paths and remaining hurdles to rural migration. The China Quarterly 158 (1), 367–393. Selden, M., 1998. Household, cooperative, and state in the remaking of China’s countryside. In: Vermeer, E.B., Pieke, F.N., Woei, L.C. (Eds.), Cooperative and Collective in China’s Rural Development. M.E. Sharpe, Armonk, USA. Sicular, T., 1988. Agricultural planning and pricing in the post-Mao period. The China Quarterly 116, 702–703. Smil, V., 1993. China’s Environmental Crisis: An Inquiry into the Limits of National Development. M.E. Sharpe, New York. Sun, H., 1998. Foreign Investment and Economic Development in China: 1979–1996. Ashgate, Aldershot, UK. Taylor, R., 1988. Rural employment trends and the legacy of surplus labour, 1978–86. The China Quarterly 116, 736–739. Todaro, M.P., 1994. Economic Development in the Third World, 5th Edition. Longman, New York. pp.72–73. Vermeer, E.B., Pieke, F.N., Woei, L.C., 1998. Cooperative and Collective in China’s Rural Development. M.E. Sharpe, Armonk, USA. Walker, K.R., 1988. Introduction. The China Quarterly 116, VIII. Wong, K.K., 1999. Challenge of sustainable development. In: Teather, D.C.B., Yee, H. (Eds.), China in Transition: Issues and Politics. Macmillan, London, pp. 171.

Wong, K.K., Zhao, X.B., 1999a. The influence of bureaucratic behavior on land apportionment in China. Environment and Planning C 17 (2), 113–126. Wong, K.K., Zhao, X.B., 1999b. The shrinking farmland in the Pearl River delta region of China: the institutional factor. In: Li, S.M., Tang, W.S. (Eds.), China’s Regions, Polity and Economy: A Study of Spatial Transformation in the Post-Reform Era. The Chinese University Press, Hong Kong. Wong, K.K., Zhao, X.B., 2001. Living with flood: victim’s perceptions in Beijiang, Guangdong, China. Area 33, 3. World Bank, 1997. At China’s Table: Food Security Options. The World Bank, Washington DC. World Bank, 1999. Rural China: Transition and Development, World Bank Report, Rural Development and Natural Resources Unit, East Asia and pacific Region. The World Bank, Washington DC. Xiao Zhuoji, 1989. Dang qian woguo nongye de kunnan he chuiu, Business Research Centre, Hong Kong Baptist College, p. 5. Ye Wejun, et al., 1988. Zhongguo Chengshihua Daolu Chutan (Preliminary study on the paths of Chinese urbanization), Kexue Chubanshe (Science Press), Beijing, p. 54. Yeh, A.G.O., Li, X., 1997. An integrated remote sensing and GIS approach in the monitoring and evaluation of rapid urban growth for sustainable development in the pearl River Delta, China. International Planning Studies 2 (2), 195–222. Yeh, A.G.O., Li, X., 1999. Economic Development and agricultural land loss in the Pearl River delta, China. Habitat International 23 (3), 373–390. Zhang, L., Zhao, X.B., 1998. Re-examining China’s ‘Urban’ concept and the level of urbanization. The China Quarterly (154), 330–381. Zhang Yi, 1990. Zhongguo Xiangzhen Qiye—Linghuo de jizhi. Falu Chubanshe& Zhongguo Xiangzhen Qiye—Lishi de biran. Falu Chubanshe. Zhao, X.B., Zhang, L., 1995. Urban performance and the control of urban size in China. Urban Studies 32(4–5), 813–846 (Reprinted In: Paddison, R., Money, J., Lever, B. (Eds.), International Perspectives in Urban Studies, Vol. 4. Jessica Kingsley Publishers, London, 1996). Zhongguo Gongnong Guanxi Xuehui, 1988. Zhongguo Xiangzhen Qiyejia Chenggong Zhilu. Nongye Chubanshe, Beijing. Zhonghua Renmin Gonghehuo Nongmu Yuyebu, 1988. Xiangzhen Qiye Zai Kuobu Qianjin. Nongye Chubanshe, Beijing. Zhou, Y.X., Ma, L.J.C., forthcoming. China’s urbanization levels: reconstructing a baseline from the fifth population census. The China Quarterly.

Further reading Ash, R.F., 1992. The agricultural sector in China: performance and policy dilemmas during the 1990s. The China Quarterly, 131, 564– 565. Garnaut, R., Guo, S., Ma, G., 1996. The Third Revolution in the Chinese Countryside. Cambridge University Press, Cambridge, UK. Guldin, G.E., 2001. What’s a Peasant to Do? Village Becoming Town in Southern China. Westview Press, Boulder, USA. Lin Jianchang, 1988. Dui xietiao xiangzhen qiye yu nongye fazhan guanxi de xitong sikao. Nongye Jingji 1, 119. Niu Ruo Feng, 1989. Unstability of China’s Agricultural Development and its Solution. Nongye Jingji 89. Organisation for Economic Co-operation and Development (OECD), 1997. Agricultural Policies in China. OECD Publications, Paris, France. Organization for Economic Cooperation and Development (OECD), 2000. Recent Trends and Main Characteristics of Foreign Direct Investment in China. Financial Market Trends, No. 77, October, pp. 105–120.

Simon X.B. Zhao, Kenneth K.K. Wong / Journal of Rural Studies 18 (2002) 257–273 Organisation for Economic Co-operation and Development (OECD), 2001. China’s Agricultural in the International Trading System. OECD Publications, Paris, France. Wu Ning, 1991. Zhongguo Nongye wenti de zhengjie yu chulu. Nongye Jingji 1, 57.

273

Yang, Y., Tian, W., 2000. China’s Agriculture at the Crossroads. Macmillan, Basingstoke, UK. Zhongguo Chengshi Tongji Nianzhan, 1999. (China Urban Statistics Yerabook 1999), Zhongguo Tongji Chubanshe, Beijing, China.