Despite the gains in market performance in recent years, WTO makes demands on China’s domestic agricultural markets. Domestic marketing policy response to the nation’s impending WTO accession has been substantial and will continue. Major changes are aimed at improving the efficiency of domestic market performance and minimizing the adverse shocks that may arise from external trade liberalization. Perhaps more than in any other sector, the reforms in cotton and grain markets that China agreed to in the final stages of China’s WTO negotiation clearly show that its leaders are using this opportunity to develop its health domestic agricultural market. The case of cotton presents a good example. In 1999, officials began experimenting in the North China Plain with marketing reforms for cotton, frequently considered the second most important strategic agricultural commodity . The reforms were aimed at improving cotton market performance by reducing market transaction costs, creating a market-oriented pricing mechanism, and integrating regional markets. The main policy measure sought to eliminate the current monopolized state-own cotton procurement and distribution system. In part reflecting the fact that informal markets had already been working for many years, the disruption to cotton markets after liberalization were almost non-existent. With a successful performance of this experimental reform, the liberalization policy was expanded substantially in 2000 and fully implemented in 2001. Domestically, over the past two decades state-owned grain traders have chronically performed poorly due to imperfect incentives and a number of taxing policy burdens. Although many companies have received considerable marketing subsidies,ebb flow bench the losses of these firms have always been a burden on the national leaders.
Moreover, although it had appeared reformers had solved this problem in the mid-1990s, retrenchments in agricultural policy created a situation in which many state-owned grain companies were still losing money in the late 1990s. Internationally, there were also concerns over several commonly executed policies that are now being addressed. For example, WTO negotiators expressed their opinion that China’s traditional ways of pricing agriculture were distorting. Others believe that the rights of state owned grain trading enterprises to procure commodities from farmers under special access rights give certain domestic firms unfair access and violates national treatment principles of WTO. Facing these pressures and concerns, China has launched a new set of reforms in the area of state grain marketing system in 2000. Building on past efforts to liberalize markets and continuing with the tradition of moving gradually, many believe that the measures included in this round are ultimately expected to have a defining influence on China’s grain markets in the years to come. As part of the first step, the restrictions on grain procurement for lower quality grains such as the early indica rice and maize in southern China, spring wheat in northern China, and all wheat in southern China were phased out in 2000. After the policy was set in place, any trader was allowed to buy or sell grain from any farmer or other trader at any time. Almost immediately this policy resulted in an adjustment in the structure of the cropping patterns in some regions. In the last several years, producers have begun planting varieties to improve grain quality. Many of these improvement will mean that to some extent China’s farmers are in a more competitive position to produce and sell varieties that might otherwise come in from foreign sources, for example, high quality rice from Thailand or high quality wheat from Canada or the US. With successful performance of grain “varietal” reform in 2000, leaders are now going to officially liberalize grain markets. Depending on the deregulation of all grain-related procurement and sales, leaders are first implementing their policies in a subset of grain-deficit, coastal provinces, Zhejiang, Jiangsu, Shanghai, Fujian, Guangdong, and Hainan. Currently, the government is planning to extend the implementation of the policies in all grain deficit provinces in 2002.
As seen in the past, given such close ties between traders in surplus and deficit areas, such policies in deficit areas will almost certainly naturally envelope all of China. In response to WTO accession, the government also have ambitious plans to increase investment in market infrastructure. Leaders see a need to establish an effective national marketing information network. Officials in the ministry of agriculture are attempting to standardize agricultural product quality and promote farm marketing. Some also have advocated the creation of agricultural technology associations. More generally, all of these moves are part of an effort by leaders to shift fiscal resources that used to be used to support China’s expensive price subsidization schemes to productivity-enhancing investments and marketing infrastructure improvements. The magnitude of this policy response is highlighted by the fact that the total subsidies for price and market interventions reached 40.3 billion in 2000, about 4 percent of national fiscal budget, more than any components of government expenditure in agricultural and rural area of bureaucrats that manage China’s agricultural policies, 93 billion on integrated agricultural development program, and 12.3 billion on poverty alleviation–CNSB, 2001. While not all of these funds were being used on distorting policies or non-productive administration, much of it was. If a good part of the funds is able to be redirected into more productive areas, there is a chance that the agricultural sector can be energized by this new windfall. The policy implications of China’s WTO accession on land use and farm organization also are hotly debated. Many of the concerns have arisen over the ability of China’s small farms to be able to compete after trade liberalization. Although every farm household in China is endowed with land, the average farm size is small, and declining . Leaders are pleased with the equity effects of the nation’s distribution of land as it allays concerns about food security and poverty. Land fragmentation and the extremely small scale of farms, however, almost certainly will in some way constrain the growth of labor productivity on the farm and hold back farm income.
The debate has centered on these issues: Some argue that farm size could be expanded and agricultural productivity could rise if policy makers were to advocate more secure land tenure arrangements. Others call for a continuation of policies that allow localities to periodically re-allocated land to the farmers in order to keep land in the hands of all rural residents. Although most policy makers currently seem to favor more secure rights, they still are searching for complementary measures that will not forego all of the pro-equity benefits of the current land management regime. Land ownership in rural areas, by law, is collectively owned by the village or small group and contracted to households . One of the most important changes in recent years has been that the duration of the use contract was extended from 15 to 30 years. By 2000, about 98% of villages had amended their contract with farmers to reflect the longer set of use rights . Although some were concerned that household and village demographics and other policy pressures often induce local authorities to reallocate land prior to contract expiration, it has been shown that the area of this reallocated land has been minimal and the effect on investment behavior insignificant . With the issue of use rights, resolved, the government is now searching for a mechanism that permits the remaining full-time farmers to gain access additional cultivated land and increase their income and competitiveness. One of the main efforts revolves around the development of a new Rural Land Contract Law. The Standing Committee of the National People’s Congress has drafted a law and the main body is expected to approve it in the near future. According to this law, although the property rights over the ownership of the land remains with the collective, the Law conveys almost all other rights to the contract holder that they would have under a private property system. In particular, the Law clarifies the rights for transfer and exchange of the contracted land, an element that may already be taking effect as researchers are finding increasing more land in China is rented in and out . The new legislation also allows farmers to use contracted land for collateral to secure commercial loan. Part of the law also allows family members to inherit the land during the contracted period. The goal of this new set of policies is to encourage farmers to use their land to increase their farms and household short and long-run productivity. Although quite controversial,4x8ft rolling benches the effort to increase China’s agricultural productivity under trade liberalization also is made through the promotion of large farm enterprises. Many officials in the MOA consider this effort as one of important forces that may help to restructuring China’s agriculture, expand agricultural markets, and increase farmer income. Recently fiscal authorities have supported this effort by making grants and allowing tax reductions for the infrastructure investments of the farms. They also have provided large farms with credit subsidies for input procurement and the financing of their efforts to update their technology at all levels of the food change . As a result of China’s WTO accession, the support in this area is expected to increase. However, more effort in the future is likely to shift to supplying services that are supposed to be provided by government in areas such as farm infrastructure development, technology adoption, and extension, rather than direct intervention and subsidy. As subsidies through agricultural investment and inputs in China are subject to WTO restrictions on Aggregate Market Support , it is not expected that the extent of these subsidies will restrict such support. China will be limited to its support of large farms to levels that do not exceed its de minimis level of AMS of 8.5%.
However, it is much more likely that its ability to finance agricultural subsidies will be more binding than the WTO-imposed rules. The other major attempt to increase farm productivity and agricultural competitiveness under trade liberalization is to promote the development of farmer organizations. The government has now officially cast its support for self-organized farmer groups that focus agricultural technology and marketing . At one time, the creation of farmer organization was a political sensitive issue. Leaders were concerned with the rise of any organization outside the government’s authority. Such restrictions, however, caused a dilemma in reforming the nation’s agricultural and rural economies. Policy makers also are aware that with the small scale of China’s farms there are many increases in economic efficiency that might be gained by the creation of effective rural organizations and that if they were successful in raising incomes, there might be a rise in political stability.It is on this basis, then, that leaders have now decided to allow the organization of China’s 240 million farms. Letting these millions of small farmers competing in a market with globalization requires substantial institutional reforms on farm organization and provisions of government service such as technology extension and marketing information and quality controls. It will be in these areas that farmer organizations will be encouraged. In addition, these types of farm organizations that are supported by the government fall under WTO’s “Green Box” categorization and investments to create such groups will not be counted as part of the nation’s AMS measures. Perhaps more than anything, the government is going to need these farmer organizations to lead the fight against the imposition of trade barriers on China’s agricultural exports. Because China’s producers have not been organized, when foreign countries, such as Japan, Korea, and the US have levied trade barriers, typically citing dumping. Even when such cases were based on questionable bases, China had no one who had an incentive or ability to contest the cases. Since China Provisions of anti-dumping and safeguards measures against China’s products, such cases will not abate and the nation needs to have a way to protect the interest of those seeking to export.The financial sector has reformed more slowly than some other sector, and government maintains strong control . Among the commitments regarding the banking sector, the Protocol requires China to open the country’s financial markets in a step by step way. The liberalization must allow foreign competition across wider and wider regions and customer base. After a four years transition period, all regional restrictions will be removed and foreign banks will receive national non-discriminative treatment in the area of banking services. Specifically, restrictions on branch banking can not be imposed.