On April 11, the Chinese Academy of Social Sciences (CASS) released its "Green Book on the Rural Economy" giving an overview of rural and agricultural development based on the latest numbers from the National Bureau of Statistics (NBS). Summaries of topics covered have been released as news items in Chinese highlighting decelerating agricultural growth, weak agricultural investment mechanisms, a narrowing gap between rural and urban living standards, and a widening agricultural trade deficit in 2013.
Agriculture's ("primary industry") share of Chinese GDP was 9.8% in 2013--under 10% for the first time and down from about a third of the economy in the early 1980s. With overall GDP growing 7-8% and agriculture growing 4-5%, agriculture's share has fallen over time. In 2013, agriculture's real growth in constant prices was 4%, a deceleration from 4.5% in 2012.
"Primary industry" share of China GDP estimated by National Bureau of Statistics.
The CASS report warns that the agricultural sector may have entered a period of decelerating growth. The report says agriculture has reached the end of its era of general increases in production. Growth may be slowed by the transformation of the mode of production and retirement of agricultural resources. The report celebrates the ten-straight years of increases in grain output but warns the public not to expect the string of increases to continue. This reflects the party line agricultural officials have been reciting since December. They are now acknowledging that past agricultural growth is unsustainable--it was basically mining soil fertility and water resources in a way that achieves farm output in the present at the expense of output in the future.
The report also notes an important contradiction--the rural households who control most of the farmland have little inclination to make investments in it. NBS estimates fixed asset investment by two groups: households and non-households (mainly government and companies). Non-household investment in agriculture accounted for just 2.6% of fixed asset investment in the Chinese economy while rural households' fixed asset investment accounted for 2.4%--combined these two accounted for 5% of all fixed asset investment. However, the share of investment in agriculture is probably about 3% because other statistics show that nearly all rural household fixed asset investment is in rebuilding or refurbishing their houses--rural households' investment in agriculture is minimal.
The report notes that investment by rural households is slow and decelerating while non-household investment in agriculture is accelerating. Rural household fixed asset investment grew 7.2% in 2013, slower than their 8.3% growth in 2012. In contrast, non-household investment in agriculture (mainly by government and companies) grew 32% in 2013, up from 29% in 2012. This reflects the dysfunctional financial intermediation in China which channels bank and equity market funds to government-sponsored projects and big companies while starving individuals and small businesses of capital. Thus, rural households--who control the land and do most of the farm work--make minimal investments in agriculture. A big part of the current agricultural restructuring strategy is to entice companies to fill this investment gap.
Income statistics also reflect the agricultural conundrum: rural people have quietly been transformed from a class of "farmers" to an underclass of unskilled laborers who shuttle between construction sites, factories, and their home village. The "green book" celebrates the rapid growth in rural household income and consumption expenditure, but it also reports another milestone: the share of rural household income from wage income exceeded the share from household businesses--mainly farming. The share of rural income from family business declined from 70% in 1995 to 43% in 2013. The share of income from wages rose from 22% to 45%. With most of their income coming from off-farm sources, rural residence (农民) is no longer synonymous with "farmer". The people who live on the land have a flagging interest in farming and see little promise for the future, so why invest in it?
Source: Calculated from National Bureau of Statistics data on rural household income.
The other components of income also reflect weaknesses of China's rural economy. Property income for rural households has been growing, but has been stuck at about 3% of income since 2007. In contrast to urban families who commonly own multiple real estate properties and have financial investments, rural households don't have many assets and get low returns--investing their funds in building houses they can't sell or lending to friends and neighbors. Rural people are not property owners who invest for the future--they are unskilled itinerant laborers.
The growing share of transfer income in the rural household income statement reflects the government's flood of subsidies for farming, retirement and health schemes. These subsidies distract the rural population's attention from the fact that they are largely missing out on the investment riches enjoyed by city people. In some instances transfer payments support rural people moved off their land into apartment buildings. Transfer income is up to 9.9% of rural household income now.
The "green book"--and other Chinese economists--recognize this conundrum: the people on the land have little inclination to invest in it. The government's project now is to clear these people off the land to make room for real "farmers" who treat agriculture like a business. Villagers will be bought off with small annuities representing a rental for the usage rights to their land and moved into apartment buildings whenever possible.