China's rural economy faces many serious problems. The revenue available to local rural governments has not been sufficient to provide adequate public services for villagers.1 The rural banking system has not been able to reform itself and is hampering the rural sector.2 The government's programs to help develop impoverished villages have not effectively reached much of the poor who reside in remote, resource-poor and ethnic-minority areas.3 If the rural sector is to grow and become a more equal partner in China's economic development, it is imperative that fundamental changes are made to these and other institutions that affect the lives and livelihoods of China's rural residents.4
But while the rural political economy faces sobering challenges, the record of agricultural production nevertheless has exhibited impressive gains during the reform era. In the 1990s per capita grain output reached a level similar to that in most developed countries.5 Rising food exports between 1983 and 2003 demonstrate that China's farmers are now able to compete in international markets.6 Rural incomes have risen significantly, increasing by around 4 per cent annually since 1990.7 Hundreds of millions among the rural population have escaped poverty during this time. And while inequality in inter-household rural incomes rose sharply during the 1980s and early 1990s, these disparities in household incomes have actually begun to narrow after the late 1990s.8
We believe that three vital ingredients that underpin the continued progress of China's agriculture have not received adequate attention. These are the emergence of a well-financed, effective system of agricultural research and development (R&D), including the capacity to produce biotechnology breakthroughs; major improvements in agricultural commodity markets; and increasingly effective, albeit nascent, land rental markets. With China's farmers today increasing their productivity through new seed varieties, specialization and marketing, and securing more effective access to cultivated land (rural China's most scarce commodity), the signs are excellent for continuing gains in the agricultural sector in the years to come. This paper will therefore focus on how the three vital elements are having a positive impact on farmers' livelihoods.
Agricultural Technology and Increased Productivity
Scientists and policy-makers, in both developing and developed countries, recognize the importance of agricultural technology in promoting increased productivity. Researchers have documented the importance of this in raising total factor productivity (TFP) in the agricultural sector in the US and in Japan's development.9 In the developing world, Rosegrant and Evenson have documented the importance of new plant varieties and extension efforts on Indian total factor productivity, while Pingali, Hussein and Gerpacio have reviewed the contributions made by the Green Revolution elsewhere in South and Southeast Asia.10
While important in the rest of the world, less is known about the overall productivity of China's agricultural economy; instead, more attention has been given to the rise in partial productivity measures, such as yields and output. During China's reform period, the rapid and monotonie expansion of the yields of major food crops have ranked as one of the nation's great achievements.11 The output of rice, wheat and maize rose sharply between 1982 and 1995 (Figure 1, upper line on each graph). Rice production increased by 20 per cent, wheat by 80 per cent and maize by 95 per cent during the 1980s and early 1990s. While cultivated land and inputs of labor fell during the early 1980s before stabilizing during the late 1980s and 1990s, material inputs, including fertilizer and pesticides rose sharply, increasing at an annual rate of 32 per cent for rice, 26 per cent for wheat and 30 per cent for maize.12
An analysis of the more recent trends in input levels and their prices underscores the importance of understanding the role of technology (Figure 1, lower line). …