Land tenure Institutions

Posted September 1999

Land reform in rural China since the mid-1980s, Part 2

by Fu Chen
Professor, Deputy Dean, College of Economics and Trade
South China Agricultural University, Guangzhou, China
Dr. Liming Wang
Research Fellow, Centre for Rural Studies
Queen's University of Belfast, UK
and John Davis
Director and Research Fellow, Centre for Rural Studies
Queen's University of Belfast, UK
From Land Reform 1998/2. This paper is also available for downloading via FTP (.pdf, 79K)
< from Part 1

Pingdu: a two-land system

The strong desire in China for social equity in land matters may limit the applicability of the fixed land system in national terms. An alternative which seeks greater economic efficiency while attempting to maintain a degree of social equity is the so-called two-land system. The system originated in Pingdu, a county-level city in Shandong Province.

Pingdu is an area where cultivated land and collective economic infrastructure were relatively well developed in the People's Commune era. After adoption of the household responsibility system, Pingdu was confronted with a growing number of issues that were difficult for individual farm households to handle. These included encouragement of the use of advanced agricultural machinery and equipment and the continuing development of agricultural infrastructure in order to improve production conditions and expand output.

In 1984, Pingdu adopted the two-land system on a trial basis. The total cultivated land in a village was divided into two parts: food land (kouliang tian in Chinese) and contract land (chenbao tian). The two kinds of land have different functions: food land is for family consumption and contract land for commercial farming. All households have their own food land and can choose whether or not to take contract land. Usually, part-time farmers only take charge of food land for subsistence production; they also pay taxes, including the State agricultural tax. Households which also take contract land have an obligation to fulfil government procurement quotas and pay taxes. However, they can sell their surplus production in the free market. This incentive enhances their enthusiasm for production on contract land.

The key feature of the two-land system is division according to usage. As food land is to guarantee peasants' living essentials, it is distributed relatively evenly or equitably. In Pingdu, it is distributed on the basis of household size and average grain consumption. The norm reflects local conditions: 225 kg of grain per caput per annum for basic food consumption; 400 kg of grain per household per annum for animal feed (normally two pigs and ten chickens per household); and 20 kg of grain per mu of land (0.067 ha) for seed planting. A total of 350 kg of grain is estimated to be needed by each person. Given the local grain yield average of 650 to 700 kg per mu, at least 0.5 mu (0.033 ha) farmland should be granted to each person as food land.

As to contract land, the main concern in allocation is efficiency. Farmers bid competitively for this land. The bid price in Pingdu normally reflects obligations towards government procurement and the collective as well as land tax (approximately 4 yuan renminbi [6] per mu of land). Bid prices differ depending on the grades of land. In 1988, the price range per mu per annum in Pingdu was 53 to 71 yuan (US$ 6.36 to $8.52), which typically represented 30 to 40 percent of annual net income per mu of farmland. However, allocation of contract land is not decided only based on price. Some intervention is still judged to be necessary to prevent excessive competition between farmers resulting from the scarcity of the farmland resource and limited employment opportunities outside agriculture. Usually a limit on cultivated area of between 5 and 15 mu (0.33 to 1 ha) per labour unit is imposed, depending on the land endowment of the locality.

To encourage larger-scale operation and to avoid fragmentation, contract land is offered in relatively large parcels, usually between 20 and 30 mu (1.33 to 2 ha), depending mainly on locality and land quality. Household group bidding is strongly encouraged in order to promote cooperative activity. The land is normally allocated for five years and the contract cannot be changed within this term. However, during the term the relative amounts of food and contract land can be altered if changes in household size take place. If a household increases in size, the village will reduce its contract land area or, alternatively, its procurement obligations so as to increase the capacity for subsistence production. If a size reduction occurs the process operates in reverse. Thus, the frequency of changes in the level of active contract farming land per household is reduced.

After only a relatively few years of operation the two-land system has achieved some encouraging results. First, the previously even allocation of land among households has changed considerably. Some 30 percent of 120 households surveyed in 11 villages had increased their land areas, 50 percent of these by as much as 5 mu (0.33 ha) (Jiang, Chen and Jia, 1994). Just over 9 percent of households cultivated only food land using female labour; as a result, male workers were able to concentrate on non-agricultural business. Agricultural performance was also much improved. Total grain output increased from 795  000 tonnes in 1987 to 1.041 million tonnes in 1994. Grain yield per unit of land increased by 32.4 percent. At present, Pingdu ranks tenth in grain output among 2  200 counties and county-level cities in China.

Table 3 Development of the two-land system in Chinaa
RegionNumber of villages
(tens of thousands)
Area (million ha)
1990 1992 1994 1990 1992 1994
National 119.2 170.0 117.7 37 39 42
East 58.8 115.8 n.a.b15 15 14
Central 27.8 30.4 n.a. 16 19 20
West 32.6 23.8 n.a. 5 5 7
a) Excludes Tibet. b) Not available.
Source: Ministry of Agriculture of China, 1991, 1993, 1996.
In the short period since Pingdu adopted it, the two-land system has developed from a couple of village experiments to nationwide practice. By the early 1990s it had become a nationally accepted and popular form of agrarian institutional innovation. Table 3 shows the main results of a series of surveys conducted by the Ministry of Agriculture. In 1990, there were 1.19 million villages and 37 million hectares of farmland under the two-land system in one form or another, accounting for 26.9 percent of China's total villages and 38.2 percent of total cultivated land where the household responsibility system was implemented. In 1992, the two-land system peaked at 1.7 million villages and 39.3 million hectares of farmland, 32.3 percent of total villages and 44 percent of total cultivated land. By 1994, the percentage of villages under the two-land system had decreased slightly, to 31.5 percent, but the land area had increased to 47.8 percent (Ministry of Agriculture of China, 1991, 1993, 1996).

Why has the two-land system achieved such success in a relatively short time? The most plausible explanation is that by separating the household's land into two the new system institutes a workable means of preserving social equity while at the same time allowing the pursuit of greater efficiency.

Shunyi: collective farm

In the above two cases, individual farming, the core of the household responsibility system, remained largely unchanged. However, as was shown earlier, although individual farming succeeded in stimulating farmers' production incentives, it led to land fragmentation. Reconsolidation of farming land has thus been regarded as one of the goals for further reform currently under discussion. Perhaps surprisingly, collective farms reappeared in some rural areas close to urban centres and some coastal provinces of China in the late 1980s. Considerable concern was raised, even among Western scholars (e. g. Reisch and Vermeer, 1992), that this development could signal a return to the People's Commune system. Shunyi, a suburb county northwest of Beijing, is one location of such collective farms. According to a 1994 survey, collective farms in Shunyi county occupied 62.8 percent of total cultivated land, about 9.7 ha per employee (Luo and Zhang, 1995). A very important factor in the successful establishment of these collectives was the relatively high level of rural industrialization. Shunyi's location near a major consumption centre meant that it was blessed with many marketing channels, many means of transportation and advanced communication facilities. The area also had developed strong non-agricultural rural enterprises, and many rural people sought employment in township enterprises: 60 percent of the rural work force had abandoned farming. Part-time farming had become the mainstream. Farmers had gradually lost enthusiasm for farming as the contribution of agriculture to household income declined. The problems of agriculture in the area are demonstrated by the fact that the annual growth rate of grain output was 6.4 percent from 1978 to 1984 but fell to 1.2 percent from 1984 to 1986 (Luo and Zhang, 1995). Most part-time farmers even wanted to return their entire land entitlement to the village cooperatives.

In response to farmers' requests, collective farms were introduced in 1986 to achieve a more optimum-scale operation. However, the operation of these collective farms is significantly different from that in the People's Commune era. Normally, the village provides agricultural machinery and is responsible for developing infrastructure. Collective farms are titled as the farming enterprises of the village with which they have signed a contract. The collective farms operate independently. The employees of the farms earn wages rather than the working points of the old commune system. After completing the contract, which usually includes fulfilling State procurement quotas and an offering to the cooperative, collective farms distribute part of their surplus as a bonus to employees according to their performance; the remainder, as the farm's profits, is set aside as a common accumulation fund. Those who returned their land use rights to the villages are given the privilege of purchasing grain at lower prices for their own consumption.

Apparently, the collective farm is subjected to a system of collective responsibility rather than an individual household contract system. Since the collective farm is registered as an enterprise of the village, it is possible for the village to transfer some profits from non-agricultural enterprises to the collective farm. The effects of this kind of operation are controversial. On the one hand, agricultural infrastructure is rapidly improved by the financial support from non-agricultural enterprises; on the other, as productivity is also benefited by the improved infrastructure, the collective farm may be encouraged towards free-ride behaviour. This problem was common under the old commune system and casts a shadow on the collective farms' future operations.

Available evidence suggests that there have been some major achievements in the performance of collective farms in Shunyi. Although the total grain output and the yield per unit of land increased modestly between 1986 and 1994, grain output per agricultural worker grew dramatically - eightfold - during the same period. Agricultural productivity has been improved significantly by rapid farming mechanization from ploughing to harvesting on the collective farms. Surprisingly, employees of collective farms currently earn higher incomes than part-time farmers employed by township enterprises. The internal accumulation of the collective farms reached 60 million yuan in the five years from 1987 to 1992 (RIDA, 1995).

Nanhai: a farmland shareholding cooperative system

The Shunyi-style system is not the only collective model to re-emerge: there are other variants of this model throughout rural China. However, the farmland shareholding cooperative system has emerged as a completely different type of collective and has aroused strong interest. So far, it is confined to the Pearl River Delta area of Guangdong Province. The farmland shareholding cooperative system was initiated at the end of 1992 on an experimental basis in Xiabai, an administrative-level village of the county-level city of Nanhai. Nanhai has emerged as one of the major growth areas in China over the past two decades; it is well known as one of the so-called "four tigers" in the area because of its rapid industrialization and urbanization. (The other three "tigers" are Zhongshan, Dongguan and Shunde.) In the process of rapid development, land reform emerged as an issue of great importance for two main reasons.

First, reform was necessary to improve agricultural performance. While rapid rural industrialization was achieved, agriculture had gone into decline. Increasingly, rural labour, particularly young educated workers, found employment in non-agricultural sectors, and agriculture suffered through loss of human capital. Workers that shifted to non-agricultural sectors still kept their household-responsibility farmland because of the perceived risks associated with losing land property rights. Therefore, farming in most villages was mainly undertaken by the elderly, females and even children. Agricultural development became an urgent issue as it was recognized that social and economic modernization could not be sustained without agricultural development.

Second, it was necessary to develop a comprehensive land use planning system. The process of rapid rural industrialization and urbanization led to the conversion of a great deal of land to non-agricultural uses. The rational use of land resources became more and more important. There were very difficult conflicts. On the one hand it was considered necessary to preserve agricultural land, but on the other, the strategy of promoting rural industrialization and urbanization (called "leaving the land but not the countryside, entering the factory but not the city") led to excessive growth in the number of small factories and towns and to enormous waste of scarce land (for a detailed discussion see Fu, 1995). There was a need for land utilization to be reorganized, but it was not clear who the responsible authority should be. Rural land was in the hands of natural villages, the basic unit in rural China, but the natural village was too small to manage it effectively. The administrative village, a higher-level rural organization, had the capacity but was not the landowner. In an attempt to resolve the conflicts, the farmland shareholding cooperative system, a kind of land-as-stock system, was initiated.

In the farmland shareholding cooperative system the first step is valuation of the farmland. Currently, in the absence of a standard approach, three valuation methods may be applied: one based on the the prices paid by government for land conversion; one based on the net incomes of land after deducting input costs; and a mixture of the first two methods (Nanhai Rural Reform District Office, 1994). Although the methods are imprecise, this has not hindered the implementation of the system.

The key aspect of the system is the distribution of land shares to individual peasants. Cooperative membership serves as the main criterion for share entitlement. Age is an additional consideration; children are normally entitled to half shares. Farmers receive their shares - paper entitlements - without any payments. When land shares are allocated, there is no actual distribution of physical plots. Furthermore, the shares cannot normally be withdrawn or transferred (although in some cases the shares can be transferred to the next generation). After receiving land shares, farmers return their land use right to the natural village to which they belong. The natural village then offers the land entitlement to the administrative village to which it belongs. The administrative village is now in charge of land use. Usually an agricultural company subordinated to the administrative village will be founded, which becomes responsible for agricultural land. The land is contracted to individual specialist farmers or farming teams based on a bidding process. In practice, most peasants do not bid to farm the land. However, as they are land shareholders they are able to share dividends and also to promote their ideas at shareholder meetings.

The farmland shareholding cooperative system is still in the early experimental stage, yet the effects are encouraging. Within only three years the system was introduced to almost all villages in Nanhai and other rural parts of the Pearl River Delta area, and it has been welcomed by the local people. Agriculture is much improved. Introducing the system has made large-scale farming possible. By 1993, the cultivated area per labour unit in Nanhai had increased to 7.6 ha, ten times more than before the system was introduced (RIDA, 1995). In Xiabai, the birthplace of the system, grain production has been contracted to a group of 30 farmers. They manage the farm independently and provide the main source of grain for local consumption. Administrative villages have made comprehensive land use plans, taking account of the needs of the three main land use areas, namely agriculture, industry and city construction. Thus it is likely that land use will be organized in a more rational and efficient manner. In the long term, moreover, the emergence of the land shareholding system may act as a catalyst for rural industrialization and urbanization because of more efficient use of land and labour.

Discussion and conclusions

Although it is clear that China has been making substantial progress with land reform, the pace has been somewhat slower than expected. All the new approaches remain in the experimental stages and no mature national model has emerged. At this stage in the process it is difficult to judge the models' performance relative to one another or to conclude which one might be more effective. However, four tentative conclusions can be drawn about the experiences to date; these insights should be valuable for steering the reforms in the short-to medium-term future.

Land reform in China has emerged as a difficult issue of trade-off between social equality or equity [7] and economic efficiency. It seems apparent that land reform in China since the mid-1980s has been caught in this dilemma: where social equality or equity considerations predominate, economic efficiency has been held back. For example, the fixed responsibility land in Meitan can only be maintained for one contract term (20 years); after that, redistribution of land cannot be avoided. The land shares distribution in Nanhai also illustrates the trade-off, with land shares allocated equally and the relative contribution of labour to the collective largely ignored.

Table 4. Basis for leasing contract land under the two-land system (%)
Year Household size Household labour Bidding
1990 64.0 29.9 6.1
1992 60.9 33.2 5.9
1994 68.0 25.0 7.0
Source: Ministry of Agriculture of China, 1993, 1996.
The two-land system, probably the most suitable for many rural areas in China as it is less restricted by local conditions, has not realized its potential. Recently, the speed of implementation of the two-land system has slowed down substantially. A key factor has been that it is more difficult to pursue efficiency under the system than was hoped. In the case of Pingdu, the small-scale farming structure remained largely unchanged after adoption of the two-land system. Originally, the contract land was intended for development of larger-scale commercial farming. However, in practice, contract land was leased to households largely based on family size, much as under the household responsibility system. Table 4 shows that nationally, since the early 1990s when the two-land system was adopted, more than 60 percent of total contract land in sampled villages has been leased on the basis of household size, around 30 percent on the basis of household labour and only 6 to 7 percent through bidding competition, the approach most likely to secure a relatively efficient scale of commercial farming. Thus, the system has not given people much new experience.

In looking closely at the situation, an important lesson might be learned. Currently, the goals of equality or equity are still outstandingly important. Thus, an effective reform strategy in China in the current environment must satisfy these criteria and then seek efficiency incrementally. Otherwise, it is unlikely that any reform approach or process can succeed.

The clarification of land property rights has proved to be still at an early stage. So far farmers have had insufficient property rights. For example, in the cases of Meitan and Pingdu, farmers' land property rights are still unstable. As the contract term progresses to the due date there will be great uncertainty among farmers and an expectation of loss of productive capacity. This will tend to perpetuate the problem of underinvestment in land and fixed assets. In the case of Nanhai, the land shares are really just paper entitlements, which lack the real attributes of shares in a joint stock company. In particular, farmers cannot get compensation for their shares even when they move to a city and are no longer active in their village. This lack of incentive tends to make farmers reluctant to leave their village. Thus, surplus agricultural labour continues to grow in villages, slowing down the progress of rural industrialization and urbanization.

As the inadequacy of property rights hinders the reform process, further clarification of farmers' land rights will undoubtedly be a key issue. However, this area is still very controversial. Study is urgently needed on the nature and extent of land property rights that should be granted to farmers and protected. Otherwise, it is likely that the reform process will continue to be frustrated and may well stall.

This issue also raises questions about the role of central and local governments. To date the central government has tended to stand back and leave decisions to the local authorities. However, the latter are calling for a clear general statement of policy; there would seem to be some justification for this position, as the issues are clearly of fundamental national importance.

The implementation of land reforms in China has reflected and will continue to reflect the diversity of local conditions. In the early 1980s, the household responsibility system emerged as the dominant national institution in rural China. By contrast, the deepening of the reform process since the mid-1980s has reflected much more the diversity of local conditions and circumstances, and no universal model has emerged. As the local conditions are hard to change, reform will continue to reflect diversity, at least in the medium term. Indeed, to ignore local conditions and needs would delay and even distort the process of structural change in the countryside.

It seems clear that the most successful reforms have taken place where there has been a clear understanding of local specificity and no excessive reliance on an imposed imported model. In addition, particular attention must be paid in the future to the prevention of unnecessary administrative interference and excessive rent-seeking behaviour. There have been instances where reform has been used as a vehicle for different goals. For example, it is reported that the two-land system was heavily distorted in some places; the introduction of the system served as a means of levying high charges for contract land, and as a result contracts were disrupted and some farmers lost half their original land. The consequence has been a change in farmers' attitudes to the two-land system, from one of welcome to one of rejection (Ministry of Agriculture of China, 1996).

Successful further land reforms in China depend on the creation of a dynamic environment. Apart from the dilemma between equity and efficiency alluded to above, it is clear that the appropriateness of particular models and the pace of land reforms to a great extent depend on the state of overall development of the rural economy, and particularly non-agricultural industry. For example, it is reported that in some coastal areas of China, the two-land system is developing towards a one-land system; local farmers are said to be abandoning their food land completely and this land is being tilled by farms organized by villages (People's Daily, 1996). However, as has been noted earlier, the Shunyi-style collective farms have encountered problems as well concerning property rights relations between the farms and the collectives, and thus there are clear problems in moving towards recognition for this model. Nanhai's farmland shareholding cooperative system seems less in dispute. The system was initiated against a background of rapid rural industrialization, where either the farmers wanted to abandon farming or local villages had considerable financial capability to support agriculture. As it is to be expected that in the next few decades rural China will become more and more industrialized, it may be legitimate to ask whether this system, or a further development of it, has the potential to become more popular or even adopted as a national model.

Thus, it is possible to envisage a rural reform strategy with two main strands. One will be to ensure that the dynamic structural changes in the wider rural economy, and particularly rural industrialization, are maintained or quickened and more widely distributed. The other will be to deepen the land shareholding cooperative experiment with a view to improving the system, especially in the area of property rights of farmers.

Of course, agricultural policy and agrarian institutional innovation are not independent of one another. So far, the government has been slow to develop or deepen institutional innovations in other areas in support of land reform. For example, market signals are distorted, with the result that farmers' production incentives are weakened. The development of a land market, which would facilitate structural consolidation among fragmented small farms, has been hampered by the lack of political will to introduce effective land rights legislation. Under such an unfavourable policy environment, it is unrealistic to expect great achievements from further land reforms in isolation.


Notes

1. While the household responsibility system has been adopted in most rural areas since reform, about 7  000 villages (teams) (0.2 percent of all villages in China) remain in collective-run farms, accounting for 0.3 percent of total cultivated land. In addition, 21  000 villages (teams) have leased farmland to carry out group-based farming while adopting the household responsibility system (Ministry of Agriculture of China, 1991, 1993, 1996).

2. 15 mu = 1 ha.

3. According to a survey conducted by the Chinese Ministry of Agriculture, since the implementation of the household responsibility system in 1978, 65.2 percent of China's villages readjusted households' land - 37.1 percent once, 19.8 percent twice and 8.3 percent three times. The main reason was population growth (Kong, 1993).

4. There were generally four methods for distributing household-responsibility land: on the basis of the total number of people within a village; on the basis of the available labour force of individual households within the village; by combining the preceding two methods, whereby a fixed proportion of household-responsibility land was assigned according to the total population while the remainder was allotted on the basis of labour; and by assigning land to a specialized team or group. A survey conducted by the Ministry of Agriculture indicated that these different methods were used in 69.4, 4.4, 25 and 1.2 percent of 253 sample villages, respectively (Kong, 1993). Thus land was distributed mainly on the basis of household size.

5. In theory, land mobility and regrouping could be achieved through land marketing. However, in the absence of the proper legislation and mechanisms for land mobility, few land transfers took place. A survey indicated that in 1990, 2.09 million households subcontracted 0.425 million hectares of farmland, representing only 1 percent of households and 0.44 percent of farmland under the household responsibility system. During the ensuing years there were only small changes. In 1992, the figures were 4.73 million households and 0.769 million hectares of land (2.3 and 0.9 percent, respectively), and in 1994 the figures decreased to 2.38 million households and 0.63 million hectares of farmland (Ministry of Agriculture of China, 1991, 1993, 1996).

6. 1 yuan renminbi = US$ 0.12.

7. An important distinction can be made between equality (egalitarianism) and equity. The former is concerned primarily with the humanity of individuals and upholds their right to a share in resources and rewards based entirely on their human condition regardless of their contribution to social and economic progress. The latter is concerned more with the contributions that individuals make to progress; this is the primary basis on which their share in resources and rewards is to be based.


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