**New Opportunities for Economic Assessment with Rural Household Data in
China**[^1]

Bryan Lohmar

Economist, Economic Research Service, USDA

Fred Gale

Senior Economist, Economic Research Service, USDA

Linxiu Zhang

Deputy Director, Center for Chinese Agricultural Policy, Institute of
Geographical Sciences and Natural Resource Research, Chinese Academy of
Sciences

**Abstract**

This paper provides an overview of the response the social science
community has made to generate appropriate data for researching changes
in China's rural economy since reforms began in 1979. We emphasize the
importance of price, wage and household-level data to examine policy
questions in this new environment. There is increasing need to take into
account how off-farm income and wages affect farm resource allocation as
well as movement from subsistence to commercial agriculture. Consumption
patterns are also changing rapidly as rural households purchase more of
their food consumption rather than produce it themselves, and these
changes are important to keep in consideration when accessing the impact
of agricultural policies. Data that includes such variables at the
household level is increasingly becoming available to social scientists
in China. However, to keep abreast with China's rapidly changing rural
economy, several components of the statistical system could be improved.

# New Opportunities for Economic Assessment with Rural Household Data in China

Rural China has undergone enormous changes since economic reforms were
introduced in the late 1970s. Ultimately, the impact of these reforms
depends on how households respond to the new economic environment.
Hence, the analysis and assessment of policies must view the household
as an economic unit. Prior to reforms, China collected aggregate
agricultural production and input data, but this was unsuitable for
conducting household-level analysis. Since reforms, the Chinese
government has collected vast amounts of household survey data that
document the enormous changes in rural China and track the status of
rural households since economic reforms were introduced in the late
1970s. In addition, understanding the impact of the reforms and
subsequent policy initiatives on rural households requires data that was
not collected by state agencies during the planned economy era (prior to
1979). State agencies and independent research organizations in China
have modified existing survey instruments or developed new ones to
address these new data requirements.

This paper provides an overview of the changes underway in rural China
and the response of the social science community to generate appropriate
data for researching these changes. Currently, farming represents
roughly half of rural household income in China. The farm share of
income is declining as workers move out of agriculture and into local
wage employment, self employment or internal migration. In addition, an
increasing share of farm income is received in cash as households move
away from subsistence production and into cash crops and market-oriented
agriculture. These changes are examples of how rural households are
responding to the increased economic autonomy provided by the reforms.
To understand the entire scope of economic activity for rural households
in China, it is important to measure farm and off-farm income and
wealth, production costs and returns to various crops, allocation of
labor and land, and consumption and housing decisions.

In particular, we emphasize the importance of including information on
household economic activities as a whole rather than focusing on
agriculture alone, as well as price and wage data to examine policy
questions in this new environment. Economics asserts that prices, wages
and transaction costs guide farm household decisions to move out of
agriculture and out of subsistence crop production. Under the planned
economy prior to reforms, such information was unnecessary since
production and resource allocation was guided by planners. Since
reforms, however, more detailed household-level data is becoming
available as government agencies modify their data collection efforts
and independent research institutes develop their own survey
instruments. We provide examples of how these new data sources have
allowed social scientists to better understand important phenomenon such
as the movement of labor out of agriculture and the growth of commercial
agriculture. In closing, we address some of the remaining issues
regarding data availability and accessibility and how these issues
affect the capacity of the research community to carry to address
important social science questions.

***Changes in Rural China: 1979-2004***

Under the strictly planned economy that existed in China prior to the
reform period initiated in 1979, rural China was segmented into roughly
24,000 communes, each meant to be a self-sufficient economic entity with
almost no internal trade between regions other than planned
rural-to-urban transfers of agricultural products. Laborers were not
allowed to work in cities or even move from one commune to another.
Agriculture was carefully planned with most labor and land allocated to
producing staple grains as well as other crops and livestock according
to state plans. Planners emphasized production of rice, wheat and other
food grains to ensure the country's basic food security (interpreted to
mean self-sufficiency by China's leaders). Households were allocated
small \"private plots\" (usually less than 5% of all cultivated land)
which they could use as they pleased to grow vegetables and other
non-grain crops to consume themselves, exchange with neighbors, or sell
in limited informal markets.

The reforms initiated in 1979 restored household production autonomy,
allowing households to reallocate land and labor. Communes were broken
up and land was allocated to individual households, who were obligated
to deliver a fixed grain quota at a government-set price. Beyond this
they were free to farm what they chose. Prior to reforms, 80-to-90% of
area was sown to grain, but the share fell below 80% as households
gained more autonomy in planting decisions and planted more land in more
profitable cash crops like vegetables, melons, fruit orchards, and
cotton. By 2003, the grain share of sown area was down to 65%.
Interestingly, grain production actually increased from about 300
million tons in 1978 to more than 500 million tons during the 1990s,
despite falling area sown to grain (fig. 1). Households increased the
productivity on their farms when they received the returns to their
efforts. A rapid expansion of rural industry and relaxed restrictions on
moving to cities allowed rural households to allocate more labor to
non-farm employment for which they received higher returns to labor than
from farm work. Over time, not only were production practices reformed
but also institutions involved in marketing agricultural products,
allowing more opportunities to specialize and trade.

After 25 years of reform polices and increasing economic liberalization,
households in rural China have undergone an enormous transformation.
Today, roughly one half of rural household income is from non-farm
sources. Household farm production has also become far more
commercialized, producing more horticultural and other cash crops rather
than staple grains. While grain production increased by more that 50
percent since 1980, fruit and vegetable production increased by nearly
300 percent over that period, and the rate of increase has accelerated
in recent years. Along with the increasing wealth, farm households are
eating more and more diverse diets. The number of rural residents that
cannot afford a diet of 2,000 calories a day has fallen by hundreds of
millions since 1979, and rural households are consuming far more pork,
poultry and fish in their diets.

These dramatic changes, however, have not occurred at the same pace
throughout China's countryside. Rural households in coastal provinces
have benefited far more than those in inland areas have. Many rural
households in coastal provinces have exited agriculture entirely, either
by migrating to urban areas or through the development of rural
industrial enterprises. Others still earn nearly all their income from
non-farm sources and maintain agricultural production only as a small
part of their income portfolio. Some households that remain in
agriculture earn relatively high incomes by specializing in cash crop
production rather than traditional staple grains.

For households in inland provinces and more remote regions, these
economic opportunities are less available. Migration to coastal areas is
an option, but it is more difficult than for households in the coastal
provinces who are closer to these cities, speak dialects more similar to
those spoken in nearby cities, and are more likely to have relatives
living in the coastal cities that can help them get started.
Opportunities to specialize in commercial crops are also fewer.
Transportation and information costs are higher in remote villages, and
the lack of off-farm opportunities makes remote households more
dependent on their own production for their consumption, dampening the
incentive to produce for the market.

China's rural economy is not only diverse but also unique to developing
countries in significant ways that make analysis at the household level
even more important. A primary difference between China and other
low-income agrarian economies is the land tenure system. China's land
tenure system provides all rural households access to land, but falls
short of full ownership. Thus, China has almost no rural landless
population as is found in most other countries at the same level of
development. However, China has many land poor: households with plots
sizes insufficient or barely sufficient to produce for their own
consumption. The land rental market is developing but still small,
making it more burdensome for households to specialize. Those who want
to specialize in agriculture find it difficult to accumulate land and
take advantage of economies of size and scale. Households who want to
specialize in off-farm opportunities may find it difficult to rent out
their land and will likely be fined, or have their land reallocated to
other households, if they leave it fallow. Thus a very high proportion
of households in rural China allocate labor to both non-agricultural
activities and their farms.

***Implications for Policy Analysis***

China has a high demand for sound and timely policy analysis. It is well
known that China is rapidly developing, maintaining one of the highest
growth rates in the world throughout the reform period. In addition,
China is undergoing a complex transformation process moving from a
planned to a market oriented economy. But many of China's underlying
policies and institutions are carryovers from the planned period and
desperately need reform. Thus the need to determine the effects of these
policies and the effects of policy reform is great, greater than in a
less rapidly changing economic environment.

The current economic environment in rural China, however, makes
analyzing the effects of policies more difficult than if it were a more
homogeneous and static environment. The diversity of farm households is
one major obstacle because policies will affect different households in
different ways. Take for example price support policies intended to
increase the prices farmers receive for selected commodities. Such
policies may increase the incomes of farmers that produce the selected
commodities, but if households consume most of what they produce, then
the effect on cash earnings will not be so high. Some farm households
may even be net consumers of these products so the policy will have
negative effects on their welfare if they generate higher market prices
overall.

In such a diverse economic environment with growing non-farm
participation and cash-crop agriculture, price support policies may have
less effect on farm income than policies that are not directly targeted
to agriculture. Investments in transportation infrastructure to
facilitate market development and reduce transaction costs will help
farm households specialize and trade in a larger market. Investments in
rural education may facilitate the transfer of labor out of agriculture
or the adoption of modern agricultural techniques. Investment in a legal
system to enforce contracts (especially land contracts) will serve to
support specialization and market development. These types of public
policy choices may have a more profound affect on farm incomes than
price support policies targeted specifically to agriculture.

***Data Requirements***

To carryout high-quality economic and other social science research on
the effects policies have on rural households, detailed household-level
data must be available. Understanding the costs and benefits of
decisions to move into commercial crops or allocate labor outside of
agriculture requires information on labor costs (both family labor and
labor acquired on the market), the costs and availability of critical
inputs as well as farm output. Ideally, such data includes the prices of
inputs and output over time and wages for labor of varying skills. To
understand the determinants of these choices in order to assess how to
policies might influence them, even more information on rural households
is useful. For example, information on the education, age and gender of
the members of rural households will help researchers determine the
roles these play on the decision to leave agriculture or commercialize.
The distance of households to paved roads, rural markets or urban areas
also can contribute to the understanding of how investments in
infrastructure can facilitate these economic trends.

Under the planned economy prior to reforms, households did not make
important economic decisions so such data was not important and was not
traditionally part of the state data collection system. The data
collected prior to reforms was primarily production data aggregated up
from the village, with village leaders reporting to the township
authorities, who then reported to the county, who then sent the
estimates on to the provincial authorities. This system, called the
Complete Reporting System, reported basic data such as the number of
households, the number of workers, crop planted area, yields and
livestock numbers. China's National Bureau of Statistics (NBS, formerly
known as the State Statistical Bureau, or SSB) and the Ministry of
Agriculture (MOA) both had parallel reporting systems. The accuracy of
this system depended heavily on the accuracy of the original village
leader's estimates.

***Response of the Social Science Community***

Government agencies and independent research institutions have responded
to provide more useful data given that households now make most economic
decisions and the rural economy is rapidly changing. Both the MOA and
the NBS began conducting household surveys shortly after reforms began,
in some cases even surveying the same villages and households (but not
entirely overlapping). This was in part to check the accuracy of the
reported data but also because the reforms significantly diminished the
role of the village leader in the rural economy, thus making it more
difficult for village leaders to obtain accurate estimates of the
requested statistics. As the private sector developed and workers began
migrating greater distances and for longer periods, it became even more
difficult for village leaders to report accurately on employment and
labor allocation .

The strength of China's rural statistical system is the vast amount of
household survey data it has collected since the beginning of economic
reforms in 1978. The Rural Survey Organization of the National Bureau of
Statistics conducts an ongoing survey of 68,000 rural households and the
Ministry of Agriculture Research Center for Rural Economy conducts a
similar household survey. These household data allow Chinese officials
to track indicators of rural household welfare, including income,
consumption, agricultural marketings, and purchases. The data also allow
analysts to observe household adjustments to a changing economic
environment. In addition, these surveys have been modified over the
years to include recent phenomenon, such as trends in labor allocation,
livestock and cash crop operations, and food consumption outside of the
home.

Despite the attempts to maintain integrity in the system by combining
sample surveys and administrative reports filed by local government
officials, there is still considerable uncertainty about the accuracy of
aggregate production and input statistics. There have been many
questions about the accuracy of agricultural production, input and labor
statistics. For example, the area of cultivated land was understated by
roughly 35% until a revision following China's first agricultural census
in 1997. Livestock and meat statistics were overstated by 30% until a
revision following the agricultural census. There are also widely
varying estimates of rural population and labor force from different
sources.

These problems stem from a combination of factors and are not entirely
unique to China. First, the task of making a complete count of such a
large country, with many rural areas poor and inaccessible is very
difficult. China's first agricultural census, which uncovered the
reporting problems addressed above, took many years of preparation, was
funded by several outside research institutes as well as China's
government, and ultimately surveyed nearly 200 million rural households.
Second, officials and households have incentives to underreport or
overreport various data items to avoid penalties or taxes, meet
government quotas or achieve government plans. In addition, it has been
common practice for local officials to adjust the recorded size of land
holdings for quality differences. For example, officials may have
reported a 1.5-*mu* plot of low quality land as one *mu* for official
purposes. There are also sampling issues that may obscure important
trends and reduce the usefulness of the data. In particular, household
surveys in China are thought to underrepresent households at both income
extremes. The wealthiest households are underrepresented because they do
not have time to spend being surveyed or filling in consumption log
books for the small sum most survey teams pay for household
participation. The poorest households are underepresented, some claim,
because their poor human capital and illiteracy increases the chances
that they cannot read the survey forms or do not understand the
questions, making them difficult to survey accurately.

China also has yet to fully incorporate economic variables into its data
collection efforts, specifically price and wage data. Price data is
collected by China's Price Bureau, and recently by the MOA, but much of
these data are proprietary for government use or sold on a market for
information to recover some of the costs of data collection, and
therefore are not always available to the research community. These data
are also difficult to link with the available household data so limited
in their usefulness for household analysis. Some price information can
be inferred using household surveys by dividing marketing income by the
amount sold for specific commodities, if the surveys have these data
(the NBS rural survey does). Information on wages, however, is not
currently available from state agencies.

Finally, in addition to the annual surveys conducted by NBS and MOA,
numerous one-time, small-scale surveys are undertaken by government
agencies, research organizations, universities and other institutions.
Institutions such as the World Bank, the Asian Development Bank, the
Chinese Academy of Sciences, the Chinese Academy of Social Sciences, the
Chinese Academy of Agricultural Sciences and the Research Center for
Rural Economy (the latter two are both affiliated with the Ministry of
Agriculture) and several universities have all conducted independent
surveys, often with collaborators from outside of China. Many of these
surveys are conducted with funding for research on specific policy
issues, such as land tenure or rural employment and migration. As such,
they usually are not nationally representative, but often ask questions
that provide important details to examine the effects of policies and
institutions. In addition, these surveys often include price and wage
information, and are generally more available to researchers than data
collected by state agencies. However, most all are only cross-sectional
data without time series to research trends over time or control for
various fixed effects.

Reducing duplication and increasing the availability of the data
collected will improve the usefulness of the household data collection
efforts in China. For example, there little need for both the NBS and
the MOA to conduct independent rural household surveys and would be less
costly to conduct one survey. The one survey could then be made more
detailed and cover more households, making them more valuable to
researchers and capable representing national trends. Data collected by
independent research institutes also often duplicates data collected by
another. Increasing the coordination and cooperation among the research
institutes that conduct surveys and use household-level data could
improve survey efforts and the subsequent research.

***Results of Analysis of New Data***

***Off-Farm Employment.*** With the data provided by the new questions
and survey efforts, we now understand the changes underway in China in
ways that have important implications for policymakers. Clearly the
movement of labor out of agriculture has not caused a decline in
agricultural productivity. Indeed, grain production rose steadily from
1980-2000 while roughly 200 million workers found non-farm employment
(Rozelle; Zhang, 2002). We also know that workers moving out of
agriculture have a variety of choices: self-employment, local wage
employment or various types of temporary or permanent migration, both
rural-rural and rural-urban. Each of these types of off-farm employment
are important parts of the rural economy but may be affected differently
by various policies. Clearly rural-urban employment opportunities are
affected by urban industrial policy, as well as a collection of polices
in China often used to limit rural-urban migration (called *hukou*, or
household registration policies). Also, different types of off-farm work
are more or less available in different areas and attract different
kinds of workers. Local wage employment is largely confined to coastal
provinces and suburban areas, while temporary migration draws largely
from poorer inland provinces such as Sichuan, Anhui and Hunan, and some
from the poorer areas of the coastal provinces as well.

Social scientists have been able to dig even deeper into the workings of
the rural labor market

in China to understand important linkages and its role beyond a source
of income. Evidence is increasing that China's rural labor market is
affected by China's idiosyncratic land tenure institutions. Land tenure
policies may be causing rural households to allocate more labor to
agriculture and discourage them from participating in the labor market
(Lohmar). In addition, since the rights to land are determined in large
part by village residence, land tenure policy may discourage whole
households from moving into areas where employment opportunities are
more abundant. This would explain why so many rural migrants are young
members of established rural households engaging in temporary migration.
This linkage also allows the village economy to serve as a shock
absorber to swings in the industrial economy. When jobs are plentiful,
migrants are drawn out of villages, but can return and engage in
agricultural production if the industrial economy suffers a slowdown
(Zhang, 2001).

***Commercialization.*** New data sources are also helping social
scientists understand how farm households are moving out of subsistence
agriculture and into more commercialized ventures. In the early 1980s,
households produced grain for their own consumption and to fulfill their
grain quota delivery obligation. Over time, the grain quota became less
constraining and households have sold more grain directly to the market.
Diets have also been adjusting in rural China as incomes increase and
rural consumers move away from staple grains and consume more fruits,
vegetables and livestock products. Since households consume less grain,
they do not need to grow as much for their own consumption, so even
though production has been falling in recent years, farmers have been
increasing the amount of grain they sell on the market (fig. 2). And as
off-farm income rises, households have more opportunities to purchase
grain on the market, freeing up land to specialize in the horticultural
crops that are in increasing demand.

The development of the livestock sector has been a particularly
interesting story in China over the last twenty years. Communally-owned
livestock were divided up among households after reforms. Most livestock
production is still largely in small "backyard" household operations of
just a few animals. However, the share of livestock products produced by
larger specialized household operations and industrialized nonhousehold
operations has been increasing (Liu), and the structure of production is
expected to shift back to larger operations in coming years. Since
different types of operations use different feed inputs and exhibit
different conversion ratios, the changing structure of the industry has
implications for feed grain demand. Larger more commercialized
operations also are able to enforce stricter sanitary standards for more
conscientious urban consumers and export markets, an effect that may
accelerate movement of livestock production into fewer, larger
operations.

Horticultural production is also beginning to be a major component of
China's agricultural sector. Production of fruits and vegetables has
increased many times faster than grain production, and acreage in these
crops has more than doubled in the last two decades. Until recently,
movement into horticultural production served the growing domestic
market for these products as incomes grew in urban and coastal areas.
More recently, China has become a major exporter of horticultural
products. The trend toward increasing exports is expected to continue
since most horticultural production is labor-intensive and China is
labor abundant vis-à-vis other countries, and WTO accession will serve
to open China's borders to agricultural trade.

Understanding these trends is important if policymakers are to
effectively guide China through further reform induced by WTO accession
and economic development more generally. China's traditional emphasis on
grain self-sufficiency is being revived in some circles due to falling
grain production over the last few years and increasing imports in 2004.
Farmers, however, are shifting out of grain production primarily because
they can make more money producing other crops. This transfer out of
grains thus increases rural incomes, which is another important policy
goal of China's leaders, and this transfer is expected to continue as
farmers specialize in labor-intensive production. Understanding this
contradiction, and other important aspects of the rural economy, will
help policymakers establish policies that promote both grain production
(or availability) and rural income growth at minimal distortion of
market outcomes.

***References***

Bramall, Chris, "The Quality of China's Household Income Surveys,"
*China Quarterly*, vol. 167, Sept. 2001, pp. 689-705.

Cao, Qingbo, "China's Agricultural Data and Statistics System and the
1997 Agricultural Census," Agricultural Census conference, Beijing,
2000.

Fang, Cheng and Frank Fuller, 1998. "Feed-Grain Consumption by
Traditional Pork-Producing Households in China", Iowa State University
Center for Agriculture and Rural Development Staff Report 98-WP 203.

Liu, Xi-An, Li Wang, Li-Qin Zhang and Lan Li, "Household Animal Raising
Behavior in China's Less Developed Regions: The Case of Henan Province,"
AARC Working Paper No. 21. Sydney, Australia: Asian Agribusiness
Research Centre, April 2002.

Lohmar, Bryan, "The Effects of Land Tenure and Grain Quota Policies on
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Rozelle, Scott, Li Guo, Mingao Shen, John Giles, Tuanyi Low, "Leaving
China's Farms: Survey Results of New Paths and Remaining Hurdles to
Rural Migration," *The China Quarterly*, 1999, v.157: 367-393

Zhang, Linxiu, Jikun Huang and Scott Rozelle, "Off-farm Jobs and On-Farm
Work in Periods of Boom and Bust in Rural China,\" *Journal of
Comparative Economics* 29, 3 (September 2001): 505-526.

Zhang, Linxiu, Jikun Huang and Scott Rozelle, "Employment, Emerging
Labor Markets and the Role of Education in China" *China Economic
Review*, v.13(2002): 313-328

Tuan, Francis, Xiaolong Chen, Xinshen Diao, Fred Gale, Agapi Somwaru and
Yi Zhang, "Rural Labor Migration, Characteristics, and Employment
Patterns: A Study Based on China's Agricultural Census", Paper presented
at the Post Census Conference, Beijing, September 19-21, 2001.

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[^1]: ^\*^ Paper prepared for presentation at the MEXSAI Third Annual
    Conference on Agricultural Statistics, Cancun, November 2-4, 2004.