China's Surplus Agricultural Labour Force: It's Size, Transfer, Prospects for Absorption and Effects of the Double‐Track Economic System* (1992)

The commune economy had two basic characteristics: one was its three‐grade pyramid‐type structure of organisation which integrated government administration and economic management; and the other was its “self‐sufficient” and “closed‐door” character. Under this system farmers had no free choice about their occupation and place of residence. With the collapse of the commune system, institutional reorganisation of China's rural economy occurred. Farmers had more choice now about their production, their occupation and place of residence based on the development of a modern commodity and market economy. In this process of institutional reorganisation, transfer of surplus agricultural labour is a key factor. The concept of the agricultural labour surplus is discussed and discussions in English of this concept and associated theory and policy are reviewed. With reform of rural economy and improvement of agricultural labour productivity, the quantity of surplus labour in rural China has increased. Greater labour absorption is required in both agricultural and non‐agricultural sectors, but particularly in non‐agricultural sectors. In China, several impediments to transfer of surplus agricultural labour still exist. The transfer of surplus agricultural labour in contemporary China occurs in the context of a nationwide “double‐track” economic system (a market‐oriented economic system harnessed to a centrally planned and controlled economic system) and a “dual economy” in which modern industries exist alongside a traditional indigenous agricultural economy. Income gains provide the main motivation for farmers to transfer to non‐agricultural activities. It is the income difference between farming and non‐farming activity, not whether the marginal labour productivity in farming is zero that is important. By building and developing free or open markets one provides a suitable climate for labour transfer and migration. In the absence of free or open markets, farmers have little free choice. The continuing system of household registration is a serious institutional barrier to transfer or migration by farmers. Furthermore, the system of equal farmland contracts also hinders the process of transfer or migration. This might be overcome by allowing the transfer of rights to use farmland and facilitating “part‐time” transfer of agricultural labour. Withdrawal of “surplus labour” from farming can cause grain output to drop. This can occur because if “better” farmers leave agriculture, the quality of farm labourers as a whole declines and because of a rigid price system which discriminates against agricultural products. While current transfers of surplus agricultural labour in China may well have increased income inequality between rural residents and between regions, if there had been greater freedom of migration this might have resulted in less income inequality. To the extent that market reform in China has resulted in greater freedom of economic choice, it appears to have increased the level of production obtained from China's limited resources. This is not to say that the market system will result in a perfect solution even though the economic results can be expected to be much superior to the commune system adopted in the past by China.