“Economic Structure of China,” The Economist

China is in the throes of a twofold industrial revolution. On the one hand, as in industrial revolutions in other countries, there is movement of people from the countryside to the towns. But an industrial revolution is also being encouraged in the countryside. While the majority of the labour force is still classified as rural (499m out of a labour force of 711.5m in 2000), as many as 150m of these, according to some estimates, have moved to cities in search of higher pay. Millions more who live in the countryside are not employed on the land. An agricultural survey conducted in 1996 found that nearly one-quarter of the rural labour force had taken employment in rural industry or services. Including dependants, the true peasantry now numbers between 480m and 530m. The “non-agricultural village population” included in 1999 about 127m employed in township and village enterprises (TVEs).

The process of industrialising the countryside is encouraged for many reasons: finding non-farm employment for millions in the countryside is vital if the productivity of agriculture is to rise; established urban centres are already lacking in infrastructure; and the existing, already stretched, social control system could not withstand a larger rural-urban migration.

The dominant role of industry

Economic growth has, for many years, been led on the supply side by increases in industrial output. Even before Deng Xiaoping’s reforms, the Chinese economy was characterised by industry’s unusually large share in gross output value. This was particularly striking because so much of the workforce remained on the land. At first, in the early 1980s, the reforms represented a shift of national resources towards agriculture, through a sharp rise in the procurement price paid for agricultural crops and what amounted to the privatisation of agriculture. However, by the late 1980s industry’s contribution was again increasing as parts of the countryside began to industrialise. Meanwhile, services have also been growing rapidly, as controls on the economy have been reduced and demand for personal services has grown.

The state’s share of industrial output shrinks

Industry has undergone a fundamental shift. Until 1978 output was dominated by large state-owned enterprises (SOEs). Since then, much of the boom in manufacturing output has been produced by “collective” enterprises, under the aegis of local governments, by TVEs or, increasingly, by private entrepreneurs or foreign investors either in wholly-owned enterprises or in joint ventures with Chinese interests. By 2001 the share of the official state sector in industrial output had shrunk to about one-quarter. Nevertheless the state sector tends to contain industries that are the most capital-intensive and often the largest in scale, and financing them absorbs a large share of national resources, especially financial resources.

Inland regions lose out

The coastal areas on China’s eastern seaboard have benefited from their accessibility, their links with overseas Chinese and their more developed infrastructure. They have consistently achieved far higher rates of growth than the western provinces. Western China is in many places arid, mountainous or otherwise infertile. The main population centres have always been the wheat-growing plains of northern China and the rice paddies of the Yangtze Delta. The Ninth Five-Year Plan aimed to address the widening inequalities of wealth and income between the coast and the interior by concentrating investment, both domestic and foreign, in the interior provinces, and the Tenth Plan, which began in 2001, is continuing this emphasis.

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