China's Economic Restructuring: Role of Agriculture

While China has achieved extraordinary economic success in the past decades, its economic structural risks have increased significantly as well. As Chinese top leaders have repeatedly emphasized, economic restructuring is a critical task facing China’s economy. To restructure China’s economy, the country needs to find a new engine for growth to replace the export and investment led growth model, address social inequality and protect the environment. The key approaches identified by the Chinese government include urbanization, upgrading the manufacturing sector and developing strategic industries. However, through in-depth analysis, this paper finds that the effectiveness of these measures remains in question as they fail to target at all the root causes of China’s economic problems.

One of the root causes of China’s current economic structural problems is the low domestic consumption, particularly of the rural residents. Another root cause is environmental degradation as the agricultural sector is a top polluter. Finally, a deep rooted problem China faces is income inequality, predominantly, rural-urban income inequality. This paper posits that in order to address China’s economic structural problems, promoting farmers’ income growth and developing an eco-friendly agricultural sector should be prioritized. It argues that agriculture has a key role to play as it has great potential in contributing to economic growth, sustainable environment as well as harmonious society.

However, in order to release this potential China’s agricultural sector has to be reformed. China should further liberalize its agricultural sector in the following three aspects. First, China needs to move away from grain farming and capitalize on China’s huge comparative advantages in the production of labour - and - capital intensive products such as fruits, vegetables and aquatic products. Second, China should promote regional specialization of agricultural production according to comparative advantages of different regions. Third, both domestic and cross border agricultural trades have to be further liberalized to encourage agricultural structural shift and regional concentration.

Agriculture is one of the most important industries in China. It plays multiple roles of promoting farmer’s income growth, ensuring the country’s food security, and protecting natural environment. For a long time, due to overwhelming concern for the country’s food security, China’s agricultural sector failed to meet the other roles of promoting farmer’s income growth and protecting the natural environment, which are among the root causes of China’s current economic structural problems. With a right mix of policies, China’s agricultural sector can effectively meet its multiple goals and thus contribute to China’s on-going economic restructuring.