Cheng Xiusheng& Wang Hui, Almanac of China's Economy Press

Research Report No.210, 2004

II. Some Inspirations on the Experience of Huhehot City in Developing the Rural Economy

The experience of Huhehot City in developing its rural economy indicates that the city has earnestly implemented the requirements of the"No. 1 Document"of the central government. In light of its practical conditions, the city has explored a successful road to develop a people-enriching industry: the dairy industry. From its experience, we can draw the following main inspirations:

1. Select the right people-enriching industry and develop the rural industry in light of regional resources

The development of the rural economy is highly dependent on regional resources. The key to maximizing the value of market exchanges in a market economy lies in the proper use of regional resource advantages to develop special agriculture and tap comparative advantages. For this purpose, it is necessary to conduct a full analysis of resources and work out a rational strategic plan for industrial development. In selecting an industry, it is of vital importance to develop those that can enrich the people and have major economic and social significance. Unlike an ordinary industry, a people-enriching industry must be able to make the fullest use of the rural surplus factors and form productivity through modern industrialization. When the enterprises post a sound development, they can bring real benefits to the broad masses of farmers. This in turn will help develop the rural consumer market, narrow urban-rural income disparity and realize a virtuous cycle of the urban and rural economies. This fully conforms to the requirement of a scientific approach to development and that of building a truly well-off society. Therefore, selecting the right people-enriching industry in light of regional resources can play a unique role in promoting the comprehensive and coordinated development of the rural economy.

For a considerable period of time, Huhehot city failed to identify and make full use of its resource advantages due to system and concept limitations. In the structure of its agriculture, planting apparently claimed an undue proportion while its livestock breeding lagged behind. At the same time, most of its farm products were of general character, served as raw materials and carried low added value, with a low proportion of the farm products that were of special character and were processed in depth and carried high added value. Besides, this city is located in the western region and also noted for backward economic and cultural conditions and low farmer qualifications and agricultural productivity. Because of these reasons, the city failed to play up strength and avoid weakness in developing its agricultural economy, which caused a waste of resources. Before 1999, the stock of dairy cows of the city, located on the Inner Mongolian Prairie, was even lower than that of Shuozhou in Shanxi Province. This mirrored how irrational and uncoordinated the city's rural economic development was.

After fully realizing these problems and careful consideration, Huhehot developed in 2000 a strategy of building the city through the development of the dairy industry. The city has several advantages. First, it has a historical tradition and natural and human resources to develop dairy industry. Second, it has two famous brands, namely the Yili and Mengniu dairy group companies. Third, it has a vast domestic and foreign market and a bright market prospect, and developing the dairy industry conforms to the country’s industrial policy and development plan. In addition, it is also a manifestation of the trend of internationalization and intensive operation in developing the dairy industry. We should say this strategy has taken into full account of the city’s advantage in regional resources, fully realized the market opportunities and development potentials, effectively avoided the city’s disadvantage in developing grain production, realized integration with the market and the world, and created wealth and enriched the people. Therefore, the strategy was a great success. The inspiration is that in a market economy, a rational strategic planning for agricultural industry can bring about a sustainable development as long as it can make the fullest use of the comparative advantage in regional resources and it can correctly analyze the market, utilize the market and develop the market.

2. Change government functions and actively guide and support the development of the rural economy

The second important inspiration from the city’s efforts to develop the rural economy is that government functions should be changed, the bounds of government functions should be clearly defined, and both the market mechanisms and the government strength should be fully tapped and rationally utilized to actively guide and support the agricultural industrialization and the development of leading enterprises. Under the traditional system of the rural economy, government influence and control was omnipresent. As the final controller of land resources, the government not only decides the varieties, quantity and structure of the farm products to be grown, but also the selling mode and prices of these products. As a result, the farmers and the agro-businesses found it hard to adjust the structure of the agricultural industry in keeping with market demand. This mode of behavior that overemphasized government intervention and control violated the rules of a market economy and was not in conformancewith the demand of modern agricultural restructuring and industrialized operation. For this reason, government functions must be changed. The successful execution of the strategy of building the city through the development of the dairy industry is a result of the changes in government functions. In this process, the city government defined itself as the maker of development plans, the protector of the market order, the supporter of leading enterprises, and the service provider for the milk-supply bases. The government functions can be summarized as "making strategic plans, improving legal systems, offering favorable policies and ensuring organizational guarantee."

The experience of Huhehot city indicates that the government roles in developing the rural economy are manifested in the following aspects. First, full scientific proof should constitute the basis for a strategy of building the city through the development of the dairy industry, a series of government documents and rules should be worked out to guide and regulate the leapfrog development of the dairy industry, a rational industrial policy should be formulated to support the development of leading agro-businesses, and mandatory innovations of government systems should be conducted to overcome the system bottlenecks to the development of the dairy industry. Second, the government’s administrative and financial strength should be mobilized to ensure a centralized resource guarantee for the development of the dairy industry. For example, the government vigorously pushed forward the construction of milk-supply bases and financed the establishment of the cow risk fund and cow-purchasing loans. They were all effective methods to pool competitive resources through government strength for the realization of a rapid development in keeping with market demand. Third, the market competition between leading enterprises should be regulated and controlled to realize a virtuous development. One of the important roles played by the government in a market economy is to act as a "referee"and work out and enforce rules. On the one hand, the city strengthened market supervision and regulated the milk-supply market through industrial administration, quality inspection, and quarantine. On the other hand, the city government properly handled the competition between two leading dairy enterprises. Measures such as dividing milk-supply bases were taken to arbitrate and mediate the competition between them and to avoid vicious market competition. A clear evidence was that while the two leading enterprises, Yili and Mengniu, posted rapid growth, there had been no war on milk supply. In fact, the proportion of common milk-supply bases declined. This was closely related to effective government regulation and coordination. Fourth, the government’s functions in public administration should be strengthened and the rural social service systems be improved. Strengthening the functions of public administration and social service constitutes an important content of the changes in government functions. In this respect, the city government has, on the one hand, directly been involved in the establishment of the rural social service systems, such as the system for the quality and safety of farm products, the agricultural integrated service system, the dairy service system, and the epidemic and disease control system. On the other hand, the government has encouraged and pushed forward the development of intermediate service organizations in the rural areas.

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