By Ye Xingqing

Research Report Vol.19 No.1, 2017

During the three decades of rapid economic growth in China, reallocation of labors and land between urban and rural areas have played an important supportive role, which should be attributed to the efforts made in breaking up the urban-rural dual structure. In the new normal of economic development, the key to deeply explore and keep unleashing the effect of resource reallocation between rural and urban areas still lies in removing the obstacle of the urban-rural dual structure.

I. Working Principles for Resource Reallocation between Rural and Urban Areas Contributing to Rapid Economic Growth

In the three decades from 1982 to 2011, the average annual growth rate of China’s GDP was up to 10.23%. Factors contributing to such a high rate were embodied in changes of resource allocation. More resources were allocated to coastal areas, non-public sector, export industry, and hi-tech enterprises, leading to the full unleashing of effect of labors and land reallocation between rural and urban areas, and playing a decisive role in the 30 years’ fast economic growth.

Seen from the reallocation of labors between rural and urban areas, it has played a supportive role by providing low-cost labor for non-agricultural industries. Generally speaking, the transfer of labors from agricultural sector with low marginal productivity to non-agricultural sector with high marginal productivity can increase the average productivity of the whole society, thus improving the total factor productivity and contributing to rapid economic growth. But China has its own characteristics: the “inexhaustible supply” of surplus rural workers retain the overall wage of non-agricultural sector at a low level; the dual-structure household registration system leads to the dual-structure urban labor market; non-agricultural sector shows discrimination against migrant rural workers, which is remarkably reflected by the facts that employers pay far lower “survival wage” to migrant rural workers than the amount they pay to other employees and they do not pay the social insurance premium for them as required by the law. Statistics from the National Bureau of Statistics finds that in 2011 the number of migrant rural workers nationwide reached 158.63 million, with an average annual income of RMB24,588 which was only 41% of that of the urban workers of the year, and those participated in pension, job-related injury, medical care, unemployment, and maternity insurances paid by the employer or organization only took up 13.9%, 23.6%, 16.7%, 8% and 5.6%, respectively, noticeably lower than the average insurance participation rate of urban workers. Low wage and low social insurance participation rate for migrant rural workers allowed non-agricultural sector to keep a low labor cost in the long run. During the three decades of rapid economic growth, the low labor cost enabled rural township enterprises to boom, and the export sector to see both the demographic dividend and opening-up dividend after China joined WTO, and the non-agricultural sector to keep its capacity of accumulation and investment at a high level.

Seen from land reallocation between rural and urban areas, its contribution to the high-rate economic growth is mainly shown in three aspects. Firstly, it helped to accumulate fund for infrastructure building. The large-scale construction and fast improvement of infrastructure promoted the economic growth by relying on investment and supply of public goods, and also noticeably strengthened the international competitiveness of “Built by China”. That China is able to conduct large-scale infrastructure construction is closely related to “land finance”. The mode of land expropriation and transformation, known as requisitioning land at the planned price and selling land at the market price (mainly residential/commercial land), provided the municipal government with a large amount of fund for building infrastructure. The assignment or low-price sale of land lowered the investment needed by linear infrastructure projects such as expressways and high-speed railways outside the developed urban areas. Secondly, it provided land for industrial use at a low price. Generally, to promote industrial development, the price of land for industrial use is much lower than the price of land for other purpose. The Communiqué on Land and Resources of China 2011 states that at the end of the 4th quarter in 2011, the integrated land price of 105 major cities nationwide was RMB3,049/square meter, and RMB5,654/square meter, RMB4,518/square meter and RMB652/square meter for commercial, residential and industrial land, respectively. Some regional government even offered the land free of charge to attract investors. Thirdly, it lowered the transaction fees for acquiring land for industrialization and commercialization. The law authorizes the government to requisition the rural collectively owned land to serve public interests. As the government’s land expropriation right is extended, land needed for industrialization and commercialization can be acquired by way of government expropriation, which avoids one-to-one negotiation between land users and rural land owners, thus reducing the transaction fees. In the rural area, the collective ownership of land reduces the barrier against the development of township-level enterprises by collective economic entities, and zero-cost land for non-agricultural use enhances the competitiveness of such enterprises.

II. The Decrease in Effect of Resource Reallocation between Rural and Urban Areas and the Transition Phase in Economic Growth

From 2012 to 2015, the growth rate of China’s GDP was 7.7%, 7.7%, 7.4% and 6.9%, respectively, bidding farewell to the high growth rate at about 10% in the previous three decades. The slow-down could be attributed to multiple factors. For example, China narrowed down the technical gap between it and the first-moving countries, which reduced the latecomer advantage; the total working-age population decreased and took up a smaller proportion, leading to the decline in demographic dividend; the advent of the annual peak demand in housing, automobile and other consumption goods with a relatively long chain slowed down the growth rate of investment and consumption demand. We believe that the decrease in resource reallocation between rural and urban areas is also one of the major reasons for the slow-down in economic growth.

1.The Decrease in Effect of Resource Reallocation between Rural and Urban Areas and the Transition Phase in Economic Growth

With continuous migration of surplus rural workers, the marginal productivity of agricultural labors and the wage of migrant rural workers began to increase remarkably around 2004, surpassing the first Lewis turning point. After that, the reallocation of labors migrating from rural to urban areas began to contribute less to the increase of the whole society’s productivity. However, before the advent of the second Lewis turning point, such reallocation still produces its effect. The decrease in its effect is a gradual process, and its negative influence on economicgrowth is gradually extended. ...

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