The Effect of WTO Entry on the Chinese Rural Sector

by Robert Weil

The U.S.-China trade agreement signed last year to clear the way for China's entry into the World Trade Organization (WTO), as well as the general rules that must be accepted by all countries upon joining the WTO, could hold devastating consequences for the majority of the Chinese population that continues to engage in agriculture. 

Working small and usually scattered fields -- averaging only one to two acres -- with little or no mechanization, Chinese farmers have managed to keep the country largely self-sufficient in grain and other basic agricultural necessities, as well as to meet the growing demand for specialty crops, especially by the expanding middle class in the cities. Markets in China -- from the new supermarkets to the ever larger numbers of street vendors -- are overflowing with foodstuffs of amazing variety.

But the production methods of Chinese peasant farmers are not economically efficient by the standards of the global marketplace, particularly if they are thrown into competition with the increasingly large-scale, corporatized and highly mechanized farming of the United States and other major grain exporters. After rapid income gains in the first decade or so of reforms, the rural sector in China has recently lost ground relative to the urban population, prompting the government to continue the policy of propping up the price of farm products through both state purchasing programs and protective tariffs. Such methods have kept Chinese agricultural products above the level of global "free market" prices. Entry into the WTO would largely undermine these forms of price control and state subsidization of the peasant farmers. 

Current government prices for Chinese grain are approximately 10 to 70 percent above the global market level, or an average of around 30 percent more than those in the United States. For example, early this year, corn sold in the northeast province of Jilin, a major grain growing region, at $85 per ton, or some $9 above the comparable U.S. price. 

Given this spread, the free importation of foreign grains could quickly drive large number of Chinese farmers, many already economically marginalized and having difficulty selling all their produce, out of business. Subsisting on a mere  one to two dollars per day on average under the current policies -- with tens of millions earning still less -- even a relatively small drop in the price paid these peasants or further shortfall in their ability to sell their crops would be ruinous for many.

U.S. and other foreign grain companies are poised to exploit such weaknesses by pouring relatively cheap imports into China. The potential is enormous, as the U.S.-China accord specifies that imports of wheat must rise from the current level of around 200,000 tons annually to 10.6 million tons in the next few years, while importation of corn is set to increase from 55,000 to 7.9 million tons. The U.S. National Corn Growers Association predicts that exports from the United States to the Chinese market could triple.

Spokespersons for U.S. agribusiness corporations such as Cargill, which already has large investments in the country, are busy urging China to accept the "logic" of relying more heavily on imported grains, so that its own farmers can devote themselves to specialty crops. But while some Chinese peasants are already taking advantage of such new opportunities, most are ill prepared both financially and technologically to switch rapidly from traditional grain to newer products requiring different techniques to grow and more specialized knowledge of the marketplace to sell.

Others try to convince China that it should accept greater dependency on imported foods in exchange for industrial exports. Martin Andreas, speaking for ADM -- "supermarket to the world"  -- was quoted in the Journal of Commerce as saying that the Chinese are already "resigned to importing food and paying for it with products made from their overabundant supply of cheap labor."  

Rural Polarization

Even Chinese government sources estimate that the projected growth in food imports will displace 10 million peasants or more from their land, and that rural income may drop by up to $660 million. 

But besides being only the first wave of a potential flood of imported foods, displaced peasantry and lost income, the effects of the change in policy looming with WTO membership has much wider implications, which can only be understood against the historical record of the "reform" period.

The marketization policies introduced by Deng Xiaoping after the death of Mao Zedong began in the countryside, with the rapid breakup of the rural communes and introduction of the "family responsibility system," in which individual households contracted to work a negotiated amount of land. Increasingly over the last two decades, farmers have entered the marketized economy, becoming more and more dependent on sales outside their own local communities and even regional economies in an ever more unequal exchange with the urban centers. Today the value of most farm products is worth much less in purchasing power compared to the cost of fertilizer, feed and other manufactured goods -- many of them imported -- than just a few years ago.

Despite these rising difficulties of participation in the market economy, until now peasants in China have been largely spared from having to face direct competition from imported foodstuffs, including fruit and meat, as well as grain. The farming sector, where market reforms began, is the last major area of the Chinese economy that has not been heavily impacted by having to compete head on with foreign goods. But with entry into the WTO, the floodgates would be opened for competitors from abroad for the first time to directly undercut the economic foundations of rural China, with incalculable consequences for its future.

The Chinese countryside has already undergone a vast class polarization, with the emergence of a stratum of rich farmers, often employing hired labor, on the one hand, and a growing army of peasant migrants, effectively landless, though they may retain ties to their village, on the other. The success of the former class is easily visible in rural China, marked by their new, more modern homes and increasing access to consumer goods. But the ranks of the migrants, often referred to as the "floating population," are also readily apparent, especially in the urban centers, where they do most of the construction work and other heavy laboring jobs, or provide the workforce for sweatshop industries. Even government statistics indicate that there are some 130 million such migrant peasants moving around China looking for work, and projections for the future number of surplus laborers in the countryside climb as high as 450 million, with some 26 million expected to move into the cities annually.

Many of the displaced peasant laborers work in the rural industries, or "town and village enterprises," that employ over 100 million workers in generally small and locally controlled operations. Originally developed to utilize local resources and surplus labor to supply regional markets, such production has increasingly become tied into the national economy and has even attracted foreign investment. The most rapidly growing economic segment of China in the early reform era, these enterprises have in recent years also come under increasing pressure from better financed and more efficient producers in the urban centers and from abroad who are able to provide higher quality goods at lower cost. Thus the ability of the TVEs to continue serving as a "sponge" to absorb surplus peasant labor is rapidly decreasing.

Any policy change, such as WTO entry, that threatens to add further to the ranks of the "floating population" thus raises the specter of even greater dislocation and polarization in the rural areas. In addition, the ranks of the urban unemployed are also rising rapidly, as state-owned enterprises are laying off tens of millions of their own employees to meet the competitive pressures of the global capitalist market. Already, some cities have been pushing peasants back into the countryside to "make room" for more unemployment among their own urban workers.

Rising Tensions, Growing Protests

But the larger trend remains. People are pouring into the major cities from rural areas and small towns in the poorer provinces, which are already feeling the effects of the slowdown in growth as a result of the Asian economic crisis. These newcomers lack all normal rights in the urban areas, where most are not permitted to acquire permanent residency. Legally excluded from many occupations, many are forced to live in shantytowns without basic services, or in temporary housing at construction sites. Even their children must attend illegal schools set up to serve the burgeoning migrant population. Subject to constant police harassment and the threat of being driven out again, they are vulnerable to the worst forms of superexploitation by employers as long as they remain in the big cities. 

Underlying the ongoing urban migration is an enormous gap in wealth. Urban incomes on the east coast are roughly six times higher than the earnings of those living in interior towns. Such polarization is even more extreme when those who live in the poorest rural communities are compared with the stratum of new rich in the cities. Exacerbating the wealth gap is the total collapse or severe reduction in the countryside of health, educational and environmental services, especially for the poorest 80 million who still live in the most isolated communities -- one of the unremarked upon collateral effects of the replacement of collective production by market reforms based on individual family farming. 

Angry peasants are mounting increasing numbers of protests and demonstrations, many of them directed at local authorities, who frequently charge excess taxes and illegal fees, divert community funds to their private enrichment, fail to provide schools and health clinics and act in an abusive and exploitative manner toward the general population. Though most such incidents are relatively small and nonviolent and go largely unnoted in the U.S. media, a few have been on a massive scale, involving many thousands of protesters, or violent clashes with the police ending in arrests and injuries.

In March, some 20,000 miners and their families rioted against layoffs and loss of pensions at a bankrupt molybdenum mine in the depressed Northeast. Regular army troops were called in to suppress the protests, the worst such labor unrest in years. These demonstrations by industrial workers in rural areas often attract support from peasants, who suffer similar income losses and abuse by local authorities.

Not infrequently, such protests merge with those of the urban workforce, since there is a growing overlap in interests between the migrant laboring population and those who are losing regular jobs in the cities. 

These rising tensions around the condition of the peasantry have contributed to divisions within the Chinese government itself over the question of WTO entry and the U.S.-China trade agreement. In early 1999, a major clash was reported between representatives of the Ministry of Foreign Trade and Economic Relations, the agency responsible for negotiating Chinese entrance into the global economic institutions, and the Ministry of Agriculture, over concessions to the United States and other trading partners. Ministry of Agriculture officials complained in particular about pressure to eliminate farm subsidies. 

For those Chinese opposing entry into the WTO, or at least wanting to limit the concessions made to gain WTO membership, the issue is more than just one of practical effects. It is a question of the economic sovereignty of China and its future ability to maintain an independent foreign and domestic policy, including the right to hold on to whatever remains of its past socialist forms of economic organization. Of special concern is the question of whether the country can avoid becoming dependent on grain from abroad, which could greatly limit its freedom of action in international relations. In the view of the Chinese opponents of "globalization," WTO entry and related concessions to the United States and other foreign powers is a step toward losing the freedom from external domination that was won at such enormous expense during the Communist revolution.

Robert Weil is the author of Red Cat, White Cat: China and the Contradictions of "Market Socialism."