Reforms and Incentive Policies in China’s Agriculture

Market and price reforms have played an important role in resource allocation and agricultural transformation in China. The country adopted gradual reform approach over the past four decades, in both the agricultural output and input markets. This facilitated China’s smooth transformation from a planned economy to, currently, a market-oriented economy. Farmers gained from increased allocative efficiency based on market prices. China also steadily and significantly liberalised its agricultural trade. The domestic market and price reforms along with open-door agri-policies enabled the integration of the nation’s market into international markets. Accompanying the gradual market reform was the improvement in marketing infrastructure that played significant role in agricultural growth, structural change and higher farmer’s income. Most recent incentive policy change has been the shift from taxing to subsidising agriculture. Investment has created a solid foundation for steady growth of China’s agriculture sector and its rapid transformation. China is one of a few large countries that have substantially increased agricultural investment in recent decades. The most significant investments are in irrigation, rural market infrastructure, land improvement and agricultural technology. This chapter, therefore, presents details of the incentive structure in China’s agricultural sector and unfolding innovations in the incentive policies because China’s experience could be valuable for other economies transitioning from a centrally planned to a market system. It is therefore important that policymakers embarking on the reform path first provide incentives for production and build right institutions in a market economy before rushing to open up markets.