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Restoring capitalism: Planting the seeds of capitalism

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How the Chinese Communist Party brought more market relations into the fields

On the eve of the 1978 reforms, agriculture employed between 70 and 80 per cent of the total workforce. It was organised on the basis of the “People’s Communes” which embraced whole districts, the production brigade, numbering up to 100 households, and the production team which was essentially the traditional village or hamlet.

All decisions over production were taken at Commune level in keeping with the requirements of the central planning authorities. Although the system brought some advantages in spreading modern techniques and organising large scale projects such as irrigation, its disadvantages were beginning to outweigh these.

In particular, concentration on single crops not only ignored local variations but also required expensive transportation of products that could have been produced in all localities. Prices for agricultural goods were almost entirely laid down by the state.

By the mid-1970s, the rate of increase in food production had been overtaken by the rate of growth of the population. In several provinces, peasants were already turning away from the communes and returning to “family farming” and local party officials were turning a blind eye because the results were greatly improved harvests.

Faced with the choice of losing authority altogether or a second famine, Beijing sanctioned the break up of the communes

What emerged was the “Household Responsibility” system in which peasants decided their own land use but were obliged to deliver a quota of specified crops to the state at fixed prices. Production in excess of the quota could be sold on the free market or to the state at a “negotiated price” between the fixed prices and the free market

To ensure adequate supplies, the state guaranteed to buy everything above the quota output.

The result was an immediate increase in production; grain production rose by 3.7 per cent per year for the next six years, cotton by 18 per cent per year and meat by 8.9 per cent . Overall, peasant incomes rose by 12.3 per cent per year in the same period.

This increase in production and income stimulated other economic activity. The number of rural markets increased from 38,000 in 1980 to 67,000 by 1993. In addition, the agricultural sector was the initial stimulus to the development of local small scale industrial and commercial activity in the so-called TVE sector

It was a source of capital accumulation, not only in farming but in associated sectors, and a new developing indigenous capitalist class, a social force that had been eradicated for nearly four decades.