STRUCTURAL ECONOMIC CHANGES IN
CHINA AND VIETNAM: POLICY ISSUES AND
CONSEQUENCES FOR AGRICULTURE
Clem Tisdell
Professor Emeritus
School of Economics
The University of Queensland
Brisbane Queensland Australia
9th Biennial Pacific Rim Conference of WEAI, April 26, 2011
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1. INTRODUCTION
• Market reforms began in China and Vietnam in their
agricultural (rural) sectors and then spread to the rest of
their economies.
• Agricultural reforms were the catalysts for restructuring the
entire economies of China and Vietnam.
• Although agricultural reforms were the prime movers for
restructuring these economies, changes in agriculture are
now being driven by developments in the other sectors of
these economies.
• Consequently, developments in their agricultural sectors
must be analyzed in an economy-wide context.
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1. INTRODUCTION
Therefore, in this paper I consider:
• The urbanization of China and Vietnam and trends in the
sizes of their major economic sectors.
• Factors influencing the movement of agricultural workers
to urban employment.
• Structural changes within the agricultural sectors of
these economies.
• The vexed question of whether policies should favor the
development of large-scale commercial agriculture and
discourage small scale household production.
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2. URBANIZATION
• Since beginning their market reforms, both China and
Vietnam have experienced rapid urbanization.
• Almost 50% of China’s population resides in urban areas
and this is just under 30% for Vietnam. Rural-to-urban
migration is continuing rapidly. China’s urban population is
expected to exceed its rural population in the second part
of this decade.
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2. URBANIZATION
• Why is China more urbanized than Vietnam? Reasons
include:
– China began its market reforms almost two decades before
Vietnam
– China may have a greater comparative advantage in urban-based
industries than Vietnam
– China’s policy of promoting town-and-village enterprises provided
an important stepping stone for rural-to-urban migration.
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3. CHANGED IMPORTANCE OF
MAJOR SECTORS
• Following their market reforms and increased openness,
both China and Vietnam have experienced rapid and
sustained economic growth accompanied by rising per
capita incomes.
• The relative importance of their agricultural sectors for
employment and in contributing to GDP has declined
significantly whereas that of the industrial and service
sectors has grown substantially.
• Nevertheless, Vietnam remains economically more
dependant on agriculture than China. In 2008, agriculture
employed almost half of Vietnam’s labor force compared
to just under 40% of China’s labor force, and it accounted
for 22% of Vietnam’s GDP compared to 9.6% for China.
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4. EXITING AGRICULTURE FOR
URBAN EMPLOYMENT
• Surplus agricultural labor has been a problem in China
and Vietnam but exiting agriculture for urban employment
involves transaction costs.
• These costs reduce labor mobility but have largely been
ignored in economic theory, e.g. the theory of Lewis.
Some relevant theory is outlined in this paper. These
costs are policy relevant.
• A barrier (amongst others) to farmers quitting agriculture
in China and Vietnam is an inadequate market in
agricultural land.
• Availability of non-farm employment near a farmers
residence is an enticement to shift to non-farm
employment – it minimizes transaction costs.
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4. EXITING AGRICULTURE FOR
URBAN EMPLOYMENT
• China’s policy of developing town-and-village enterprises
facilitated switching of its rural workforce from farming to
non-farm employment because the transaction costs of
switching were low.
• In 2005, 42.6% of China’s rural workers were in non-farm
employment; much higher than in Vietnam because
Vietnam did not emphasize the development of town-andvillage enterprises. However, non-farm rural employment
is now rising in Vietnam
• Although many of China’s town-and-village enterprises are
unlikely to be economic in the long-run, they have made a
valuable contribution to China’s economic adjustment.
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5. STRUCTURAL ADJUSTMENT IN
AGRICULTURE
• Apart from labor movements out of agriculture, two
important changes have occurred in the structure of
agriculture in China and Vietnam.
• These are:
– An increase in the relative size of the livestock sector compared to
the crop sector.
– A dual system of agricultural production involving supplies from
small-scale household producers as well as from larger scale
commercial producers.
• The demand for livestock products is more income elastic
than that for products derived from crops. With rising per
capita incomes in China and Vietnam, demand has,
therefore, shifted in favor of livestock products. Therefore,
the livestock sector has grown more rapidly than the crop
sector
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5. STRUCTURAL ADJUSTMENT IN
AGRICULTURE
• It is also true that farmers have greater freedom in China
and Vietnam to adjust the composition of their production
than in the past. They are, therefore, more responsive to
market forces than previously.
• The increased demand for livestock products has
outstripped growth in domestic supply and their prices
have escalated.
• Imports of coarse grains for livestock food have risen
because demand for fresh meat limits imports of meat.
• Increased prices of livestock products, such as pork, are
of concern to policy-makers in Vietnam and China.
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6. HOUSEHOLD AGRICULTURAL
PRODUCTION VS. COMMERCIAL
• Small-scale household producers still account for the
major share of agricultural production in China and
Vietnam. For example, household producers in Vietnam
accounted for 90% of Vietnam’s pork production in 2006.
In 2006, most Vietnamese households keeping pigs had
one or two pigs, and over 80% had 5 pigs or less.
• Nevertheless, the number of larger scale commercial
agricultural producers is increasing.
• Some policy-makers e.g. in Vietnam, believe that
household production is inefficient and favor policies to
expand commercial production.
• These policy-makers also predict that this expansion will
curb increases in the prices of livestock products.
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Small-scale household pig farm versus largescale commercial farm in Vietnam.
Small-scale cultivation versus large-scale
cultivation in China
6. HOUSEHOLD AGRICULTURAL
PRODUCTION VS. COMMERCIAL
• Given the low opportunity cost of household agricultural
labor, supply of agricultural products by households
remains efficient in transition.
• But with expanding demand for livestock products, some
supply by commercial producers is also efficient.
• With continuing economic development, the opportunity
cost of household labor will rise and agriculture will
become more commercialized.
• The following figure is used in my paper to illustrate the
efficiency of a dual agricultural system during economic
transition.
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6. HOUSEHOLD AGRICULTURAL
PRODUCTION VS. COMMERCIAL
$
B
P
D2
E3
D1
F
E2
P2
C
D2
E1
P1
A
D1
O
X1
X2
X3
Quantity of agricultural product
X
Figure 3 An illustration that with rising demand for an agricultural product, it becomes
economic for a growing proportion of it to be supplied by commercial producers.
In this case, household production remain economic and actually increases as
demand for the agricultural product rises.
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7. CONCLUSION
• Since beginning their reforms both China and Vietnam
have experienced a large decline in the relative
contribution of agriculture to their GDP and employment.
• This decline is more marked in China’s case than
Vietnam’s.
• Impediments still exist to the exit of farmers from
agriculture but the development of town-and-village
enterprises by China was effective in inducing many
farmers to take up non-farm employment.
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7. CONCLUSION
• Significant structural change has occurred in agriculture in
China and Vietnam.
• A major change has been a substantial increase in the
size of the livestock sector relative to the crop sector. The
reasons for this were mentioned.
• However, in these countries, increased supply of livestock
products has not kept pace with rising demand and their
real prices have risen considerably.
• Some policy-matters blame the heavy dependence of
agriculture on household producers for this.
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7. CONCLUSION
• Policies to favor and subsidize large scale commercial
livestock production have been proposed by some
Chinese and Vietnamese policy-makers on the grounds
that commercial producers are more efficient, more able to
expand supplies and limit price rises than are household
suppliers.
• But as demonstrated in my paper, in transition,
commercial agricultural producers are not likely to be
more efficient from an economic point of view than are
households.
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7. CONCLUSION
• In transition, there can be economic value in having both
types of agricultural suppliers; household and commercial
ones.
• With continuing economic growth, household agricultural
producers will tend to disappear. Market intervention in
favor of commercial agricultural producers is unnecessary
in this case and is likely to be inefficient.
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