Trade and Investment Liberalization and China's Rural Economy : Impacts and Policy Responses

While the forces of development and transition have been in part responsible for generating the progress that rural China has experienced during the past 20 years as well as being responsible for some of the remaining barriers, the nation's efforts at pushing ambitious Trade and Investment Liberalization (TIL) policies threaten to further accentuate the trends in rural China. Surprisingly, however, even though the potential for gain and for damage is great, almost no literature exists to answer some of the most basic questions about the proposed efforts to push TIL. On balance, will TIL policies help or hurt rural residents? How will they affect rural incomes? How will they affect rural employment in the agricultural and non-agricultural sectors? What policies can the government adopt to reduce the harmful effects and enhance the positive benefits? The general goal of my essay will be to begin the discussion of these critical questions. In particular, I will attempt to meet this broad goal by pursuing four objectives: First, I will review the rural economy's record on income generation. Second, I will review the rural economy's record on employment. Third, I will attempt to assess the net results of the positive and negative impacts that TIL policies may have on rural incomes and employment. Finally, I will discuss a number of alternative policies that leaders may consider adopting to reduce TIL's costs and increase its benefits. To meet this goal, I will organize the rest of this paper as follows. In the first section, I will first review China's macro setting and discuss a number of the important macro-forces that may have important impacts on rural incomes. I then trace out the record of rural incomes during the reform era. In the second section, I examine in more detail the record on employment in the rural economy during the past two decades. The purpose of the first two sections will be to motivate the third section: a discussion of how TIL policies may help and hurt incomes and employment in rural China. Finally, the last section concludes with a discussion of policies that may assist policy makers in dealing with the cost and benefits of TIL policies