20 - The growth of rural industry: the impact of fiscal contracting

Summary

Over the past ten years, the development of rural manufacturing, handicraft and commercial enterprises has become one of the cornerstones of China's economic reform policies. This process has absorbed surplus agricultural labour, raised incomes and transformed the structure of the rural economy. As a result, the Chinese countryside is embarking on a phase of development that is bringing an end to the economic dominance of agriculture. With the increasing commercialisation of rural production, growth of rural enterprises has accelerated the pace of urbanisation, playing a key role in a number of fundamental economic processes. The significance of the economic changes involved cannot be overstated.

Why has it been rural industry which has grown so rapidly? Reform and growth are likely to lead to economic transformation and a relative decline in the agricultural sector. But there are no expectations in this analytical structure about the location of industrial growth. Will it occur more rapidly in rural areas or in urban areas? One of our aims is to explain why industrialisation in China has had a rural bias.

The growth of rural industry has transformed the relationship between town and countryside and created some tensions in relations between the urban and rural economies. The growth of rural industry and the associated transformation has been greatest in the coastal provinces, especially from Hainan to Jiangsu, north of Shanghai, but its effects have been felt throughout the country.