Organizer: Scott Rozelle, Stanford University
Chair: Michel Oksenberg, Stanford University
Discussants: Dorothy J. Solinger, University of California, Irvine; Thomas P.
Bernstein, Columbia University
Nearly twenty years have passed since China embarked on its path of economic reform. From an economy plagued by inefficiencies in which goods and services were allocated by planners through bureaucratically-created and monitored channels, China's leaders have made great progress in gradually moving the economy toward a more market-oriented system. However, the pace and extent of market liberalization has varied in different regions of the country and in different sectors of the economy. The social, political, and economic causes and consequences of this differentiated progress are clearly important given the productivity gains, distributional impacts, and expanding set of economic choices associated with well-functioning markets. However, little is known about why markets have emerged in some cases and not in others.
The work in the seven presentations detailed in this proposed panel are the result of three years of intensive, collaborative field work and analysis by social scientists in seven academic institutions. Based on surveys of village leaders, factory managers and financial institutions from a national representative sample in nearly 300 villages in eight provinces in China (Liaoning, Hebei, Shaanxi, Shandong, Hubei, Sichuan, Zhejiang, and Yunnan), the researchers working in different sectors of the rural economy have approached their work with a set of common goals: (a) to describe the development of markets over the past decade and a half from a situation where almost no markets existed to the one found today; (b) to explain the emergence of observed institutions of exchange; and (c) to document who has participated in, benefited from, and/or been the victim of the success or lack of success of market liberalization.
In presentations spread across two sessions, the research teams present their work on the emergence of markets for land, labor, credit, grain, and fertilizer. Three of the presentations examine particular mechanisms in the rural economy which facilitate exchange. In one compelling paper, the authors attempt to empirically link the process of village democratization with the appearance and progress of market liberalization. In another, the authors explain the re-emergence and development of rural periodic markets. Finally, one paper examines how the exchange agreements between rural enterprises can be enforced despite the absence of strong legal institutions.
The collective works go beyond careful and detailed description of market development; they also examine and explain the institutions that may be creating new markets, substituting for imperfect markets or hindering incomplete markets from further development. The authors enrich their analysis with stories and anecdotes of the characters and actors involved in the transformation of China's rural markets.
The Unfloating Population: Chain Migration, Commuting, and Rural-to-Rural Labor
Flows in Reform China
Scott Rozelle, Stanford University
Over the past seven years, each year 50-100 million rural residents have left their homes in pursuit of work to major urban centers, to nearby townships, and to other people's farms. These are China's army of migrant workers, whose labor has helped fuel China's rapid drive for development. They have enriched rural areas with remittances while depleting them of able-bodied farm workers. They work diligently in factories but are blamed for increasing crime in urban areas and the rising congestion of the nation's infrastructure. China's leaders, the nation's academics, and the foreign research community call these people China's "floating population." This terminology conjures up images of millions of souls walking aimlessly in search of whatever job that falls their way, without purpose, without goal.
The purpose of this paper is to shatter this image of China's mythical "floating population." The paper shows that, in fact, rural migrants in China leave home with a firm destination in mind. They follow "chains" set up by fellow villagers which minimize search and transition costs and provide them with the highest probability of success. Migrants are shown to prefer daily commuting to long-term out-migration; they would rather move away from home for a short period of time than leave permanently; and they would rather work for themselves than sell their labor for a wage. This paper describes their patterns of migration and the evolution of these patterns over time in different regions of China. These patterns are shown to be the result of choices that are influenced by migrants' human capital, the opportunities available to them, and the costs of moving-not by the luck of the winds or waves. Rural laborers are calculating agents whose actions have created one of the largest and most active labor markets in the world.
Democracy and Markets: The Links Between Participatory Governance and Development
in China's Villages
Jean Chun Oi, University of Hong Kong
Does democracy stimulate market development? Or does the expansion of markets encourage democracy? This paper seeks to contribute to and supply empirical evidence for the debate on these fundamental and important questions.
In working towards this overall goal, this paper has three broad objectives. First, the researchers report on the results of their survey of over 200 villages regarding the frequency of local elections; the nature of their competitiveness and scope of participation by villagers; and the development of participatory governance. Descriptive details on the participants in these elections-e.g., their human capital characteristics, their party and family ties, and other village-specific factors-will also be correlated with differential nature of elections.
Second, a survey of the level of development of the local economy and extent of market liberalization will be presented. This work will be coordinated with the authors of the other papers being presented in the session. Several indicators of overall market development and the pace of that development will be constructed.
The final objective of the study will be to measure the direction of causality between local democratization and development. A political economy model of emerging markets and governance institutions will be used to provide structure to the analysis. Careful econometric methods will be used to test for causality.
Giving Credit Where Credit is Due: The Evolution of Rural Financial Institutions
in China
Albert Park, University of Michigan
An important contributor to economic development is effective financial intermediation-the allocation of an economy's financial resources to their most productive use. In China's rural areas, Rural Credit Cooperatives (RCCs) and Agricultural Banks have been the main financial institutions accepting deposits from and providing loans to rural households. These institutions remain highly regulated despite reforms that have attempted to increase their commercial orientation. Farmers in many areas complain of difficulties in obtaining formal loans, and instead turn to informal loans from relatives, friends, or moneylenders. Recently, non-governmental credit institutions such as Rural Credit Foundations (RCFs), which have greater flexibility to set interest rates and are free of many government lending restrictions, have begun to compete with RCCs and Agricultural Banks.
There is great variation in the structure and performance of rural financial markets in China. This variation encompasses the establishment and expansion of new financial institutions that increase competition, the ability of farmers to obtain loans from different sources and for different uses, the amount of rural deposits in and the projects receiving loans from different institutions, the repayment performance of loans and the methods used to enforce loans, and the availability and use of informal loans as well as the interest rates charged for such loans. Information on these aspects of financial markets reveals a great deal about how well formal and informal institutions are performing in their role as financial intermediaries. Unfortunately, to date there has been little research on this topic due to lack of data.
The goal of this paper is to explain regional variation in the nature and performance of rural financial institutions in China. The study utilizes data from surveys of village leaders and rural financial institutions in over 200 villages throughout China. It examines the extent to which variation can be explained by the level of market development, the economic structure (especially industrial development) and income level of the village economy, village resources and infrastructure, geographic proximity to urban centers, economic linkages to other regions through trade, remittances, and labor migration, banking policies and regulations, and interventions by and policies of local governments. This analysis provides a much clearer picture of the state of rural financial markets in China than previously has been available. It not only describes current performance in different regions but also suggests explanations for differential performance-the first step in identifying ways to promote healthy development of rural financial institutions in the future.