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SCIO briefing on agricultural modernization


Mr. Chen Xiwen, deputy head of Central Rural Work Leading Group and director of the Office of Central Rural Work Leading Group
Mr. Han Jun, deputy director of the Office of Central Rural Work Leading Group

Guo Weimin, director-general of the Press Bureau, State Council Information Office

February 3, 2015

Guo Weimin:

Ladies and gentlemen, good morning! Welcome to the press conference. Recently, the guideline document, Opinions on Strengthening Reform and Innovation to Accelerate Agricultural Modernization, was published. It is the 12th consecutive year when the State Council has focused on rural issues in its annual No. 1 Document.

We have Mr. Chen Xiwen here with us today to give you a briefing. He is the Deputy Head of Central Rural Work Leading Group and Director of the Office of the Central Rural Work Leading Group. Also at the press conference is Mr. Han Jun, vice director of the Office of the Central Rural Work Leading Group.

Now the floor is open to Mr. Chen.

Chen Xiwen:

Good morning! We have prepared a backgrounder for the No. 1 Document, which has been handed out to you. I am here to give you a very brief introduction to how this document was promulgated, and which the major issues are that the document seeks to target. I hope my introduction will help you understand the document better. The Xinhua News Agency published the whole document on Sunday, so my introduction will be fairly brief.

1. On the development of agriculture and rural areas

In 2014, the development of agriculture and rural areas was sound and stable. We managed to ensure high yields again, in addition to raising rural incomes and keeping rural areas stable. This amounted to firm support in the overall objective of seeking growth, advancing reform, optimizing economic structure, and raising rural livelihoods. First, we ensured a big harvest last year. The annual gross grain output reached 1.2142 trillion jin (0.6071 billion tons), up by 10.3 billion jin (5.15 million tons), or 0.9 percent from the previous year. Supplies of livestock and aquatic products and vegetables remained stable.

Second, rural incomes rose fast. The annual per capital rural net income stood at 9,892 yuan (US$1,580), up by 996 yuan (US$159), which represented a 9.2 percent increase considering price factors, compared to the previous year, and outpacing urban incomes.

Third, rural reform advanced steadily. Reforms on the pricing mechanisms for cotton in Xinjiang and soybeans in northeast China and Inner Mongolia were being piloted steadily, so was the reform on the transfer of rural land use rights, which has promoted farm operation with an appropriate scale. The piloting work for reform on rural land expropriation, the trading of collectively owned commercial land, and land reserved for rural homesteads is being deployed.

In addition, the central government has also issued opinions on guiding the rural property trading market to develop healthily, and will later issue plans for the reform on state-owned forests, the decision on deepening reform on the supply and marketing cooperatives, and reform of land reclamation system.

Fourth, rural society remained stable. The second round of the Party's "mass line" education and practice has produced remarkable achievements in that Party members are now in a better relationship with the people. Work on improving rural living conditions, infrastructure and public services are in full swing. New effects have been achieved in targeted poverty alleviation and development-oriented poverty reduction in rural areas. The Party's construction in rural areas has been enhanced and the rural governance mechanism improved.

But we also need to recognize that the transforming economic and social structure has made the environment and problems in rural reform more complicated. The cost of rural production has continued to rise quickly. Prices for major agricultural commodities are generally higher than those on the international market, and rural development is subjected to more restrictions from resources and environment, meaning that farmers have more difficulties raising their income.

Solving these problems will be a major undertaking in our rural work. In the "new normal" of economic development, we have to step up supervision of rural work to try to maintain sound development of the country's agriculture and rural work.

This is why we unveiled this year's No. 1 Document.

2. On the theme of the 2015 No. 1 Document

The theme of the document is to step up reform and accelerate agricultural modernization. In the five-part document, primary objectives for agricultural and rural development take up the first three parts. President Xi Jinping said at the 2013 Central Rural Work Conference that strong agriculture is the precondition for a strong China, the affluence of rural people is the precondition for a rich China, and a beautiful rural China predetermines a beautiful China. The latter two parts state that deepened reform is the drive, and the rule of law is the safeguard for China's agricultural and rural development.

The document has called on the nation to proactively adapt to the new normal in economic development and released a series of significant policies and measures, following President Xi's requirements of unleashing new potential in raising grain production, seeking new ways to optimize the agricultural structure and optimize the development mode of agriculture, so as to be fruitful in raising rural incomes and building modernized rural areas.

These are my opening remarks. Now my colleague Mr. Han Jun and I will take your questions. Thank you!

Guo Weimin:

Now the floor is open for questions. Please identify yourself first. Thank you.


I have two questions for Mr. Chen. You said that the development in agricultural and rural sectors was sound and steady last year, with grain output growing and the increase in farmers' revenue accelerating for 11 years running. Why do you want to make changes to the development model for agriculture in such a good situation? How will you make changes in this regard? Thank you.

Chen Xiwen:

These two issues concern a lot of people. On one hand, we said that the development in the agricultural and rural sectors was sound and steady, while on the other hand, we said we must accelerate the transformation of the agriculture development model. What's the logic behind it? When briefing you on the background information, I said that we have seen huge progress in agricultural development, but we have also discovered many problems in this area.

As I just said, there are mainly three problems. First, the production cost keeps surging. There are long-existing causes behind this. China has a large rural population, but the agricultural business every rural family conducts is on a small scale. It's difficult for them to reduce costs. There are also new factors, such as rises in investment and workers' wages, and the transfer of rural land use rights, which concerns a lot of people. Although the transfer of rural land use rights can enlarge the scale of farm operation, it will increase the cost of land use.

Over the past few years, the output of farm production has increased, but farmers' gain from the harvests – especially harvests of grain, cotton and oil – has not increased much. To earn more money, farmers have had to raise the price of agricultural products. Since 2010, in particular, there were notable rises in major agricultural products. Take grains for example. The government buys wheat and rice at the minimum price. Compared with 2010, the minimum purchase price of wheat has increased by 60 percent. It took around six or seven years for the price of rice to increase by 100 percent.

The rise in price has caused another problem. In the international market, our agricultural products, including grain, wheat, corn, cotton and sugar, are more expensive than the foreign ones. So you can discover that although the supply of agricultural products has been increased, the domestic demand has been growing at a faster speed. Meanwhile, you can discover that the imports of agricultural products, including grain, cotton, oil and sugar, are rising, because for one thing, we indeed has a huge demand, and for another thing, our price is higher than foreign products, which makes our agricultural industry less competitive than the foreign ones.

In the past, we mainly pursued high output. We have been developing at the expense of natural resources and have left a bad impact on environment. Now, the issue has gained more and more public attention. For example, an increasing number of people are talking about heavy metal pollution and agricultural non-point source pollution now. The pursuit of high output has also imposed greater constraints on our agricultural development.

Against this backdrop, we must change the previous development model in order to maintain good momentum. Instead of mainly pursuing high output and relying on resources consumption, we should put equal emphasis on quantity, quality and benefits and rely on advanced technologies and more skilled labor. That's the general trend of development.

As for how to change, the document has stipulated and I have just mentioned that we must increase investment in the agricultural sector to boost technology development. In this way we can enhance agricultural infrastructure construction, improve land quality, provide more training to farmers and make our farmers better.

Also, we must adjust agricultural structure. China has a limited amount of agricultural resources. What to do with these resources? We must use them to produce products that are badly needed in China and that can bring more benefits to farmers. We shouldn't provide rural areas and farmers with primary goods only. The integrated development of the first, secondary and tertiary industries mentioned in the No.1 Central Document has attracted great attention. Rural areas can both provide primary agricultural goods and further process those goods to increase their value. They can also carry out various services, such as tourism and farm stay services, to increase farmers' revenue. It will take a long time for rural areas to achieve these tasks. Many places are already working in this field.

Let me show you a set of numbers. Tourism in rural areas has seen a rapid development over the past few years. In 2014, 1.2 billion people took trips in the countryside. This means that of all the tourists travelling in the country, 30 percent went to rural areas. Now, there are around 2 million farm stays and more than 100,000 themed villages and towns in China. The tourism industry has brought 320 billion yuan to 33 million farmers. When people travel in the countryside, they also consume farm produce on the spot and buy processed foods and handicrafts as souvenirs. When tourists stay in rural areas, farmers can provide all kinds of services to them and make even more money.

Generally speaking, we must maintain the good development momentum we have, and with such a large population, we must maintain our grain output. Grain security is the most fundamental issue. As a result, you can see that of the 32 points of the No. 1 Central Document, the first is about ensuring food security. On the basis of this plan, we can make a vigorous effort to promote the transformation of the agricultural development model, deepen agricultural restructuring and bring more benefits to the agricultural industry and to farmers. Thank you.

Financial Times:

You just mentioned the issue of backstock. Since the prices of agricultural products are too high -- higher than they are on the international market -- there are large backstocks of farm produce in China. Some fear that the products left in reserve are substandard. Will you please walk us through this problem and tell us how serious the problem is and how to resolve it? Thank you.

Chen Xiwen:

The problem you mentioned was raised by local governments to the central government at spring sowing. Some said that because their reserves are already full, there will be no more room for any new reserves this year, if there are any. I said earlier that there is a large backstock of certain kinds of farm produce, which is currently a prominent problem. The most serious problems, as I mentioned earlier, is that the prices of some domestic produce items are higher than they are on the international market. Thus trade and processing are likely to prefer produce imported from other countries, which may cause domestic stock to rise rapidly.

We used to say that we needed to carry out a reform of the pricing mechanism to resolve the problem you mentioned. For example, we have a large stock of cotton though we have also imported a large quantity of it in the past few years. We produce about 7 million tons of cotton every year, but we imported as much as 6 million tons the year before last -- the largest amount in recent years. Thus most of the domestically procured cotton is put in warehouses.

The international community typically addresses issues like this by reforming the setting of target prices, prices that are determined by the government. But the actual market price is an equilibrium price formed by the global and domestic supply and demand. For instance, the equilibrium price of cotton is currently 13,600 yuan per ton, which is similar to the international price. But the government sets a target price of 19,800 yuan per ton in Xinjiang Uygur Autonomous Region -- China's most important region for producing cotton -- leaving behind a gap of 6,000 yuan. Farmers can only sell their cotton at the market price, while the gap is subsidized by the government. But places other than Xinjiang do not enjoy such a high level of subsidy. Because of this, the price of cotton is declining continuously. We issued a price of 20,400 yuan for cotton in Xinjiang the year before last year, and 19,800 yuan this year, while the actual market price this year is 13,600, thus farmers will gradually produce according to the market price.

We have learned that cotton farmers across China are at present prepared to cultivate less cotton and plant farm products needed by the market, which will reduce supply inefficiencies and maintain market balance. On the other hand, China promised to practice a tariff quota system on certain major farm products including the three major grains (rice, wheat and corn), cotton and sugar after joining the WTO. Imports that are within the tariff quota are subject to low tariffs, while imported products above the quota are subject to high tariffs. This measure has not been strictly carried out in some places in the past, resulting in many cases of smuggling. But now we will carry out the promises made to the WTO more strictly and import produce that falls under the tariff quota more appropriately, which will thus reduce the impact on the domestic supply. We will learn from the experience we gained from the target price system we carried out in cotton and soybean production in northeast China and Inner Mongolia and let the market play the leading role in forming prices. This will give a signal to farmers and allow them to plant their crops according to the needs of the market in order to gradually resolve the conflicts that have arisen in recent years.

Farmers' Daily:

I have two questions for Mr. Chen. First, the No. 1 Central Document mentioned "comprehensively deepening rural reforms," so in your opinion, what is the urgent problem for current rural reforms to solve? As for the land reform that everyone is concerned about, it involves issues of the expropriation of land and how collectively owned commercial land enters the market, including the issue of rural homesteads. All of these are closely related to farmers' interests and closely connected to the urbanization that has become part of rural-urban integration. What's your comment on this question? Second, you just mentioned that the rule of law acts as a guarantee and reform as the driving force, so how should we understand the relationship between rule of law and reform? Thank you.

Chen Xiwen:

I would like to ask Mr. Han Jun to answer the question on my behalf.

Han Jun:

Last year should have been the first year for China to start comprehensively deepening reforms, and rural reform was the highlight of this. As all you have noticed, a series of rural reform approaches have been adopted, including gradually unveiled pilot projects and gradually released top-level reform plans. For example, we have addressed how to guide the orderly transfer of rural land use rights in addition to how to give farmers powers and functions over the share of collectively owned assets. We have especially focused on the expropriation of land and how collectively owned commercial land enters the market, as well as on rural homestead system reform. The pilot project has already been deployed and will be moved forward soon. As for other reforms, like some projects which you may call top-level plans – Mr. Chen also mentioned that the top level plans such as the reform of supply and marketing cooperatives and State-owned tree farms and forestry areas have been basically completed. The reforms deployed for 2015 should be implemented as soon as possible, including some pilot and trial projects. We will push for them to be moved forward according to the central government's general roadmap, so as to encourage reform and reach certain results and improvements.

The No. 1 Central Document also mentioned some new reform measures. Some still need to go through the top-level design process in 2015 while some need to be deployed as soon as possible, for example, the reforms to the contracted land-use rights and farmers' residential property rights, the pilot project that allows farmers to use the two rights as collateral when taking out a loan. The policies are under discussion now. The document also asked for guiding opinions for the rural collective property system reform. The document also mentioned the reform of land reclamation system. As to the improvement and innovation of village administration and management, special mention was made of expanding the pilot projects of villagers' self-governance system with villager groups as basic units and carrying out such pilot projects with rural communities to act as the basic units. The document also talked about how to resolve the corruption problem facing farmers, so we need to improve the top-level design of village administration supervision institutions to protect farmers, especially those at China's lowest grassroots level. This could make people become the true masters of themselves at the village level by allowing them to effectively supervise village officials, among other things. That is to say, the tasks of rural reform in 2015 are very heavy and onerous. According to the No. 1 Central Document, issues such as rural land system pilot reform, rural finance reform, rural collective property system reform, village administration reform, and irrigation, forestry and land reclamation reforms are all very important.

What is the urgent problem to solve for rural reform, you ask? Just now, the reporter asked about what the basic considerations for land reform are. When we talk about the central government's rural land reform, we call it "three lands reform" (i.e. contracted land, collectively owned commercial land, and homesteads). The implementation of this pilot reform project has been helmed by the relevant departments. First we must make it clear that the expropriation of land, the collectively owned commercial land's entrance onto the market, and rural homestead system reform are all pilot programs. We have to choose some county governments in China with certain conditions to shoulder the tasks of pilot reforms.

The reform of the rural land system will involved a very complicated group of stakeholders. Frankly speaking, we can't totally form consensus because major differences exist in some aspects, and we can't see all the problems clearly at the moment. That is why we are trying the pilot reforms. As we test them out, we can reach conclusions, and we can improve the programs before we promote them. The tasks of the "three lands reform" pilot projects should be finished by 2017, so our main goal is to push forward and create good pilots reforms before the end of 2017. All of society and the media are paying attention to rural land reform, and the central government has also set "three bottom lines": no change in the nature of public ownership, no crossing the red line of farmland (which means "keeping the minimum amount of farmland steady"), and farmers' interests should not be harmed. The three bottom lines we set don't mean we will not reform. Instead, we set the bottom lines so we can reform better. For example, the bottom line of "no change in the nature of public ownership" was set because China's Constitution holds that China's land system is about state ownership and collective ownership. The reforms cannot go against the Constitution. Collective ownership has some flaws, and the system needs to be improved. Our current reforms shall basically follow the rule that collective land ownership must be implemented, and it must be clear who the owner of the property is. In the next step, we will deepen the reform of this aspect. As we implement collective land ownership on this basis, we should maintain the farmers' contractual rights to the land. Contractual rights only belong to the collective group's members. Not everyone has these rights. Farmers' rights must remain stable so that they do not have to worry about the future. We will loosen control on commercial and operating rights to rural land based on these conditions. When we talk about the transfer of rural land, we are actually talking about the transfer of rights to manage the rural land. The three rights should be granted separately so that we can achieve better reforms.

To raise another example, we say that we can't cross the farmland red line [and reduce the minimum amount of farmland]. We have 1.3 billion people living in China. The population of the United States is one billion less than our population, but the U.S. has one billion mu (164.73 million acre) more farmland than we do. India has 100 million fewer people than we do, but they have 600 million mu (98.84 million acre) more farmland than we do. The Russian population is much lower than ours – about one tenth of ours – but their farmland coverage is the same as ours. If we don't protect China's farmland, it will be hard to meet the goals we set for ourselves of self-sufficiently meeting our basic grain needs and ensuring the absolute safety of the grain supply.

We have also said that we will establish the strictest farmland protection system, which must be implemented. We need to balance the occupation of cultivated land against its supplement needs. Indeed, in reality, in some places, more land area has been occupied than supplemented. Some occupied good land and supplemented only a little bad land. Some only occupied the land without supplementing any of it. We have to establish a farmland protection responsibility system now. The No. 1 Central Document said we must allocate land to remain basic farmland permanently, which must be done urgently. The most important aspect of land reform is to ensure that farmers' rights to the land will not be harmed. This has been the focus of the No. 1 Central Documents all through the years. We also hope the land system pilot reform can explore some good experiences on the basis of which we can further promote reform, including by amending relevant laws. The No. 1 Central Documents over the years and the No. 1 Central Document for 2015 have raised many new requirements for rural financial reform. Some are needs that have been around for a long time, while some are new demands. This year's No. 1 Central Document especially states that rural financial departments and institutes must actively adapt to realities in rural areas, the conditions of agriculture and the needs of farmers to innovate the financial services and reform the financial system.

It especially mentioned that we are going to explore and develop a new kind of rural cooperative finance to actually create a rural finance system that can benefit everyone. The current reforms must be developed according to laws, and the reform and legislation decisions must effectively link up. In some pilot programs such as in land reform, there will be conflicts with many current laws. The State Council should ask the National People's Congress to authorize special rights to temporarily end the enforcement of certain laws during the pilot period in counties, cities and regions that have shouldered pilot reform projects. In the pilot reform areas, some relevant laws should temporarily be put on hiatus. According to the requirements of reform, some laws must be amended, and some laws that need to be abolished should be abolished. The legislation, amendment and abolition of laws is a necessary part of smoothly implementing reform. This year's No. 1 Central Document is the 12th No. 1 Central Document in history. The 2015 document maps out a relatively perfect policy framework for the construction of the rule of law in rural areas for the first time and stipulates specific requirements. Thank you.

Les Dernieres Nouvelles d'Alsace (DNA):

My question is: in this No. 1 document which is the 12th document about comprehensive policies on rural reform, why don't you have any provisions about private property. If farmers have private property in land, then they can mortgage their land, transfer the lands to their children or invest in their land. So why is this important item absent from the No.1 document? Thank you very much.

Chen Xiwen:

I don't think you have a full view of this particular issue. It has been stipulated by the constitution that both public and private property are legally protected. The constitution protects both the public and private property. Urban residents' private properties and rural private properties are guaranteed in accordance with the constitution. But we have to pay particular attention to the fact, just as Mr. Han Jun mentioned, that the rural land property is in the form of the collective ownership. It cannot, therefore, be privatized under the current legal institutions. So is urban land property, which in accordance with the constitution, is the property of the state rather than the individual resident, even though they have purchased the houses as their own. In view of that, the means of production and livelihood that have been used by farmers can either be public or private property. Even if a farmer takes charge of a piece of land, the land rights still belong to the public. But the income from the yields of the land is privately owned. Besides, although the homesteads are owned collectively, farmers can build their houses on them. Therefore, we are experimenting with allowing farmers to mortgage their housing properties.

In view of the different legal institutions and developments, we need to understand China's situation based on China's legal institutions and current conditions. We'll strictly protect farmers' private property according to the law, otherwise, their positivity cannot be ensured. Therefore, given the provisions articulated in the constitution, the No.1 Circular shouldn't be regarded as not taking farmers' private properties into consideration. Thank you!


Could you please talk about this year's policy and concrete measures on genetically modified products.

Han Jun:

The Chinese government has approved the commercial production of genetically modified cotton and papaya. Cotton planted in China is largely all genetically modified. We have also approved the importation of some GM agricultural products, such as soybeans, rape seeds, cotton, and corn, of which soybean imports form the largest proportion. Last year, we imported more than 71 million tons of soybeans, most of which are genetically modified.

On the issue of GM products, the No. 1 Central Document states that we should enhance the security management and the scientific popularization of GM agricultural products, while stepping up research on GM products' biological technology. This has been our consistent policy because genetic modification could become a new technology and industry with a broad future.

China took the lead in research on genetic modification with a great group of scientists. Although a remarkable gap still exists when compared with the world's leading countries, China does take the lead in certain areas of this research, especially in research on rice and corn genetic modification.

We will support Chinese scientists to continue with their research, because China's large population and scarce arable land have imposed more environmental and resource-related restrictions on agriculture. We cannot afford to lag behind in GM research; this is certain.

The No. 1 Document also requires us to enhance management of GM agricultural products, which has also been China's approach all along., we have consulted international practices to shape legal, technological and administrative mechanisms that are based on our own situation and that cover virtually every aspect of genetic modification, including research, experiments, production, processing and imports.

It is fair to say that all activities concerning GM products abide by the law. Unauthorized production of GM products is obviously illegal in China and is punishable by our law enforcement departments.

Since the No. 1 Document was already published on Sunday, I noticed that some media have latched onto some "hot issues" mentioned in the document, such as strengthening the scientific popularization of GM agricultural products.

We have to first of all acknowledge that genetic modification is a scientific issue. Those who are not actually doing the research, like us, may only know a little bit about it and will have to rely on scientific articles to acquire more knowledge of it. Hence, we may not necessarily know all its aspects. However, it is a highly sensitive social issue because it concerns people's livelihoods.

Scientific issues sometimes become social issues. As you may have read in media reports, the word "GM" in a farmer's market or a food shop can make people frightened. We need to promote scientific popularization simply because we want the public, including the media, to have a better understanding of what GM technology is and understand its development, safety implications and risks, so that we can also compare the safety management mechanisms for GM products in China and in other countries. This is our effort to lift the veil over GM technology. We hope people can treat GM technology and GM products with a more rational attitude.

But for China, a major country, one thing is certain: we cannot afford to allow foreign GM products to flood our market. Thank you.


I have a question about water. The No.1 document stated that China will carry out a pilot program on determining the right (to water). Can you tell us what is it exactly? The document also said the amount of water used in agriculture will be controlled and the prices will be adjusted. Can you please elaborate on that? Thanks.

Chen Xiwen:

Concerning the management of the water right and water pricing reforms, a lot of local governments have carried out bold attempts, encouraged by the central authorities. The water right is perhaps not so familiar a notion to many people. For many provinces in northern China, all of their consumption of water in industry, in agriculture and in daily life is from the Yellow River, which has a limited run-off volume. For provinces along the Yellow River, if the water is used too much on the upstream, the downstream will have little water to offer. So, China has set a quota on how much water can be used from the Yellow River by each province along the river. For example, if a province is allowed to use 2.1 billion cubic meters of water, then this is what we call the "water right." And among the 2.1 billion cubic meters, if about 1.2 billion is used in agriculture -- this is the water right for agriculture.

By extension, if a farmer is entitled to 800 cubic meters of water for one mu of land each year, that is the water right for the one mu of farmland. You will have to pay more than the price if you exceed your quota, but you'll be rewarded if you use less of it. We will forge a mechanism out of it. If we do not carry out leverage based on the prices, we cannot effectively encourage water saving. In addition, we have also launched pilot markets for trading water rights. For instance, if I save some water, I can transfer the saved quota to others, which will entail profit. In many places where the reform of the water right and water pricing is carried out, farmers have more income than before.

This reform has been carried out in a few places in China. Now with the No.1 document proposing it, we'll promote it gradually on a larger scale. Generally speaking, China is a water-scarce country, especially in the north. The vast region on the north of the Yangtze River has only slightly more than 1/5 of the national water resources. As the growth of agricultural production in China is dependent more and more on the north, we need to think of a measure that can both save water and promote production as well as increase farmers' incomes.

China Radio International:

I have two questions: First, would you please elaborate on the challenges and opportunities for rural development amid the "new normal" of China's economy? Second, as you have mentioned, the increase in the costs and prices of agricultural products are approaching a ceiling and are squeezing the profits of the industry. The No. 1 Central Documents stipulates that reforms of agricultural subsidies will be taking place in some areas, so would you please give us some information about this development? Thanks!

Chen Xiwen:

Chinese President Xi Jinping and Premier Li Keqiang made very comprehensive and meaningful elaborations on the "new normal" of the Chinese economy at the Central Economic Work Conference held last December. Generally speaking, the "new normal" economy is a shift in the speed of the growth -- which was at 9 percent to 11 percent annually in the past -- to a moderately quick level, fluctuating between 7 percent and 8 percent. The slower economic growth will have an impact on market demand as well as on fiscal revenues. Therefore, the challenge for China's agriculture in facing the "new normal" is how to increase farmers' incomes by producing more products that are in demand on the market.

In addition, given the challenge presented by slowing growth in fiscal revenues, questions of how to maintain the vigor of national support and protection for farmers and ensure the healthy development of rural residents will also become important for policy makers to consider when facing the "new normal." But the "new normal" is good for creating the kind of social atmosphere that we have talked about from the beginning, one where more attentions will be paid to qualities and efficiency of growth rather than to its quantity and productivity. It will be good to push forward the changes to the agricultural industry's development model, with its improved structure and its acceleration of the integration of secondary and tertiary industries.

During the "new normal", more migrant workers with knowledge, experience and savings obtained from work in the cities will return to the countryside where they can find more opportunities. Some of them will even be able to start their own businesses. So in the period of the "new normal", opportunities coexist with challenges. The same rule applies in every industry, including agriculture. We need to take this particular opportunity to push forward the stable and efficient development of the agricultural industry so that more farmers can benefit from it. This is in answer to your first question.

The second question is about subsidies. I'll elaborate on this. I said earlier that the prices of some agricultural products are higher than they are on the international market and have reached a "ceiling." If we keep on increasing minimum prices, agricultural products from other countries will flood in. Some people may not understand the promises China made to the WTO. I said earlier that China had tariff quotas on the imports of some sensitive products. The amount of products that are within the quota is subject to a low tariff, while imports of produce that exceed the promised quota are subject to a high tariff – this is allowed under the rules of the WTO.

When we say that the prices of farm produce are higher than they are on the international market and have almost reached a ceiling, we mean that they are higher than the prices of products that fall within the import quota. Those products come to China under low tariffs and thus have lower prices than their Chinese equivalents. Take the major produce we promised to the WTO as an example. We promised a quota of 9.633 million tons of wheat, 7.2 million tons of corn, 2.66 million tons of Thai long-grain indica rice and 2.66 million tons of Japanese round-grained rice. All three groups of products combined only total 22.16 million tons. China imported about 19 million tons of these products last year, which is within the tariff quota. The tariff on these products was accordingly 1 percent, too low to have a noticeable effect. When I said China's agricultural products are more expensive, I said it in this context.

However, if such imports exceed China Customs' gross quota, we will exercise a high customs duty, as high as 60 percent, on the extra volume as we promised the WTO. Let me give you a simple example: Imported indica rice such as that from Southeast Asia costs around 3,300-3,400 yuan (US$527-543) per ton, or 1.65-1.7 yuan per half kilogram, but domestically grown indica actually costs 3,900-4,000 yuan per ton, slightly more expensive than imported indica. The duty on imported indica is a minimal one percent, which is quite negligible. But if the import volume of indica rice exceeds the agreed-upon quota of 2.66 million tons, we will impose a 60 percent duty on the extra volume. This high duty will make the rice 2,000 yuan more expensive per ton than the regular ones, making the imported indica cost around 5,400 yuan per ton, higher than the 4,000 yuan per ton price for domestically grown indica. Therefore, quotas offer an important protection for China's own agriculture.

Then what are our concerns? Even if we are exercising high duties on the extra import volume, the costs of producing home grown indica may continue to rise, very likely to a level higher than the imported indica subjected to a punitive duty. In that case, our own farm products will lose competiveness, and this is an issue that we need to take into account.

Under these circumstances, we rely on subsidies to protect our own agriculture. Agricultural subsidies are allowed by the WTO in all member countries. Developed countries are allowed to subsidize up to five percent of their gross agricultural volume, while the ratio is allowed to be 10 percent for developing countries.

But the negotiations for China's entry into the WTO set China's rate at 8.5 percent, known as the yellow-box subsidy in WTO regulations, meaning that subsidies must be provided according to production volume, area of plantation, and the price of a certain agricultural product. This kind of subsidy is widely believed to become part of the production cost and therefore distorts a product's original price. This is why the WTO has strict regulations on such subsidies, since the subsidy rate cannot exceed 8.5 percent. But if a subsidy does not affect an agricultural product's cost, then it will be considered a green-box subsidy, and is limitless as long as a government can afford to provide it.

As for agricultural subsidies, we need to make a better use of them, or in other words, use them efficiently. Our subsidies mostly target market prices, which should be categorized as yellow-box subsidies that cannot exceed 8.5 percent. But why not direct our approach toward green-box subsidies? A simple example would better explain the difference between the two subsidies. We can improve water conservation facilities in rural areas by building reservoirs, irrigation ditches and motor-pumped wells, the investment costs of which are not regarded as part of the costs of agricultural products and can therefore be categorized as green-box subsidies. But when the irrigation ditches are completed and the government starts to subsidize the farmers' water bills, which will have an effect on the prices of agricultural products, the subsidies are considered yellow-box ones that should be limited.

In general, all countries tend to directly subsidize farmers' income, because farmers' income is independent of a certain product's production volume or its price. This is why we have to work on how to allow subsidies to play a better role and how we could make the best of WTO-allowed yellow-box, green-box and blue-box subsidies for the overall development of the economy and agriculture.

Blue-box subsidy refers to those used for arable land restoration. If we use this tool well, we can ensure the sound development of agriculture and a continuous rise of farmers' income without breaking international rules. This is what we are doing.

Subsidies of various kinds will increase each year as a result of increased central and local fiscal revenues under the piloting programs throughout the country that we just mentioned. A common practice now is to allocate these incremental volumes to help improve the scale of farmers' business and to the new-type business entities which have better profits. But we should also take into consideration the financial capabilities and powers of both the central and local governments, which is a complicated issue.

To sum up, the big picture is quite clear in that the subsidy system in China will be subjected to further reform for its perfection. We should make subsidies play a bigger role in agricultural development while making them comply with international practice.

China Cooperation Times:

I have a question regarding rural finance. For two years, the No. 1 Central Documents have consecutively mentioned the need to encourage, regulate and develop cooperative funding services within farmers' professional cooperatives. But in the past two years, news reports about problems with cooperative funding organizations and runaway bosses came one after another. This year's No. 1 Central Document called for local governments to take on the responsibility of supervising this system, so what actual measures will be taken next? What are your thoughts on this? Thanks.

Chen Xiwen:

We classified the cooperative funding organizations inside farmers' cooperatives as a finance issue in the process of reform, but as we all know, the cooperative funding organizations inside cooperatives do not really count as "finance," strictly speaking. It is quasi-finance because its members form a closed circle. They can only make deposits and provide loans inside the circle. If they were to go outside of the circle, this would enter the realm of real finance, and if it were finance, the financial institutes and enterprises would then have to get licenses from the banking regulatory department. But now, licenses are not required for the cooperative funding organizations inside farmers' professional cooperatives. However, they must follow the rules strictly. First, a group's membership must be a closed circle, and only members can provide and enjoy the services inside the member circle. Second, no deposits from outside the circle can be accepted, and no loans can be given to parties outside the circle; all deposits and loans must be made inside the members' circle. Third, members who make deposits in the cooperative fund should expect proceeds that align with the actual operation of the fund. They should not stipulate a high amount of income and then collect on their deposits based on the value of the goal. If groups have met these three conditions – closed membership, closed services, and no pre-stipulated returns – there will be no problems at all.

But as you just mentioned, in some places, some problems have arisen. In fact, these problems occurred because groups broke the rules without authorization. When groups break these rules, strictly speaking, they violate the financial system. They must ask for a permit and license from the banking regulatory department to break any of these rules, but they didn't have the permit. So we have stressed the fact that we must strengthen the local government's supervision of these groups, and we are actually asking that these groups be treated differently from financial institutes in this sense. That is to say, the rural cooperatives – including village-level collective economic organizations, farmers' professional cooperatives and supply and marketing cooperatives – can provide funding services themselves if they follow the rules, but this is not actual finance. Therefore, the authorities who give licenses to these organizations will not be financial departments. So who will authorize the licenses? Mostly it will be local rural work policy departments or rural departments that give the licenses. So if you give the licenses, you must take responsibility for them. Taking responsibility doesn't mean interfering in a group's internal operations. The government should only make sure that the groups maintain closed membership, closed services and no fixed rewards. If the groups actually do these things, there will be no risks. From this perspective, letting local governments strengthen supervision over cooperative funding organizations inside farmers' cooperatives is not really the financial supervision, strictly speaking.

Of course, some places are now extending their local financial supervision functions and powers and making cooperative funding a part of targets within the local financial supervision system. We welcome this and we applaud it. But generally speaking, to develop finance in China's rural areas, we not only need financial departments themselves to reform and provide better services for farmers, but we also need to cultivate financial awareness and financial management abilities. Allowing farmers to participate in these closed cooperative funding organizations is actually a way of instructing farmers about their financial credit and fostering their capabilities, which allows us to gradual develop more normal financial organization for them. Since the cooperative funding organizations are inside villages and professional cooperatives, if they really succeed in funding themselves, their scope and their number will both get quite large. We now have more than 580,000 village commissions in China and over 1.2 million professional cooperatives, so if they are all willing to take on this funding project, that will be a huge number. We shouldn't count on the nationwide financial regulatory institutes and the China Banking Regulatory Commission – they cannot handle this big a number. So, for this issue, we need to stick to one principle: if the funding organization is approved by any relevant department of the local government, we want to be clear that any office that authorized the license of a particular group will supervise that group. If anything happens, then that department will be held responsible. This is the key principle.

Guo Weimin:

Today Mr. Chen and Mr. Han give a full elaboration on various issues that everyone cares about. and our web platform have both streamed a live webcast of the conference. The English translation will also be posted online soon. I hope we were able to help you all with your reporting. Today's press conference is over. Thank both of you, and thank you, everyone, for coming.


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