VII. Deepening Structural Reform and Creating a Favorable
Policy Environment for Grain Production and Circulation

In the past decade or so profound changes have taken place in China's grain production and circulation system, as well as in the government's regulation and control methods of grain supply and demand and price fluctuation. The Chinese government will work hard to consolidate and perfect the existing achievements, and will deepen the restructuring of the agricultural economy in accordance with the requirements for the building of a socialist market economy system: -- Make the rural basic management systems stable for long

periods of time and improve them continuously. The household contract responsibility system with remuneration linked to output and the two-layer management system featuring the integration of centralization and decentralization are the basic management systems Chinese rural areas have adopted since the initiation of the policy of reform and opening to the outside world. As these systems have effectively promoted the production of grain and other agricultural products, and safeguarded the producers' own decision-making power in management and their economic benefits, they have won the heartfelt support of the broad masses of farmers. In 1983 the Chinese government declared clearly that the existing rural basic management systems would remain unchanged for quite a long time to come, and the public land contracted out by the collectives to peasant households could be used by the latter for as long as 15 years. In 1993 the government made a decision that upon the expiration of a land contract the term could be extended for another 30 years and that during the contract term farmers could freely transfer the land use right with compensation, on condition that the way of its use remain unchanged. The Chinese government will continue to encourage rural areas and small towns to develop secondary and tertiary industries to speed up the absorption of the surplus rural labor force, propel the localities, where possible, to gradually implement operation of cultivated land on an appropriate scale, further improve the economic benefits of grain production and strengthen the motive force for grain production development.

-- Further reforming and perfecting the grain circulation system. In 1985 the Chinese government abolished the state monopoly of purchase and marketing of grain. Now the following four methods are used to purchase grain: The state purchases grain through xed quotas; the state purchases grain through negotiations with producers; grain-processing enterprises purchase grain from the wholesale markets; and farmers sell their grain at fairs. In 1993 grain rationing was abolished in cities and towns throughout the country. As the retail prices of commodities on the market have increased by a large margin in the past two years governments at all levels have specified that urban residents might purchase a certain amount of grain from state-owned grain shops at prices lower than the market price. State-owned grain shops are playing a more and more important role in guaranteeing the basic livelihood of urban residents with low incomes. In accordance with the requirements for founding a socialist market economy system, the Chinese government will focus on continually propelling the reform of the grain circulation system in the following three respects. First, establishing a pricing mechanism as soon as possible, whereby grain prices are primarily decided by the market; further developing and improving the grain market system; and gradually changing the planned inter-regional allocation and transfer of grain to the practice whereby the producing and marketing regions achieve a balance between supply and demand among regions through market circulation. Subsidization and other policies will be adopted with regard to the grain consumption of urban and rural residents with low incomes. Second, China should speed up the separation of state-owned grain departments' policy-related business from commercial business to strengthen state-owned grain circulation enterprises' competitiveness in the market. Third, China will quicken the fostering of intermediaries linking the farmers with the market, and guiding and encouraging them to join hands and participate in grain circulation. The Chinese government will adopt a series of policy-related measures to promote the operation of grain by the integration of trade, industry and agriculture, and gradually set up a high-efficiency agricultural system with grain as the base. The basic method will be to realize co-development of crop cultivation, animal husbandry and aquaculture while actively developing transportation and marketing and the processing industry with raw materials derived from crop cultivation, animal husbandry and aquaculture so as to tightly link grain production with transfer, processing and circulation, add value by manifold ways, increase the comparative benets of grain production and the income of the farmers, and ensure the sustained, stable development of grain production.

-- Guiding consumption and reducing waste. The Chinese government will continue to conduct education on treasuring and economizing on grain and formulate corresponding policies to promote the formation of a new social tendency that stresses thrift in grain and opposes waste and extravagance. The dietary pattern will be reformed; supervision of the catering industry will be tightened; and the production of alcoholic drinks made from grain -- at present consuming 20 million tons of grain a year -- will be curbed.

-- Strengthening the regulation and control of grain markets. China is a country with frequent natural disasters, so it is hard for it to avoid the fluctuation of grain output, which has an unfavorable impact on the stability of grain markets. To protect grain producers and stabilize grain markets the Chinese government started in 1990 to set up the minimum grain price protection system and the special grain reserve system for regulating supply and demand and the prices on grain markets. In 1994 a grain market risk fund system at the central and provincial levels was set up. Experience over the past few years has proved that these systems have played positive roles. China will further perfect these systems, maintain reasonable amounts of grain in reserve, replenish the grain market risk funds and reinforce the government's ability to regulate grain markets.

Making timely and appropriate use of the international grain market and regulating the relationship between the domestic grain supply and demand through import and export trade are also necessary for stabilizing grain markets. In recent years the grain prices on the domestic market have been approaching step by step those on the international market. To protect the farmers' basic interests the Chinese government will adopt the policy of imposing tariffs on imported grain according to the usual international practice.

On the eve of the founding of New China some Westerners predicted that the Chinese government would not be able to solve the problem of feeding the country's population. History has already shown the futility of such a prediction. In the coming decades, though China will be confronted with the reality of less cultivated land, a large population and great demand for grain, there exists huge potential for development. The Chinese government has experience and has developed methods for solving the grain problem, and the peasants have a vast reservoir of enthusiasm for production. It can be believed with full reasons that the Chinese government and people have the ability to solve the problem of grain supply by relying on their own efforts. Practice will prove to the world: The Chinese people can not only feed themselves, but also make their quality of life better and better year by year. Instead of forming a threat to the world's grain supply, China will make ever greater contributions to it.