China's Rural Industrialization and Agricultural Mechanization

• Published date: 01 May 2023
• Author: Xin Ma,Tao Huang
• Date: 01 May 2023
• DOI: http://doi.org/10.1111/cwe.12470

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 27–58, Vol. 31, No. 3, 2023 27

China’s Rural Industrialization and

Agricultural Mechanization

Xin Ma, Tao Huang*

Abstract

Rural industrialization provides nonfarm employment opportunities and financial

support for farmers and may be a non-negligible cause of agricultural mechanization

in China. However, there is a lack of empirical studies on this topic due to challenges

in obtaining data and identifying causal relationships. In this paper, we use multiple

data sources and construct an instrumental variable based on the number of

handicraft production cooperatives in 1957 to test empirically the causal effect of

rural industrialization on agricultural mechanization. The results show that rural

industrialization contributes signifi cantly and robustly to agricultural mechanization. A

10 percent increase in the average number of industrial enterprises per township was

associated with a 1.05 percent increase in the agricultural machinery power per unit

area of arable land. Both the demand eff ect and income eff ect played crucial roles in the

interaction between these two phenomena.

Keywords: agricultural mechanization, handicraft production cooperatives, rural

industrialization, township industrial enterprises

JEL codes: N55, O14, P32, Q16

I. Introduction

The last 40 years have seen an enormous increase in agricultural labor productivity

in China, which has contributed significantly to the reduction of global hunger and

provided a template for nonindustrialized developing countries facing food security

problems. The substitution of capital for labor (i.e., a considerable rise in the use of

productive factors represented by agricultural machinery) may be the most important

cause of improved labor productivity in China’s agricultural sector. Many developed

countries have gone through a similar process. Agricultural mechanization, for example,

*Xin Ma (corresponding author), PhD Candidate, Guanghua School of Management, Peking University,

China. Email: m.x@pku.edu.cn; Tao Huang, Professor, Guanghua School of Management, Peking University,

China. Email: huangt@gsm.pku.edu.cn. The authors thank two anonymous reviewers for comments that

greatly improved this paper.

Xin Ma, Tao Huang / 27–58, Vol. 31, No. 3, 2023

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

28

has replaced most of the agricultural labor in the US and its proportion of the total labor

force has reduced from 38 percent to less than 3 percent over the last century, which

has, in turn, supported its industrial and service sectors while hastening urbanization.

This feat was rated as the seventh greatest engineering achievement of the 20th century

by the National Academy of Engineering. After years of development, China has

made a historic breakthrough in agricultural mechanization, achieving 6.19 kW/ha

of agricultural machinery power per unit of sown area and a comprehensive

mechanization rate of 70 percent for crop plowing, seeding, and harvesting in

2019, which are 7.9 and 3.4 times those of 1978, respectively.1 At the same time,

many countries, particularly in sub-Saharan Africa, continue to struggle with poor

agricultural mechanization and productivity, and hunger is still a threat to their security.

Thus, increasing their agricultural mechanization is essential, and following China’s

developmental practices may help to achieve this.

There are usually two problems that policymakers encounter when seeking to

promote agricultural mechanization: increasing farmers’ willingness to purchase

agricultural machinery and services and improving their purchasing power. A common

approach is to popularize and subsidize agricultural machinery. However, the massive

subsidies for agricultural machinery in China were introduced after 2003 when the

level of agricultural mechanization had already improved substantially compared with

previous years. The causes of agricultural mechanization prior to the subsidy remain

unclear. We believe that the rural industrialization that began in the 1980s may be a non-

negligible contributor. Industrial enterprises in towns and villages have provided farmers

with employment opportunities nearby and allowed them to participate in nonfarm

production without sacrifi cing agricultural production.

On the one hand, the employment opportunities provided by these township

industrial enterprises (TIEs) raise the opportunity cost for farmers to engage in

agricultural production and increase their demand for agricultural machinery and

services. On the other hand, through both the direct channel of providing wages for

employees and the indirect channel of increasing the fiscal revenue and expenditures

of township governments, TIEs increase farmers’ income and, thus, purchasing power.

Rural industrialization has therefore increased farmers’ willingness and ability to

purchase agricultural machinery and services.

1Data on mechanical power are from China Agricultural Statistics (1949–2019) (NBS, 2020); the 1978

comprehensive mechanization rate is from The Statistics on Agricultural Mechanization of China and Foreign

Countries (1949–2014) (MAC and CAAMM, 2006), and the 2019 mechanization rate is from the website of

the Ministry of Agriculture and Rural Aff airs (http://english.moa.gov.cn/).

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Rural Industrialization and Agricultural Mechanization 29

Unlike urban industries, TIEs have distinctive regional and rustic features that

naturally promote agricultural development. Regional characteristics refer to the

specific market demands that the vast majority of township enterprises meet by

providing simple industrial products to consumers and enterprises located within a few

dozen kilometers. Rustic characteristics imply two things. Before ownership reform,

many township enterprises were collectively owned and their profi ts were distributed

to all villagers (Naughton, 1994), meaning that rural industrialization benefited the

development of localities in rural areas. Furthermore, working for township enterprises

is a complement to, rather than a substitute for, participation in farm work because

most of the employees of township enterprises are local farmers. In comparison with

the migrant workers in cities, local farmers engaged in nonagricultural work are less

likely to transfer, rent, or abandon their land. Based on these considerations, we believe

that the trend toward rural industrialization has promoted agricultural mechanization.

However, on the other hand, it can be argued that the rise of the township and village

enterprises (TVEs) was driven by a grassroots drive to increase local governments’

fi scal revenue (Oi, 1999), and that government-protected TVEs had ambiguous property

rights, irregular operations, low efficiency, weak cross-regional competitiveness

(Jin and Qian, 1998), and low employee salaries (Pitt and Putterman, 1998). It is

doubtful that rural industrialization has either increased local incomes or nurtured

agricultural development (Jin and Qian, 1998). Some studies also point out that rural

industrialization has caused land loss, pollution, and fragmentation (Bradbury et al.,

1996; Boisvert et al., 1997; Tian, 2015), which could harm agricultural mechanization.

In light of these factors and the fact that no relevant empirical study has been conducted

to date, it is necessary to test the role of rural industrialization on agricultural

mechanization in China empirically.

There are two main challenges to studying the effects of rural industrialization

on agricultural mechanization: missing data and accurately identifying causal eff ects.

(i) Data challenge. The organizational carriers of rural industrialization in China are its

TIEs, and the studies on rural industrialization in China are accordingly centered on

TIEs. Before 2013, data on TIEs were only available at the provincial level and were too

rough for detailed study. Since 2014, the publication of the China Statistical Yearbook

(Township) (NBS, 2014–2019b) allowed us to access data on TIEs at the township

level, which can support refi ned research. (ii) Identifi cation challenge. The relationship

between rural industrialization and agricultural mechanization is strongly endogenous

because of measurement error, omitted variables, and reverse causality. The key to

identifying causal relationships is therefore to include appropriate instrument variables

that exclude endogeneity based on a thorough consideration of omitted variables.