Landmark Farm Reforms in China to spur consumption engine of the East?

Yesterday, the Chinese government announced their intention to marketize China’s countryside, by allowing peasants to trade or rent out their land tenancies for a profit in a land transaction market. Details are scarce, as to be expected – the policy mongers need to be given time to mull over the operational aspects, now that the political big-wigs have decided to go ahead with such a decision. More on this over here and here.

This announcement also comes in the face of several external situations that makes such a decision at this time highly interesting, crazy, yet down-right bold and necessary:

  1. Widening rich-poor income gap in China – the allure of higher pay and better living standards in coastal cities has seen a hollowing out of rural folks from in-land arable regions, resulting in a vicious cycle that exacerbates the widening rich-poor income gap;
  2. Rapidly declining arable land in China – to 121.73 million hectares in 2007. This is dangerously close to the 120 million hectare level determined by its government that is needed to sustain grain production to feed China’s 1.3 billion mouths; and
  3. Sharp decline in consumption of manufactured goods in China – by no one else but Uncle Sam and his band of plastic-swiping denizens. 

Today, China announced that its third-quarter gross domestic product expanded just 9%, slightly shy of analysts’ expectation of 9.7%, and the lowest in five years. It is a foregone conclusion that USA is on its way down – global markets are coughing hard in response to the subprime mess. It would be disastrous if China stutters as well.

This is why I find this step by the Chinese government highly symbolic – imagine 870 million rural denizens with new-found wealth, each purchasing much-needed made-in-China household appliances! In 20 to 50 years, Apple Inc. would most likely have more Apple Stores in China than anywhere else in the world combined. Brazil, Russia and inland China might take over to become the new ‘factories of the world’. *puts crystal ball aside*

Beyond obvious economic reasons, it would be in their government’s interest (为了保留面子, the Asian notion of ‘saving face’) to sustain growth at all cost in the year of 2008, in which China played host to the grandest Olympics ever.

About James Chan

James Chan is an entrepreneur, investor, geek, photographer and husband/father based out of Singapore. Apart from frequent travels to Vietnam, Myanmar and Indonesia for work, James can also be found online via his trusty 15" Retina MacBook Pro or iPhone 6+.