Impact of eliminating government interventions on China's rice sector

Shenggen Fan, Eric Wailes and Gail Cramer

Agricultural Economics, 1994, vol. 11, issue 1, 71-81

Abstract: China's economy has undergone fundamental changes since 1978. Agriculture, industry and services are being transformed into market economies. Marketing and domestic trade have also been reformed to take into account regional comparative advantages. The government, however, still controls input supply and output procurement to some extent. China is currently negotiating with the GATT in regard to gaining membership. Conditions for China's reentering the GATT are to eliminate the government interventions on domestic production and consumption, and international trade. This may affect China's comparative advantages in international markets, and therefore may result in changes in the structure of imports and exports. Will China continue to export rice or will it start to import rice under free trade, and if China continues to export, how much will China export? This paper attempts to model the potential effects of eliminating all government interventions on China's rice sector. We construct a rice industry model to facilitate our analysis. The model has three components, i.e., supply, demand, and price linkages. The estimated results are consistent with theory and are evaluated using several techniques. Results from model validation indicate that both static and dynamic models are reasonable and can be used to simulate effects of various government policies. Simulations are conducted to project China's rice economy to the year 2000. Two scenarios are compared: (1) continued current policy and (2) elimination of all government interventions. Eliminating all government interventions would increase production, stocks, and exports. Domestic consumption would decline due to the higher domestic prices from eliminating government subsidies on rice consumption. China would export more than 1.6 million metric tonnes of milled rice if there were no government interventions in the year 2000.

Date: 1994
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