The core of this article comprises three sections. The two outer sections are the more substantial and seek to describe and analyse the evolution of agricultural policy in what has come to be regarded as the first and second stages of China's rural reform. In between, briefer consideration is given to the transitional year of 1984, when a major change in agricultural policy began to be apparent.

The gross value of agricultural output in the People's Republic of China increased as much in the eight years from 1978 to 1986 as it did in the 21 years from 1957 to 1978. In per capita terms, the average annual rate of growth rose from 0·4 per cent to 4·8 per cent, the most rapid growth for any comparable period since 1949. How was this dramatic turnaround achieved?

The economic and institutional framework against which trends in crop production under the government of Deng Xiaoping must be considered, is vastly different from that which existed throughout the Mao era. In a word, Deng replaced a system of planned production and supply by one in which market demand became the main determinant of the level and structure of agricultural production. Under Mao Zedong, maximizing the physical output of key agricultural products was the basis of agricultural policy. Centrally identified priorities – based on “national need” – were reflected in targets for the output, sown area and yield per hectare of individual items. These mandatory targets were to be fulfilled by the collective farms (the production teams of the communes) which were the basic organizational units of Chinese agriculture. Similarly, the disposal of farm output was determined by the central plan. For production teams, therefore, decision-making was relatively simple and followed the sequence of production, harvesting and procurement, all according to plans laid down by the government. Cost accounting was rudimentary. It was not, in any case, geared to the promotion of “economic efficiency.” If production costs rose-for example, as a result of an increase in the multiple cropping index directed by the government – the peasants bore the burden, as they were the residual claimants in the distribution of income by the production teams.

One of the most dramatic changes in rural China in the post-Mao era has been the abrupt increases in peasant incomes and consumption since 1978. These were deliberately brought about by an overall reorientation in economic policy which aimed at improving peasant incentives, so as to boost farm output and ease the agricultural supply constraint on industrialization – the government's long-run goal. The new development strategy has already resulted in a considerable modification of the Soviet-style agriculture-industry dichotomy, in favour of the Chinese peasants.

During the past decade China's leaders have called repeatedly for reductions in administrative interventions in the economy, for greater reliance on economic “levers,” for decentralization of economic decision-making, and for an increased role of markets. Although the need for liberalization is fairly widely accepted, debate over how far and how fast to proceed has continued. One view initially proposed by Chen Yun sees China moving towards a system where a “planned economy is primary, and markets are supplementary” (jihua jingji wei zhu, shichang tiaojie wei bu). Others advocate moving beyond Chen Yun's vision to a system where, in fact if not in name, allocation takes place primarily through markets. Li Peng's government work report to the first session of the Seventh National People's Congress suggests that the current consensus leans towards the latter, more progressive view:

The focus of reform of the planning system is to transform the function of state planning organs, gradually reduce mandatory planning and expand guidance planning, … use economic instruments, and gradually establish a new economic mechanism where “the state regulates markets, and markets guide enterprises” (guojia tiaojie shichang, shichang yindao qiye).

One of the officials in charge of drafting China's agricultural policies, Du Runsheng, divides the reform of her agricultural system into two major stages: the first from 1979 to 1984, and the second from 1985 to the present. In the first stage, China dismantled the people's communes, established an “individual farm” system, and scrapped many governmental controls. The tasks for the second stage, according to Du Runsheng, are the formation of markets for farm produce, rural money, rural labour, and for rural land “usage rights.”

Despite 35 years of political turbulence and social change, a constant feature of China's employment situation has been its overwhelming agrarian orientation. In 1952, 88 per cent of China's total work force lived in rural areas, and 95 per cent of these individuals worked in agricultural jobs, primarily farming. By 1986, 74 per cent of the country's work force were considered rural, yet still an overwhelming 80 per cent of these individuals were engaged in agricultural pursuits. Few countries have experienced as rapid a growth as China has over the past four decades, yet maintained an employment structure so closely tied to the soil, the seasons, and the sun.

The essential ingredients of land-augmenting technical change, required by most developing countries in Asia, have been delineated by Professor Ishikawa and traced during earlier periods for India, Japan, Taiwan and Mainland China. Among all the indicators associated with progress in agricultural development, only three are indispensable to rapid and prolonged growth in yields at the initial stage: improved water control; abundant supplies of fertilizers; and high-yielding seed varieties responsive to these inputs. While the introduction of one or more of these three normally provides some growth in average yields, there are much greater returns when all three are applied appropriately. These are the fundamental ingredients of the “green revolution,” which has provided rapid growth in cereal yields throughout most of Asia and elsewhere in the developing world.