266 million people or 35 percent of workers in China are still employed in the primary sector — agriculture, forestry and fishery.
So it's no surprise that in the past few years Chinese farmers have revolted against Mao-era collective ownership of land. But farmland continues to be owned at the village level and cannot be mortgaged which is seriously impacting agricultural growth and productivity in China.
Deutsche Bank analyst Michael Spencer writes that the inability of farmers to mortgage property largely limits the scale of farming. And this also makes Chinese farms labor intensive and use less machinery.
"Chinese farmers cannot conceive of borrowing hundreds of thousands of dollars to buy a combine harvester because their opportunity set is limited by their inability to do more than borrow tens of thousands of RMB – and that not often – from banks to pay for fertilizer etc.
...Without the ability to borrow against their land, farmers will be unable to expand sufficiently beyond their current small size to meet the needs of the Chinese economy. Either this limit on agricultural productivity will impose a hard constraint on Chinese growth or, as we think is more likely, outside non-agricultural concerns with sufficient liquidity and non-farm assets against which they can borrow will be the agents of agricultural modernization and China’s farmers will, once again, find themselves merely employees on the land they once owned the rights to."
So far, it has been argued that Chinese agricultural growth has been hampered because it has less land and water per capita. But a chart from Spencer comparing Chinese and South Korean farm growth shows that this isn't the case.
The chart shows that South Korea has less water and arable land but uses more machinery and its farmers end up being a lot more productive than their Chinese counterparts.
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