Understanding rural restructuring in China: The impact of changes in labor and capital productivity on domestic agricultural production and trade

- We chose labor and capital augmenting technical change as key examined factors.
- We examined impacts of key factors in Shandong and Henan on the remaining regions.
- Key factors have significant impacts on im(ex)port of most agricultural commodities.
- Improve capital and labor productivity is vital for agriculture production.
- Each region needs to position itself properly based on their regional advantage.

In China, the provinces of Shandong and Henan are the leading provinces for grain production and also have the highest populations. In this study, we quantitatively analyze the impact of the two primary factors that indicate rural restructuring (namely, an increase in labor- and capital-augmenting technical change, represented by labor and capital productivity) on wheat production in Shandong and Henan provinces, and the consequent effects on exported and imported wheat volumes in other provinces through to 2020. For the analysis, we use The Enormous Regional Model (TERM), an established multi-region computable general equilibrium model. The results show that the magnitude of change generated by the increase in labor productivity is larger than that generated by the increase in capital productivity. Therefore, great importance should be attached not only to increasing capital technical change but also improving labor technical change. This study also reveals that regional competitive industry can easily shape absolute competition superiority, which consequently exerts a large impact on the homogeneity of products. Rural China is moving into a critical stage of restructuring, and therefore the government should provide rational top-down guidance. The central government should avoid adopting a “one size fits all” policy and simply supporting a single industry or particular development patterns. Rural China should form stable, sustainable, and specialized agricultural production arranged by geographic areas, which would not only guarantee China's food security, but also improve the nation's competitive capacity in the international market.