China - Rubber Development Project

Documnt of The World Bank FOR OFFCIAL USE ON14LY Rtsut N. P-3667-A a rZC AND 5a OF TM PRETIPBT OF TME INTEU_ATI~35AL DWVEL C mEN C ClX A PROPOS IDA CREDIT OF SDR 37.8 NILLIO0 . AMD AN DA SPECIAL PUND CREDIT OF SDR 56.8 MahLION TO TIM PEOPLE S rMPUBLIC OF CHINA FOR A RUBBER DEVELOPT PRiOJECT November 7, 1983 Iltdecimmt h a rielBd dhldbim mud a" be wed by vuIV' .b muly is the peufeui.c of tI .chIk duk. lbm emmum me u'he-whp be diudmsui whidnot Wiadi B=k uughdzmtiu..  CURRENCY EQUIVALENTS Calendar 1982 Sept. 1983 Currency Unit - Yuam (Y) Y US$1 Y 1 1.89 1.98 1i - US$0.53 0.50 The Staff Appraisal Report uses the following currency equivalents: US$1 - Y 1.90 Y 1 = US$0.53 FISCAL YEAR January7-1 to December 31 ABJREVITAIONS AND ACRONYMS CGr - Central General- Bureau of State Farms and Land Reclamation DCA. - Development Credit Agrecuent IDA - International Development Association MAAF - Ministry of -Agriculture, Animal Husbandry and Fisheries MOF - Ministry of Finance PGB - Guangdong Provincial General Bureau of State Farms and Land Reclamation PMO - Project Management Office SPCA - Special Fund Credit Agreement UNDP - United Nations Development Program  FOR OMCIAL USE ONLY CHINA RUBBER DEVELOPMENT PROJECT Credit and Project Summary Borrower: People's Republic o' China Amount: IDA Credit: SDR 37.8 ($40.0 million equivalent) IDA Special Fund Credit: SDR 56.8 million ($60.0 million equivalent) Terms: Standard Project Description: The project consists of the new planting and replanting of 40,000 ha of rubber, of which 36,000 ha would be on state farms and 4,000 ha on nearby communes. It would provide for the plant- ing of windbreaks in typhoon-prone areas and intercropping in immature rubber. It would also include modernization of machinery and transport fleets on state farms, construction or upgrading of sawmills and timber utilization facilities, construction of housing, administrative and service buildings and the construction or upgrading of road links within state farms. Technical assistance would be provided for training and for coasultant services (26-man-months) in estate management, wood processing, and rubber and windbreak development. At full development the project would produce about 72,000 tons of rubber annually to meet growing internal demand. The forestry and wood processing components would increase output of timber products which are in strong demand within China. During the early years intercropping wou'ld add to supplies of sugarcane, pineapples, groundnuts and sweet potatoes. The project faces no significant technical or administrative risks. Th document has a restkri distrbution and may be used by recipients only in the performance of their ofica duties. Its contents may not otherwise be disdosed without World Bank authorization.  - ii - Estimated Cost: Local Foreign Total - -- - $ million Rubber establishment 103.6 19.7 123.3 Commune development 11.2 2.1 13.3 Windbreak establishment 12.1 1.3 13.4 Buildings and utilities 33.7 11.3 45.0 Rural roads 7.7 1.8 9.5 Equipment and vehicles 0.0 16.7 16.7 Sawmills and wood processing 2.4 9.0 11.4 Training and research 2.1 1.1 3.2 Technical assistance 0.0 1.1 1.1 Base Cost 172.8 64.1 236.9 Physical contingencies 10.7 3.4 14.1 Price contingencies 38.0 12.0 50.0 Total/a 221.5 79.5 301.0 Financing Plan: la IDA 8.2 31.8 40.0 IDA Special Fund 12.3 47.7 60.0 Central Government 84.2 0.0 84.2 Participating farms 116.8 0.0 116.8 Total 221.5 79.5 301.0 Estimated Disbursements: IDA FY: 1984 1985 1986 1987 1988 1989 -------$ million--- Annual 2.0 30.9 26.4 20.9 13.6 6.2 Cumulative 2.0 32.9 59.3 80.2 93.8 100.0 Rate of Return: 17% Staff Appraisal Report: No. 4521-CRA, dated November 7, 1983 /a Including $2.7 million equivalent in import duties.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT AND AN IDA SPECIAL FUND CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR A RUBBER DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed IDA credit and an IDA Special Fund Credit to the People's Republic of China to help finance a rubber development project. The IDA credit, for SDR 37.8 million ($40 million equivalent), and the Special Fund credit, for SDR 56.8 million -`$60 million equivalent), would be on standard IDA terms. PART I - THE ECONOMY 2. An introductory economic report, entitled "China: Socialist Economic Development" (No. 3391-CHA), was distributed to the Executive Directors on June 1, 1981. A country economic memorandum, entitled "China: Recent Economic Trends and Policy Developments" (No. 4072-CRA), was distributed to the Executive Directors on March 31, 1983. Basic data on the economy are given in Annex 1. Background 3. Following a period of major institutional changes in the 1950s, including land reform and the eventual establishment of communes in rural areas and the extension of public ownership to cover almost all of the modern sector, development efforts in China have been directed toward the major objectives of industrialization and poverty reduction. Despite sharp oscil- lations in policy and political upheavals like the Great Leap Forward (1958-61) and the Cultural Revolution (1966-76), China has made substantial progress toward achieving its objectives. Industrial growth since 1949 has averaged more than 12Z p.a. (compared with under 5% for agriculture); the current share of industry in GDP (around 44%) is similar to the average for middle-income developing countries; and the country now produces a far greater variety of industrial goods than most other developing countries. Per capita GNP (with adjustments for international comparability) grew at 2.5-3.0% p.a. in 1957-81, significantly above the average for other low-income developing countries. In terms of basic education, nutrition and health the Chinese population is much better off than its counterparts in other low-income developing countries. 4. However, China remains a very poor country, with a GNP per capita of only $300 in 1982 and about 200 million people or 20% of the population with unacceptably low incomes. The economy is also inefficient: past growth has come mainly from massive mobilization of resources. For a country that faces significant domestic resource constraints, inefficiency is a particularly serious problem.  - 2 - 5. To address these problems and ensure rapid growth and improvements in living standards, the Government initiated a Drogram of reform and adjustment in 1979. Economic reform, aimed at improving the efficiency of the economic system, involves: (a) restoring and improving the aualitv of central planning and policy coordination; (b) devolving more decision-making authority to lower level units; (c) establishing more direct links hetween incomes and the performance of economic units and individuals; and (d) relying more on market mechanisms and economic instruments and less on administrative directives, to influence economic activitv. Structural adiustment, aimed at speeding improvements in living standards, has involved readiusting the relative shares of consumption and investment in national income, some sectoral and subsectoral readjustments, and greater emphasis on foreiRn trade. In 1981, Droblems with inflation and large budgetarv and current account deficits resulted in short-term stabilization temporarily receiving the highest priority, but by 1982 the Government was again pushing ahead rapidly with adjustment and reform. Economic Reform 6. Reforms have now affected all sectors of the economy and institu- tions from the central government down to rural households. A major Rovern- ment reorganization has strengthened the core planning and management agencies (especially the State Planning Commission and the State Economic Commission) and reduced the number of commissions, ministries and agencies under the State Council from 98 to 52. Reorganization within ministries also has occurred, while that of provincial and local governments is now under way. Economic management has been decentralized: provincial and local authorities have been given more autonomy in investment decision making and use of credit to finance investmnent has increased; provincial and local governments have been granted greater budgetarv flexibility and more incentives to expand revenues and/or economize on expenditures; and ministries, new local trading companies and some enterprises now have authority to engage directly in foreign trade. 7. Reforms have been most far-reaching in rural areas, where introduc- tion of various types of the "production responsibility system" has given small groups and households more autonomy in production and investment decisions and linked incomes directly with output. By the end of lQ82, 92% of production teams in China had implemented such a system; 78% had imple- mented a household responsibility system, whereby collective ownership of farm land and major equipment is maintained but plots of land are contracted out to individual households, which can retain whatever they produce beyond their obligations to the state and to the collective (which account for about one third of production). The number and types of rural markets have also increased. 8. Economic reform has not proceeded as far or as fast in urban areas, but significant systemic changes have occurred. Reforms in the management of state enterprises have aimed at improving incentives through profit retention schemes and more flexible payment and employment practices. There have also been experimental changes in the organization of state enterprises, a greater  variety of marketing channels, some price flexibility and adjustment of relative prices, and greater autonomy for state enterprises in production decisions. The scope for cooperative and individual economic activities has also been enlarged. 9. Many economic reforms, especially those in rural areas, have already had a positive impact on efficiency, while others will take longer to have a significant effect. There are also some emerging issues with economic rerorm that the Government will need to address. In rural areas, there is a potential conflict between enhanced economic incentives and equity in income distribution, continued provision of basic services, and mobilization of labor. In the state enterprise sector, many units are still inclined to overinvest and overproduce, since substantial decentralization of decision making and control over resources has not been accompanied by necessary reforms in the pricing system. More use Is being made of the market, but information and transport systems are still weak, markets are fragmented and competition is limited. It has also been difficult to develop effective indirect fiscal and monetary policy instruments. Adjustment, Stabilization and Growth 10. During the past four years, the Government has followed a strategy of setting relatively modest targets while implementing economic and admin- istrative meas:res that contribute to adjustment and stabilization as well as to economic grco-th. The various measures have included: major increases in agricultural procurement prices; strict controls on many other prices; rationing and other administrative measures to improve efficiency of resource use; cutbacks in state capital construction investment; fiscal measures to limit the budget deficit; increases in interest rates; moderation of currency and credit expansion; and the introduction of an internal settlement rate for .oreign exchange transactions and other measures to encourage exports and economize on imports. 11. These economic and administrative measures, combined with systemic changes, have played an important role in the impressive performance of the Chinese economy in recent years. Gross agricultural and industrial output at constant prices grew by 7.3% per year between 1978 and 1982 - agriculture by 7.5% and industry by 7.2% (heavy industry by 3.4% and light industry by 11.8%). Net material product (NMP) at constant prices grew by an estimated 6.3% p.a. duting the same period. Net investment has stagnated in real terms, while material consumption grew by over 9% p.a. between 1978 and 1982. The share of investment in NMP was reduced from 36% in 1978 to 29% in 1982. Domestic consumption of energy rose by less than 2% p.a. during 1978-82. 12. Structural adjustment and rapid overall economic growth, combined with a low population growth rate (1.3% p.a. between 1978 and 1982), have led to rapid increases in per capita incomes. In urban areas, real per capita  - 4 - incomes increased by 4.8% p.a. between 1978 and 1982; in rural areas the real increase in per capita incomes was about 12% p.a. TJhile more prosperous areas and households may lhave henefitted the most and income differentials at a local level mav have increased, manv poor areas and households have also enjoyed substantial income imDrovements. 13. The high rate of investment in 1978 and the low returns to muclh of this investment made a cutback in the investment rate a prioritv for the adjustment program. But achieving such a cutback has proved difficult. necentralization of investment decision making has permitted a rapid growth in investment financed from retained earninRs or local resources. As a result, most of the ctutbacks in investment have been in large centrally financed projects (in 1981 even the priority sectors of energy and transportation were affected), though some of these were revived in 1982. 14. Government policy measures have helped restore domestic economic stability by lowering the rate of inflation from 6% in 1980 to 2.4% in 1981 and 2% in 1982, and by reducing the budget deficit (adjusted to eliminate finar.cing items) from 7% of NMP in 1979 and 5% in 19R0 to less than 2% in 1981 and 1982. The restoration of fiscal stabilitv was achieved mainlv bv sharp cuts in expenditures on investment. Subsidies (mainly on daily livinR necessities) rose dramatically from about 7% of total expenditures in 1978 to 26% in 1982, when they were 9% of NMP. 15. China's external position has also changed greatly in recent years; the current account deficit of $2.4 billion in 19n was converted into a $2.0 billion surplus in 1981 and an estimated S6 billion surplus in 1982, an improvement far greater than anticipated. The real growth of merchandise exports has been very impressive, averaging over 15% p.a. during 1978-82, mainly because of a rapid growth in manufactured exports. The growth rate has been declining steadily, however. Meanwhile the volume of imports declined in both 1981 and 1992, due in part to the lagged effect of contract cancellations and suspensions, but also to delays in equipment deliveries and to problems in obtaining high technology goods. A substantial increase in imports is expected in 1983 and 1984 as China expands its investment program and imports more machinerv and equipment. 16. A major consequence of the Government's conservative balance of payments strategy has been reduced foreign borrowing. In 1980 and 1981 the Government cut back sharply on interhank borrowinR and in 1981 and 1982 took advantage of the unexpectedly strong current account Dosition to repav commercial bank and other loans. In 1981 China's deht service ratio was 7.8%, due in part to accelerated loan repayments. At the end of 19R1 total reserves (excluding gold) were $5 billion; by the end of 1Q82 thev had increased to over $11 billion (equivalent to about seven months of 19Y2 imports). BEST COPY AVAILABLE  -5- Medium-Term Prospects 17. During the remainder of the 1980s, the Government's efforts to improve living standards should be helped considerably by continuation of a relatively lows population growth rate; by opportunities to make greater and more efficient use of foreign technology and capital; and by the possibilities for improving efficiency through economic reform. Rapid and equitable econ- omic development is constrained by a number of factors, however. There are serious shortages of skilled manpower (current enrollment in universities and technical and vocational schools is one quarter of the average rate for other developing countries'. With limited possibilities for expanding the cultivated area and with cropping intensities and yields already quite high, the growth rate for agriculture is unlikely Lo average more than 3-4% p.a. during the 1980s. Energy availability will continue to constrain industrial growth, and there are capa^ity constraints in the transport and commercial sectors. Large investments will be required in energy and transport at a time when competing demands from other sectors, especially housing, are very great. domestic revenues have not been growing rapidly, and decentralization has weakened government control over investment. 18. In recognition of these difficulties, the Government's Sixth Five- Year Plan (SFYP) (published in December 1982 but covering the period January 1981 December 1985) emphasizes continuation of the program of "adjustment, reform, consolidation and improvement of the national economy." The plan period is essentially viewed as an interim period during whi:h the foundation will be laid for more rapid economic development under subsequent plans. Modest targets are set for production and income growth (4% p.a. for gross agricultural and industrial output and for NMP), consumption is expected to grow faster than investment, prices will be kept basically stable, the budget deficit will be kept low, and a significant expansion in foreign trade is forecast, with imports growing more rapidly than exports. Priority will be given to measures improving efficiency rather than maximization of output, but the Government expects most production targets to be surpassed, as they have been in the first two years of the SFYP. 19. Reform implementation will be speeded up during the next three years. Rural reforms will be broadened and strengthened, with the production responsibility system extended to new spheres of activity, new types of orga- nization (including joint ventures between rural and urban units) encouraged, and the administrative functions of communes separated from their economic functions. In state-owned industry, taxation will replace profit remittance as the primary means of raising government revenue, industrial administration will be streamlined, and more inefficient enterprises will be closed down. The commercial system will be reformed and cooperative and individual commerce, particularly in rural areas, will be promoted. In investment planning, the Government is striving for more effective implementation of existing administrative regulations, but improving the structure and efficiency of investment will be a long and difficult process, dependent very much on progress on other aspects of reform. Measures to introduce formal BEST COPY AVAILABLE  - 6 - economic analysis (including use of shadow prices) into investment decisions and to make producing units more economically and financially responsible for their decisions through appropriate pricing and incentive schemes are especially important. Price reform itself is recognized as being crucial, but in view of the complexities and magnitude of the changes required, the Government has decided that ii cannot implement comprehensive price reform until after 1985. However, appropriate upward or downward adjistments in the most distorted prices are being made, and the prices of many minor commodities are being allowed to fluctuate according to market conditions. 20. During the remainder of the 18Rns, China's develonment and moderni- zation programs are expected to result in rapid growth of imports of canital and intermediate goods. By the late 1M8Os, some imports of energy are also likely to be necessary before new domestic enerRy production capacitv is established. China's temporary current account surpluses are expected to change quickly to moderate deficits. But the overall rate of import expan- sion, the size of the current account deficit, and the magnitude of foreign borrowing requirements are very sensitive to assumptions about economic trends and the effectiveness of gcvernment programs. For example, even a slight acceleration of economic growth without significant improvements in effi- ciency, especially energy efficiency, could result in large current account deficits and debt management difficulties by the end of the 198ns. In fact, a relatively high rate of economic growth of 6-7% p.a. during the rest of the 1980s (which is the growth rate used in the projections in Annex 1) will probably be feasible only if major improvements in energy efficiency continue. 21. China's access to concessionary capital to finance its development and modernization program is limited: apart from Bank Group funds, a signi- ficant amount of concessionary capital is likely to come only from Japan and a few other bilateral donors and will probablv average only A500-6no million a year during the 1980s. If China is to maintain a reasonable growth rate and manageable debt service payments, it will need to obtain the necessary foreign capital at an average interest rate below the market rate. China also has a strong claim to concessionary lending because it is still one of the poorer countries in the world. 22. For China, as for many other developing countries, the 1i9qns will be a difficult decade. But looking further ahead, China's economic prospects appear favorable. By 1990, most new entrants into the labor force will have received some secondary education, and the skilled manpower deficit will have been reduced. Further progress will have been made in tapping China's large energy potential and in using it more efficiently. Continuation of recent manufactured export trends should generate additional foreign exchange, enabling the Government to use foreign capital more freely and be less concerned about its terms. If the country's imimense wealth of hunan talent, effort and discipline can be combined with policies that increase the efficiency of resource use, China will be able to achieve continuing substantial increases in the living standards of its people. Whether this potential can be realized, however, will depend crucially on the success of the Government's program of reform and adjustment in the 1980s. BES3 CrtAA-LAeLE  PART II - BANK GROUP OPERATIONS IN CHINA 23. In view of the particular circumstances of China and the economic transition now under way, the Bank's relationship with China should have several broad objectives. Firstly, the Bank should offer China its con- siderable development experience and institutional knowledge. Moreover, working with the Bank represents one means for China to re-establish its position in the world community after its lengthy isolation. Secondly, the Bank should assist China in removing the major constraints on development - the shortages of energy, transport infrastructure, skilled manpower and modern technology. Even more important, the Bank should help the authori- ties to use these and other inputs more efficiently, by improving project analysis and investment control, as well as overall economic management and planning. Finally, the Bank should help the Government identify ways of reducing China's remaining poverty. Since the Government has been successful in meeting the basic needs of most of -ts people, these efforts should concentrate on the poorest rural areas. 24. Since China's change of representation in the Bank Group in May 1980, ten projects involving lending of about $968 million have been approved. Three have been in education (University Development, Agricultural Education and Research and Polytechnic/TV University), two in energy (Daqing Oilfield Gaotaizi Reservoir Development and Zhongyuan-Wenliu Petroleum), two in agriculture (North China Plain and Heilongjiang Land Reclamation), one in transport (Three Ports), one in industry (Industrial Credit), and one in technical cooperation (Technical Cooperation Credit). Annex II contains a summary statement on these loans and credits as of September 30, 1983. Economic and Sector Work 25. The Bank's economic and sector work was initially designed to pro- vide a basis of knowledge on the development and functioning of the Chinese economy. This work resulted in completion of a nine-volume introductory economic report in June 1981. A follow-up country economic memorandum (Report No. 4072-CHA) analyzing developments over the past two years was distributed to the Executive Directors on March 31, 1983. In addition, the Bank has undertaken studies in several areas important for our understanding of the Chinese system, including rural finance and urban planning and management in Shanghai. 26. Other economic work is designed to assist China in its present effort to promote efficient use of investment resources, and more generally to introduce new methods of economic management and planning. As preparation for the Industrial Credit Project, an appraisal manual has been developed with Bank assistance by the new financial intermediary, the China Investment Bank. The Bank is now helping to develop a similar manual for the Agricultural Bank of China. A program of economic research on China's BEST CPY AVAIUABDE  - 8 - development problems, aimed at the application of advanced analytical tech- niques, has begun in collaboration with Chinese economic research insti- tutions in the areas of enterprise incentives and analysis of structural change. 27. Sector studies will help inter alia to identify and prepare future investments. Some have been included in Bank Group-financed projects, e.g., agricultural development in Shandong Province under the North China Plain Project, containerization under the Three Ports Project, and agricultural manpower and research under the Agricultural Education and Research Project. A health sector review is reporting on rural health care delivery systems and health manpower development. Near-Term Lending 28. Work has begun on a range of projects, with emphasis on improved management and efficiency as well as on technical assistance and training. Several are in the key sectors of energy and transportation. In energy, the Bank's efforts will help to increase the supply of fuel and power. Future petroleum projects will, like the first two, emphasize the introduction of modern technology, staff training and studies. Other operations will support hydropower generation in southwest China and the development and management of large underground coal mines in Shanxi province. In trans- portation, work is proceeding on two railway projects and a second ports project to provide additional capacity at several major ports. 29. In view of China's shortages of manpower with higher or technical education, the Bank will continue its support of education through a second agricultural education project and another university development project. Support of agriculture would continue through this proposed project to develop rubber cultivation in Guangdong Province, as well as others to provide rural credit in two provinces with emphasis on improved project appraisal and institution-building, provide further assistance in agri- cultural research, and assist the Government in forestry. In industry, further loans will be made to the China Investment Bank, and there will be projects for technical renovation and modernization in industries such as fertilizers and machine tools. In health, a project will help improve rural health care services and medical education. Bank assistance is also planned for a water supply project. To provide an assured and flexible soirce of financing for technical assistance for the preparation of orojects proposed or expected to be proposed for financing by the Bank Grc_, a technical cooperation project has been approved. PART III - THE AGRICULTURAL SECTOR Recent Performance and Development Strategy 30. Agriculture accounts for some 35% of the country's GDP and is the main source of livelihood for the rural population of neatly 800 million. Only about 100 million ha of China's land area of 960 million ha are arable. Nearly half of the cultivated land is irrigated and more than half of the BEST COPY AVAILABLE  - 9 - area grows at least two crops per year. Foodgrains occupy 80% of the croplnre and account for 65% of total agricultural output. Grain yields are about 502 greater than those in most other developing countries. Agricultural production is carried out in communes, state farms and privately managed plots which account for about 87, 5, and 8%, respectively, of the arable land and 80, 4 and 16%, respectively, of the gross value of agricultural production. 31. Agricultural development has been accorded high priority by the Government for more than 30 years. Despite declining per capita supplies of arable land, efforts to develop China's agriculture have been broadly successful_ The agricultural sector grew by 3.2Z p.a. in the period 1955-79, and by more than 5% p.a. on average since 1979. Industrial crops, livestock and sideline production have expanded even faster than crop production. Increases in food production have more than kept pace with population growth and almost all Chinese nce have access to adequate supplies of food. Reflecting population and income growth and diversion of larger quantities of grain to livestock feeding, net imports of grain have risen in recent years to about 15 million tons p.a., or less than 5% of total consumption. Exports of raw and processed agricultural products contribute about 80Z of all foreign exchange earnings. 32. A major task will be to meet the food and raw material requirements occasioned by further population growth and gains in per capita income. The land constraint will require steady increases in yields from already cropped areas and the growing problem of surplus rural labor will make job creation an increasingly important development objective. The Government is imple- menting new policies aimed at giving rural workers more production incen- tives. Area quotas for particular crops have been relaxed, althoug1- minimum grain marketing quotas are still maintained. There has been a major improvement in relative prices for agriculture. Production incentives are encouraging crop specialization in economically suited areas and the produc- tion of industrial crops is being fostered by assuring supplies of food gra-ns to farm workers in those areas. Incentives to workers on both communes and state farms are being designed to link reward more closely with work effort. Small-scale industry is being promoted in rural areas. 33. There is still scope in the next few years for further production gains from implementation of the responsibility system, increased specializa- tion and producer response to improved price incentives. However, continua- tion of recent high growth rates may be difficult. To maintain a reasonable growth rate and food security, despite constraints on the availability of inputs, will require further efforts in several areas: use of the few remaining opportunities to expand the cultivated area, increases in cropping intensity and yields on existing cultivated areas through relatively quick- yielding land and water resource projects, increases in the efficiency of investment, and the long-term development of higher-yielding crop varieties and practices and their dissemination through research and education. The present emphasis on improved policies and management will also have to continue. BEST COpy A VAIIBLE  - 10 - The State Farm System 34. State farms were established to provide food and employment in less developed areas and subsequently became important sources of commercialized agricultural production. More than 35% of grain production on state farms is sold to the state, as compared with about 15Z from the collective sector. More than 2,000 state farms in China manage almost 29 million ha, of which 4.5 million are under cultivation. Some 8% (170) are involved largely in rubber production. Farm size averages about 12,000 ha, but varies widely from 2-3,000 ha in the South to 90,000 ha in the Northeast. 35. The population on state farms exceeds 11 million and employment is about 5 million. Output per worker on scate farms is considerably greater than in the communes, reflecting larger per capita quantities of land, machinery and equipment. Workers receive a monthly wage, annual wage bonuses which depend on the financial performance of the fars, and subsi- dized social services including housing, education and health. As relatively self-sufficient economic units operating in poorly developed areas, state farms must finance, construct and maintain a system of social and physical 3