Price and Subsidy Policy for Grain in China: Performance, Problems, and Prospects for Reform

Based on a case study, this paper analyses China's current price and subsidy policy for grain and discusses some questions relating to the reorientation of this policy. First, the pricing system for the grain market, especially that for the state-run grain marketing agencies, is illustrated. Ways of subsidizing grain and the scale of the subsidy are then analysed. After discussion of the three major problems inherent in the system and a brief look at recent reform efforts, some points to be considered in terms of further reform are examined, including the need to modify the way of deciding priorities among conflicting policy objectives as well as the relationship between the state-set price and the open-market price. Finally, a proposal is made for gradual abolition of the subsidy and an operational cost-efficient approach is suggested.