Social and economic impacts of subsidy policies on rural development in the Poyang Lake Region, China: Insights from an agent-based model

Further increasing grain production and rural household income is a major challenge for rural development in China, and the current small scale of farming operations is an important factor limiting progress on both. The Chinese central government's recent approach to promoting rural development addresses the role of land rental markets in facilitating larger-scale farming operations. We use an agent-based model that represents livelihood decision-making of rural households to explore the effects of an alternative policy that subsidizes rural households that rent out their land-use rights for long terms in comparison with the current policy of subsidizing grain producers. The model is built upon our empirical analysis of social surveys and interviews in eight villages around Poyang Lake. We consider policy impacts in terms of economic performance and equality. The modeling results suggest that policy responses differ considerably between villages with poor, average, and good farmland resources, and the rental-subsidy policy is expected to be most effective at stimulating land rental markets in villages with average farmland resources. The rental subsidies are likely to move the agricultural system to a more productive state with more growth potential and less cost in most places. The rental-subsidy policy can also make every household in farmland-poor places better off and may be used to further address inequality in farmland resources. However, both policies show limited effects on increasing rural income, suggesting rural development will continue to depend on urbanization. We discuss how the government may use the rental subsidy as an instrument to facilitate urbanization to best benefit all rural households.