ABSTRACT
This chapter aims to provide a background to the development of the institutions and the nature of the rural economy before and after rural reforms; especially the functioning of prices in the reform period. It reviews the People’s Commune System and the ‘Unified Purchase and Sale’ marketing system and discusses the characteristics and problems of these systems. The chapter examines dual characteristics of the institutional environment after rural reforms. The agricultural economic institutions established by the Chinese government in the 1950s, particularly after 1952, derived largely from the former Soviet Union. Two basic characteristics of the economic institutions at that time were the commune system (collective ownership) and ‘unified production and sale’ system (central planning). It is commonly recognised that the reforms can be divided into two stages: the first stage involved gradual changes in the rigid centrally planned system; the second stage was marked by a decisive step towards the complete elimination of the state planned system.
