Supply of Funds for Grain Purchases in China since the Middle 1980s

Before the reforms in grain marketing and prices of 1984–5, grain markets in China were characterized by a two-track system, under which grain producers were required to deliver a certain amount of grain to the state at lower than market prices.2 In some major grain producing areas, however, a shortage of funds for state grain procurement and the issue of IOUs and cheques that could not be cashed emerged as early as 1985.3 By 1988, the problem became widespread and IOUs amounted to 8 to 10 billion yuan, or about 8 to 11 per cent of the total funds paid for grain purchases and 21 to 27 per cent of the total funds paid during the autumn purchase season of September to December (Food, Marketing and Trade Research Group, 1991, pp. 4–5). It was estimated that in central and western China, IOUs were used to pay for 50 per cent of the grain delivered to the state (Johnson, 1994). With a bumper harvest in 1989, the grain bureaus in many grain-producing provinces either issued more IOUs or ceased to purchase grain, because of the lack of funds (Xiao Fuping, 1990, p. 122).