The Logic of Market Reform: The Development of Wholesale Grain Markets in China

The development of an open and competitive grain market requires the establishment of an integrated wholesale marketing system. Such a system not only provides an efficient mechanism for price formation, but also forms the basis for economic exchange between town and countryside and for the growth of inter-regional grain trade in ways that encourage specialization and diversification in production. In contrast, the dual-market, dual-price system that evolved during the 1980s, where by a significant proportion of marketed grain is subject to administratively determined prices and passes through planned channels, generates distortions and acts as a mechanism for economic redistribution.