China’s $60bn rural reform programme
12 February 2006
THE Chinese Communist Party is preparing to unveil a new five-year plan at next month’s National People’s Congress which will mark a shift away from urban to rural spending priorities for the first time in 15 years.
New policies will raise living standards for the country’s 900m peasants, whose incomes have stagnated or fallen despite a decade of 8%-9% gross domestic product (GDP) growth rates.
Beijing hopes to stimulate rural consumption and reduce the economy's dependence on exports and high spending on urban infrastructure.
Peasants enjoyed a dramatic lift in living standards after the 1979 rural reforms which saw the people’s communes abolished and lifted more than 200 million out of poverty.
However, since the 1989 protests which swept nearly 100 Chinese cities, the government has followed policies that have concentrated on raising urban incomes. More than 3m people took part in protests and demonstrations last September, according to the New York based Human Rights in China.
The richest 10% of China’s population earns 9.5 times as much as the poorest 10%, up from 9.1 times in 2003, according to a survey of 50,000 urban residents.
The new policies have, in part, been developed in response to pressure from Washington, which wants China to boost imports and reduce the trade surplus with the United States.
Prime Minister Wen Jiabao has pledged more help for rural areas and for the peasant labour force. Among the measures announced are:
* Nationwide abolition of rural taxes at a cost of $3.5bn. Pilot projects in Anhui province saw the abolition of 40 types of tax and cut the average family tax burden by 200 yuan ($24) in a province where average income is below 600 yuan;
* Subsiding farmer’s grain, which will cost the equivalent of $1.4bn a year;
* A three-year campaign to return the outstanding wages of migrant workers which has seen $20bn paid in back wages;
* China will exempt those earning 1,600 yuan a month from personal income tax, lifting the threshold from 800 yuan, a gesture worth 23bn yuan a year.
In addition, the government plans to channel central funds into the budgets of local governments, many of which are bankrupt. County level administrations have debts totalling $125bn, which are not included in the overall government debt statistics.
Beijing has promised to raise spending on rural healthcare and rural education – two of the biggest sources of local government deficits.
The central government will hand rural teachers 10bn yuan in back pay. The state has promised that all rural children will get nine years of free education by 2010 – at a cost of $12.37bn a year. The government will take responsibility for paying teachers’ salaries.
At the same time, the Ministry of Public Security has loosened restrictions making it easier for peasants to transfer their residency to cities.
Wen plans to control acquisition of land for construction projects after more than 40m farmers have been displaced by such grabs – the number is growing by more than 2m a year. Landless farmers without land are now among the poorest people in the country.
The government also wants to improve the conditions for the flood of migrant workers who move from the countryside to urban area, including pay, social security, vocational training opportunities and education.
Rural incomes already rose by 16% last year. Peasants are being encouraged to use part of their higher disposable incomes to take out pensions and health insurance policies as part of a plan to replace the rudimentary social welfare system that existed before 1979.
Taken together, these measures are expected to divert $60bn to the rural population.
Key areas of increased expenditure are likely to be healthcare products, motor cycles and televisions. One effect may be to raise food prices for urban dwellers as peasants make more of their economic clout.
Coupled with higher fuel prices, this means inflationary pressure which could boost price rises to 5% in 2006, facing the authorities with the dilemma of whether to clamp down through interest rates or administrative measures.
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