Can Rural China Keep Up?

By staff reporter ZHANG XUEYING

Farmer prosperity is linked to reduced taxes and increased agricultural output.

GIVEN the Chinese government's determination to stimulate industrial and urban development during the past 50 years, policymakers now look to improve rural conditions. Although the central government has made efforts to redress the situation in recent years, implementation of relevant policies has been slow. In 2004, the government put forth a series of agricultural reform measures concerning rural taxation, domicile status and land, which was seen as a demonstration of the new leadership's resolve to tackle rural problems. Some policy watchers likened the year 2004 to a "second spring" for rural China.

In February, the central government's first policy for 2004 addressed increasing farmer income. During the annual NPC and CPPCC sessions in March, Premier Wen Jiabao made the rural issue a central topic in his government work report. There has since been a series of concrete measures: agricultural taxes have been reduced three percentage points and will be abolished within five years; direct subsidies to farmers in 2004 will total 10 billion yuan; and the special-use fund in support of agriculture will be increased by 30 billion yuan over that of 2003 to reach an unprecedented level of 150 billion yuan. For China's 900 million rural residents, these figures mean a per capita benefit of more than 300 yuan, inclusive of tax reductions. Economists believe that these measures will create another agricultural upswing, just as the household contract responsibility system increased rural productivity in the late 1970s.

Degradation

The decade from 1978 to 1989 saw the first rural reform: The collective farming mode of the Mao Zedong era gave way to the household contract responsibility system. Farmers obtained their own land and made their own decisions about what to grow. The result of this reform was rapid increase of rural wealth. Calculated by fixed price, in the 1980s China's agricultural output value increased by 86 percent and per capita rural incomes by 192 percent. In 1978, the average rural income was 39 percent of the urban equivalent, but by 1983 it had increased to 55 percent. The massive accumulation of rural wealth provided valuable capital for later industrial growth.

Since 1984, cities have been the focus of China's economic development. Manufacturing, export industry and privatization of housing have helped urban incomes to soar, while the lot of farmers has remained static.

The spring planting season begins with hope for a good fall harvest.

Farmers have long performed a dual duty: producing grain to supply the needs of urban consumption regardless of purchase price, and paying taxes to support urban and industrial development and daily operation of township governments. China is the only country in the world that levies agricultural taxes on farmers. As a result, farmers' agricultural per capita net income between 1998 and 2000 decreased year by year -- by 30 yuan in 1998, 57 yuan in 1999 and 43 yuan in 2000. This decrease affected 77.5 percent of rural households that relied mainly on farming. During the same period, the per capita rural income dropped to 35 percent of the per capita urban income. In 2003, this translated to 2,622 yuan.

The widening of the rural-urban gap has also restricted rural purchasing power. In recent years, the urban consumer market has been stagnant, and the sale of light industrial products and household electric appliances slack. Yet, the percentage of rural households possessing televisions and other home electric appliances is low, and few have decent homes. Interest in farming has dwindled due to its reduced income. Dang Guoying, research fellow at the Rural Development Research Institute of the Chinese Academy of Social Sciences, believes that support given to farmers during the transitional period will indicate how the new leadership implements social justice and maintains stable development and sustained prosperity.

Top Priority

Increasing farmer income and reducing the tax burden is now a top government priority. Between 1990 and 2001, the government issued annual regulations aimed at reducing taxes. Meanwhile, measures to curb violations, like the "Farmers' Burden Supervision Card," "Farmers' Burden Inspection" and "Farmers' Burden Single-vote Veto," were put into effect. By 2003, rural tax reform had reduced financial burdens by 13.7 billion yuan. According to the Ministry of Agriculture, reports from 11 trial provinces, including Heilongjiang, Hebei, Shaanxi, Jiangsu and Henan, showed that the reforms reduced taxes between 30 and 80 percent.

But the situation is still serious. Reduction of rural taxes and fees will inevitably reduce the income of township governments and village committees. A report from Anhui shows that since tax reforms the province's agricultural tax revenue decreased from 4.915 billion yuan to 4.048 billion yuan, a difference of 867 million yuan. Meanwhile, the tax revenues at township and village level decreased by an average of one-third, the latter having dropped by an average 63 percent. For most village committees without non-agricultural income, revenue reduction has severely restricted their daily operation. Although the central government and a few provinces and cities provide some subsidies, the majority of townships and villages are incapable of meeting their debt obligations and have no funds for education and public welfare undertakings. Farming townships with few industries cannot even pay their government employees' wages. These problems could trigger a tax reform backlash.

According to rural affairs official Chen Xiwen, the central government has increased its agricultural budget to 150 billion yuan to support rural infrastructure construction, public health and education and subsidies to support much-needed crops, such as grain and soybean. Chen says this budget will help check the continuous drop in grain output over the past five years and relieve the pressure of grain shortages, which since last October have led to price increases of 10 to 20 percent.

With the rapid increase of rural population, it is becoming more difficult to realize an increase in farming income. Per capita land has continued to shrink; in 1986, farmland averaged 9.2 mu (1 mu=1/15 hectare) per household, which dropped to 1.15 mu by 2000. China's agricultural scale is a fraction of that in EU countries and the United States. Over the past 50 years, China's rural population has increased 250 percent. Of the 900 million rural residents, 600 million are able-bodied laborers, but farms provide jobs for only 150 million; rural enterprises employ 120 million, leaving a surplus of more than 300 million. In the long run, the channeling of rural population to cities is inevitable if farmers are to increase their income and rural China is to shake off its poverty.

Walking out of Beijing West Train Station, young laborers from rural areas prepare to test their urban survival skills.

Statistics from the Ministry of Agriculture show that in 2004, the number of farmers working in cities exceeds 100 million, a figure that keeps increasing at an annual rate of 8.5 percent. In the coming 15 years, 150 million rural laborers are expected to flow into cities.

Policy Defects and Redress

Without local registration, migrant laborers working in cities have a harder time securing employment, housing, education and social securities, all of which are available to registered citizens. Job impermanence, low pay, a lack of stable housing, no access to local education and poor healthcare characterize a migrant worker's situation. Discrimination is blamed on the administration system in which residents are divided into agricultural and non-agricultural status.

Beginning in 2001, China attempted domicile registration system reform, starting with developed provinces such as Guangdong and Jiangsu. Now rural residents in these two provinces can change their agricultural status into non-agricultural at will. But reform became bogged down soon after it started in Guangdong, because few agricultural residents asked for a status change, and the few who did later requested to change back. The reason many rural residents doubt they can get the same benefits as urban residents, such as social security, and are afraid to sacrifice the benefits of rural residency, such as land and the right to have a second child.

For farmers, the main problem is that the grain purchase price is still decided by the state, not the market. Economist Zhou Qiren points out, "Farmers contract farmland as a way to make a living. If what to grow, how much to grow, to whom to sell and at what price is government-regulated, the right to farm (the land use right) is the only variable." Such a policy has given farmers little incentive to farm. In addition, land resources have continued to deteriorate, and violations of farmers' land use rights continue to occur.

Given these adverse situations, many worry about China's agricultural development. According to the WTO agreement, the protective tariff rate will be reduced to below 17 percent on imported farm products this year, and the rate on competitive farm products from the United States will be even lower. The main hindrance to agricultural development is the absence of an effective policy rather than such technical factors. The city-centered policies of the past did not address issues such as mandatory grain pricing, domicile registration system and land policy.

Policymakers and banks are now trying to divert investments to the country; the state treasury has earmarked funds for the first time to train rural laborers. In the past, such training was mainly conducted as a market operation and supported by trainees themselves, and the content was usually restricted to how to make a living in the countryside. The latest round of training has expanded from agricultural skills to include urban survival.

The constitutional amendments adopted at the Second Session of the 10th National People's Congress last March increase human rights protection. Along these lines, the right of free mobility is to be implemented. According to the Ministry of Public Security, legislation of a domicile registration law, which aims to establish a unitary domicile registration system in place of the dual system, is underway. "China needs a third revolution to finally liberate farmers from the soil and the countryside and to fundamentally solve the unfair and unjust situation that isolates, polarizes and separates the urban and rural areas," says Hu Angang, economics professor at Tsinghua University. The eradication of the discriminatory status label is believed to be an essential measure for all citizens, rural or urban, to stand at the same level of access to personal development opportunities and social services.

According to Chen Xiwen, another effort to affect a functional policy, a guideline for land expropriation system reform, will be promulgated in 2004. A basic principle is to implement the world's strictest farmland protection system in view of China's large population and limited land resources. The reform will see to the livelihood of farmers whose land is expropriated, including their employment and social securities.

"These policy changes show that China has developed from the Deng Xiaoping era, when a few people were allowed to get rich first, to a new period that strives for common prosperity," says Chinese economist Fan Gang.