New Socialist Countryside Budget Insufficient,

UNCLAS SECTION 01 OF 02 BEIJING 011704

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR STRATFORD, WINTER, PORTER, LAWRENCE
TREASURY FOR OASIA/KOEPKE
USDA/ERS FOR LOHMAR, TUAN, SYLVANA LI
USDA/FAS/ITP FOR HANSON, SHEPPARD
USDOL FOR ILAB

E.O. 12958: N/A
TAGS: ECON EAGR PGOV SOCI CH
SUBJECT: New Socialist Countryside Budget Insufficient,
Says Policy Advisor

REF:QBEIJING 5009 and previous


1. (SBU) Summary: A Chinese policy advisor believes the
allocated budget for the recently launched New Socialist
Countryside initiative is woefully inadequate. While
Central Government funding for rural programs is increasing,
the allocation as a percentage share of the total budget
remains relatively unchanged. The advisor noted that New
Socialist Countryside expenditures are insufficient given
the needs of rural residents and the number of ministries
and levels of government that depend on the funding. End
Summary.


2. (SBU) Zhang Xiaoshan, Director of the Rural Development
Institute at the China Academy of Social Sciences (CASS)
and a senior advisor to the Chinese leadership on rural
policy, briefed Embassy-sponsored visitors from the Defense
Orientation Conference Association (DOCA) on China's rural
situation on June 6. During the briefing (also attended by
Econoffs),Zhang introduced the New Socialist Countryside
initiative and assailed insufficient funding for the
program.

New Socialist Countryside: What Does the Budget Mean?
-------------- --------------


3. (SBU) Zhang noted that the Central Government's budget
to support agriculture, rural areas, and farmers increased
to RMB 339.7 billion (USD 42.5 billion) in 2006 from RMB
293.5 billion (USD 36.7 billion) in 2005 in order to
support the 11th Five-Year Plan's New Socialist Countryside
initiative, which aims to provide improved social services
and infrastructure in rural areas. In 2004, expenditures
on agriculture, rural areas and farmers were only RMB 262
billion (32.75 billion).


4. (SBU) While the rural budget increased by 12 percent in
2005 and 15 percent in 2006, however, Zhang lamented that
the allocation as a percentage share of the total budget
remains relatively unchanged, and in fact, declined between
2004 and 2005. According to Zhang, the Central
Government's budget to support agriculture, rural areas,
and farmers was 9.2 percent of the total Central Government
budget in 2004, but that share fell to 8.8 percent in 2005.
Likewise in 2006, the rural account's increase is
comparable to the overall budget increase, and the change
in the rural budget's percentage share of total expenditure
is therefore insignificant.

Officials' Rent-Seeking Behavior a Disservice to Farmers
-------------- --------------


5. (SBU) Zhang stated that an additional problem with the
funding is that it primarily pays overhead costs rather
than directly supporting farmers. Although rural residents
have significant needs, including education, health care,
clean water, and employment training, a disproportionate
amount of the New Socialist Countryside's budget funds
local government salaries for officials who may or may not
be able to deliver services.


6. (SBU) Zhang emphasized that 16 or 17 Central Government
ministries and several layers of local government (county,
township, and village) ultimately depend on New Socialist
Countryside expenditures, and these ministries and local
governments unfortunately do not coordinate their efforts.
Instead, officials seeking to maintain annual budget
allocations engage in rent-seeking behavior, justifying
their own bureaucracy at the expense of farmers. This
phenomenon is a serious problem in western and central
China where cash-strapped county governments (that no
longer can depend on the recently eliminated agricultural
tax) wait for trickle-down funding from Beijing.

Comment
--------------


7. (SBU) Zhang's views on the New Socialist Countryside's
budget are similar to those of other observers. While the
State-controlled media has trumpeted the Central
Government's 2006 expenditures in the rural sector as

BEIJING 00011704 002 OF 002


increasing resources for a major policy initiative,
impartial observers are quick to point out that the Central
Government's overall budget expenditure has been increasing
at an average of 17-18 percent in recent years, and the
rural account should be viewed in that context. Moreover,
regardless of budget outlays, it is nearly impossible to
assess how much money the Central Government, much less
provincial and local governments, actually is spending on
the rural sector. End Comment.

RANDT