MIGRANTS, MICROFINANCE, AND MEAT -- SHANXI'S RURAL

UNCLAS SECTION 01 OF 02 BEIJING 006365 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN PGOV SOCI CVIS CH SUBJECT: MIGRANTS, MICROFINANCE, AND MEAT -- SHANXI'S RURAL DEVELOPMENT CHALLENGES REF: (A) 06 BEIJING 24338 (B) BEIJING 5578 (C) CPP20070921456001 SUMMARY -------------- ¶1. (SBU) Professors and students at Shanxi Agricultural University in Central China said on September 25 that rural development in the province is based on non-farm income, local microfinance models have been disappointing, and the province's residents are paying close attention to inflation. Local governments are providing subsidies to offset rising food costs and maintain social stability in Shanxi, but students so far have been relatively quiet about the price increases. END SUMMARY. TRAVEL TO SHANXI -------------- ¶2. (SBU) Econoff and Conoff traveled to Shanxi Province September 24-25. Emboffs visited the Shanxi Agricultural University (SAU) in Taigu (one hour's drive east of Taiyuan, the provincial capital) where they discussed rural issues with professors and students. Econoff also delivered a speech on United States-China economic relations, and Conoff presented information on the student visa process to approximately 300 students. SAU celebrated its 100th anniversary in August and has had a long-term teacher exchange with Oberlin College in Ohio. NON-FARM INCOME IN SHANXI'S NEW COUNTRYSIDE -------------- ¶3. (SBU) Zong Yingsheng, President of SAU's College of Economics and Trade, said that rural development in Shanxi, as in the rest of the country, remains a long-term endeavor. The province is implementing the Central Government's New Socialist Countryside policy (Ref A), as local governments seek to improve farmers' livelihoods. As in other provinces, the best means to increase rural incomes is non-farm income, Zong said. On average, agricultural income accounts for less than 20 percent of income in rural Shanxi, with the remainder derived from wage labor in urban and rural areas. (Comment: The national average for wage labor as a share of rural income is between 50 and 60 percent. Shanxi's much higher rate (approximately 80 percent) is primarily due to the province's role as a major coal producer, as many farmers seek work in the mines. End Comment.) RURAL FINANCE, FARMER COOPERATIVES, AND LAND REFORM -------------- -------------- ¶4. (SBU) SAU professors lamented that recent rural finance projects in Shanxi have not been as successful as advertised. With large commercial banks already having pulled out of the countryside, and Rural Credit Cooperatives (RCCs) largely unable to provide financial services, rural watchers had hoped that new microfinance initiatives in Pingyao, a Shanxi city known as the cradle of modern Chinese banking for its role as the home base for 19th century credit houses, would benefit farmers. Professors said, however, that early returns from Pingyao, where two private financial institutions were authorized to extend small loans to farmers under a microcredit pilot project launched by the People's Bank of China (PBOC) in five provinces in 2005, suggest that the microfinance model has not been as successful as hoped. ¶5. (SBU) Far more successful have been informal efforts by farmer cooperatives to pool their resources and provide small loans to members, the professors said. They acknowledged that China's rural finance opportunities are constrained by a land policy that does not allow farmers to use their land as collateral for loans, but they reiterated concerns heard in Beijing and elsewhere that conditions in the countryside are not ripe for land reform. If market-based land transactions were permitted, they said, there would be significant risks both for ensuring food security, with the potential for transfer of land from agricultural to non-agricultural uses, and protecting farmers' social welfare, as land serves as a form of social security in the absence of a developed pension system. ADDRESSING FOOD INFLATION IN RURAL SHANXI -------------- ¶6. (SBU) Professors said they are concerned about China's recent spike in inflation (Ref B),and they added that farmers, unlike shopkeepers and middlemen, are not benefiting from rising food costs. In particular, the professors said they see inflation as a BEIJING 00006365 002 OF 002 potential threat to creating a harmonious society in Shanxi. The provincial government has taken a number of measures to contain inflation, they said, including offering subsidies to the poor to offset rising costs. ¶7. (SBU) SAU professors did not have exact figures on the value of short-term subsidies to counter rising costs. A September 25 article in the Beijing City News (Xin Jing Bao),however, reported that Beijing Municipality has provided RMB 20 (USD 2.67) per month for the past five months to 230,000 low-income city residents in order to offset the inflation problem. QUIET COMPLAINTS BUT NO UNREST IN CAFETERIA -------------- ¶8. (SBU) Students, many of whom are from poor rural backgrounds, said they also are concerned about rising food costs, noting that many dishes on the cafeteria menu (especially meat dishes) increased from RMB 3 to RMB 5 between the spring and fall semesters. They said, however, that there have been no dining hall boycotts at SAU as there have been at other schools (Ref C),and they do not anticipate unrest in the near future. American English teachers from Oberlin College echoed these sentiments, telling Emboffs that they have not heard any complaints about prices in the university cafeteria. RANDT