MORE ATTENTION ON THE RURAL SECTOR: WILL IT BE ENOUGH?

UNCLAS SECTION 01 OF 02 BEIJING 000750 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EAGR PGOV EFIN SOCI CH SUBJECT: MORE ATTENTION ON THE RURAL SECTOR: WILL IT BE ENOUGH? REF: (A) CHENGDU 20 (B) 07 BEIJING 1081 (C) 07 BEIJING 1615 (D) 06 BEIJING 5874 (E) 06 BEIJING 24338 (F) 06 BEIJING 11704 (G) BEIJING 588 (H) BEIJING 303 (I) BEIJING 573 SUMMARY -------------- ¶1. (SBU) Beijing-based rural experts say the State Council's 2008 Number One Document, which identified rural issues as the Central Government's top policy priority for the fifth year in a row, signals the leadership's continuing concern about the urban-rural income gap and restates the case for additional funding for rural areas in advance of the March session of the National People's Congress (NPC). The 2008 Number One Document's more comprehensive approach is appropriate, the observers said, but there remains concern about the efficiency of funding for rural areas. The recent snowstorm highlighted rural infrastructure deficiencies as well as the failure of local governments to take care of migrant workers, they said. Our contacts uniformly stated that inflation will be a top economic concern during the upcoming NPC session. END SUMMARY. URBAN-RURAL INCOME GAP: A SOCIAL STABILTY CONCERN -------------- -------------- ¶2. (SBU) The National Bureau of Statistics (NBS) drew attention to the growing urban-rural income gap on January 24, when it announced that urban per capita incomes increased by 12.2 percent in 2007 to an average of RMB 13,786 (USD 1907),but rural per capita incomes increased by only 9.5 percent to RMB 4140 (USD 572). It was the tenth year in a row that real urban incomes increased faster than rural incomes, and the 2007 per capita GDP figures reflected that urban incomes are now 3.33 times that of rural incomes -- up from 2.47 times greater in 1997. The urban-rural gap is increasingly worrisome because of its potential impact on social stability, said Wen Tiejun, Dean of the School of Agricultural Economics and Rural Development at People's University. ¶3. (SBU) In a People's Daily op-ed on February 15, Han Jun, Director of the Rural Economy Department of the State Council's Development Research Center, wrote that the Central Government must redouble its efforts to bolster the country's agricultural sector in order to address the income gap. In practice, however, provincial officials and researchers maintain that rapid urbanization is the most effective solution (Ref A). Regardless of the proposed solution, the growing income disparity has attracted increasing media attention. For example, a Xin Jing Bao (Beijing News) article on January 2 focused on the problem, headlining that the city of Guangzhou's GDP is now 10 times that of Qinghai Province. NUMBER ONE DOCUMENT: THAT TIME OF THE YEAR AGAIN -------------- -------------- ¶4. (SBU) Seeking to address the urban-rural income gap, the Central Government announced on January 30 that rural development would be its top policy priority for the fifth year in a row, stating in the Number One Document that strengthening rural infrastructure would follow the previous rural-focused themes of modernizing agriculture (2007),promoting the New Socialist Countryside (2006),improving agricultural production (2005),and increasing farmers' incomes (2004) (see Ref B). Chen Xiwen, Vice Minister of the State Leading Group for Financial Affairs, said during a press conference following the announcement that the Central Government will increase its budget for the countryside from RMB 391.7 billion (USD 50 billion) in 2007 (approximately 14 percent of budget expenditure) to RMB 520 billion (USD 72.8 billion) in 2008 (see Ref C). ¶5. (SBU) Part of that increase apparently will provide additional funding for the Rural Cooperative Medical System (RCMS),as the Ministry of Finance announced on February 15 that the government's contribution to the RCMS would double this year from RMB 40 (USD 5.60) per farmer to RMB 80 (USD 11.20) per farmer (see Ref D). Du Xiaoshan, Deputy Director of the Rural Development Institute at the China Academy of Social Sciences (CASS) said that improving health care and other social services in rural areas would be a critical component of this year's budget allocation. ¶6. (SBU) Contacts agreed that the 2008 Number One Document does not contain any significant new initiatives and is a continuation of the Central Government's rural reforms that were launched in 2006 as the New Socialist Countryside (Ref E). Wen Tiejun noted that this year's Number One Document reemphasizes the long-term nature of rural reform in China, as the leadership recognizes it will take BEIJING 00000750 002.2 OF 002 many years of comprehensive reforms to achieve results. Zhang Xiaoshan, Director of the CASS Rural Development Institute, agreed, stating that while there are no new policies in the 2008 Number One Document, it is important to continue to promote rural reform and invest in the rural sector in order to achieve more balanced development. BUDGETING 101: IS THE MONEY MAKING A DIFFERENCE? -------------- -------------- ¶7. (SBU) Zhang reiterated his long-held concern, however, that budget expenditures for rural areas are managed inefficiently (Ref F). Funding for rural areas continues to be divided among too many Central Government ministries and levels of government in the provinces, Zhang said, and too much of the expenditure supports water projects that provide greater benefit to residents of urban areas. Professor Wu Qing, Board Member of the Beijing Cultural Development Center for Rural Women and a Deputy in the Haidian District People's Congress, told Econoff that the Central Government's budget supervision measures for New Socialist Countryside funding are inadequate. Central Government leaders don't want to listen to criticism of the budget for rural areas, she said, as they only want praise for increasing the funding. In any event, given the persistent development challenges in the countryside, the Central Government will need to continue to increase funding for rural areas by 15 percent per year for at least 10 years, stated Wen Tiejun. CLASH OVER RESOURCES: CENTRAL VS. LOCAL -------------- ¶8. (SBU) With limited budgetary resources and with the elimination of the agricultural tax in 2005, the Central Government and local governments continue to wrestle over resources, Wen said (Ref G). In particular, Beijing's edicts on preventing the conversion of rural land to non-agricultural uses continue to be ignored by local leaders who earn a significant portion of off-budget revenue from land takings, stated Wen. Li Ping, who represents a U.S.-based NGO in Beijing, said land policy will again be a major issue at the March session of the NPC both for protecting food security and ensuring social stability in the countryside, but he does not foresee any major policy changes. Conflicts over land remain a major cause of social instability, Li said (septel to follow on land conversions and their impact on stability). SNOWSTORMS HIGHLIGHT SYSTEM'S SHORTCOMINGS -------------- ¶9. (SBU) Our contacts all said that concerns about the urban-rural gap are more acute this year because of the recent snow storms in southern China (Ref H). Wu Qing said she hopes the snowstorm will help highlight rural infrastructure concerns during the upcoming NPC session. Zhang said the Central Government's lack of preparation for the storms and poor execution of the relief effort underscores the government's inability to deliver services in rural areas. Wen Tiejun said the plight of rural migrants waiting in train stations to go home for Chinese New Year further illustrates the urban-rural gap, noting that are few support systems for rural migrants. COUNTERING INFLATION: A CONCERN ON TWO FRONTS -------------- - ¶10. (SBU) Rural observers stated that inflation will remain a top economic concern during the upcoming NPC session. The Central Government is worried that rising food prices, which led to an increase in the CPI of 4.8 percent in 2007 and 7.1 percent year-on-year in January 2008, will create more widespread discontent in urban areas if prices cannot be brought under control. ¶11. (SBU) Our contacts expressed also concern that inflation currently is higher in the countryside (5.4 percent in 2007) than in cities (4.5 percent) (Ref I). The impact of inflation on real rural incomes is a key concern when assessing the urban-rural income gap, said Wen Tiejun, particularly since higher transportation costs make prices harder to control in rural areas. If rural income gains ultimately are lost to inflation, the government will be faced with an even greater stability problem in the countryside, Wu Qing said. RANDT