Lu Mai

I. Development of the rural market is an important strategy

Three issues will have to be clarified when we strive to stimulate domestic demand and develop the rural market

1. Is development of the rural market an issue concerning merely one department or an issue of strategic importance to the whole country?

In the 1980s, China initiated the strategy of development of the coastal areas. Policies in this regard include the establishment of the special economic zones and the installation of the system of full responsibility over finance of the localities. These policies helped encourage the coastal areas with comparatively better foundations to seek high-speed growth by developing export-oriented economies.

One of the side effects of imbalanced development is the continuous widening of the income gaps between the various regions, between the urban and rural areas, and between various social circles. It is estimated that in 1979, the Gini coefficient of the per-capita income between China's urban and rural households was 0.33, which indicated a comparatively small gap in income. As a small number of people became rich, the income gap began to widen gradually. According to surveys, the Gini coefficient of the per-capita income between China's urban and rural households rose to 0.38 in 1988, 0.434 in 1994, and 0.458 in 1997, bigger than that of the Philippines, India, Indonesia, and some other countries. China fell into the international rank of countries with comparative inequality in income.

As a reflection at the consumer market, this pattern of income distribution resulted in the continuous withering of the share of the consumer goods markets in the inland areas compared with that in the coastal areas, and the endless slumping of the share of the rural market compared with that of the urban market.

Such a widening of the income gap between coastal and inland regions and between urban and rural areas is inevitable at the early stage of economic development. As economic growth gains speed and benefits most people, the difference lies only in the rate of increase of incomes. As production capacity expands rapidly, however, constant widening of income gaps will not only give rise to social in equality, but also restrict the realization of production capacity and economic development because of the demand factor. On the one hand, a large amount of the production capacity in the country will stand idle and big overstocks will become a serious problem. On the other hand, the effective demand of farmers will stay at a low level due to their small incomes, although their possession of many kinds of consumer goods may remain small. As a result, a demand fault would develop between the rural and the urban markets due to the existence of the income gap. Moreover, the Chinese economy relies heavily on international trade. Once the international market fluctuates, economic growth would be immediately affected.

As the situation stands, development of the rural market is neither an issue merely involving marketing channels or environments of consumption, nor a make-shift measure to stimulate economic growth. Instead, it is an issue concerning the strategic readjustment of imbalanced development into balanced development.

2. Is development of the rural market an effort designed to help urban industries tide over their difficulties by increasing sales of industrial goods because of the comparatively excellent situation in the rural areas?

Some people have suggested that there exits certain reserved purchasing power in the rural areas that would provide a way out for the surplus production capacities in the urban areas. This idea is an overestimate of the income level of farmers and an underestimate of the difficulties in the rural areas.

At the time when the Asian financial crisis swept into China and slowed down its economic growth, the rural areas, those in the central and western parts of the country in particular, suffered more than the urban areas. In 1998, the price index of agricultural goods fell by 8 per cent. In township enterprises, the number of employees dropped by 5.22 million from 1997. Although the number of people leaving their hometowns to seek jobs in other parts of the country grew by nearly 6 per cent in the year, they were paid less than before. According to a Ministry of Agriculture survey of more than 20,000 rural households in the areas covered under its regular study, the per-capita net income of farmers dropped by 2.36 per cent from 1997 to 1998. This is the first drop since the ministry's designation of these areas in 1986 for a regular study. At the same time, local industries suffered losses without any exception. In order to maintain their levels of expenditures, most local governments had to collect more taxes and fees from farmers and shift the pressure of deflation onto them. Although the legalized fees paid by farmers did not exceed the preset ceiling of 5 per cent of their incomes, their burden of payment of agricultural specialty taxes, education surtaxes, and other fees for education, road construction and other purposes became much heavier. The cases reported by the State Rural Survey Team show total per-capita payment of taxes, fees and various kinds of assessed charges in the villages in a poverty-stricken county covered in its survey hit 340 yuan in 1998. In a county in western China, the level of the agricultural specialty tax was fixed according to actual financial demand of the local government. A deputy secretary of the county Party Committee told me that his younger brother earned 2,000 yuan from the four mu of land he had contracted to grow apple trees, but had to pay 1,800 yuan worth of agricultural specialty taxes.

With a large population, the rural areas boast indeed a big market potential. Growth of income in these areas, however, has slowed down in recent years while burdens have aggravated. As the situation stands, the short-term question is not how the rural market can help the urban economy, but how the rural areas and farmers can get the help they badly need. Only by supporting the development of the rural areas can the urban economy be further developed.

3. How will the rural market be developed?

In 1998, the Central Government took measures in two fields: increase of investment in the construction of water conservancy works, roads, power grids, and other basic facilities in the rural areas; and formulation of policies on protective grain prices to guarantee the incomes of farmers. As the situation stands, although economic growth slows down, there have been more opportunities for farmers to leave their hometowns to seek jobs, and the prices of grain have dropped the least although the purchasing prices of agricultural products have been on the decline as a whole. This shows that the measures taken by the Central Government have played an active role in boosting economic growth and improving the situation of imbalanced development. The cost for the implementation of these measures, however, has been quite expensive. In 1998, the losses suffered by grain departments hit 50 billion yuan. If the money were divided among farmers, each would receive nearly 60 yuan, enough to offset the decline in their incomes. Investment in the construction of basic facilities can bring about long-term interest to farmers, but farmers are required to invest both money and labour at present when they are in a difficult situation. Local finance is also in a difficult situation. A considerable amount of the money, either that from the State or that from the farmers themselves, would be lost in the middle of the stream.

As the situation stands, efforts need to be intensified in the development of the rural market and the investment support needs to be directed to individual households and villages to integrate with the wish of farmers for promoting production and increasing supplies of public goods. Only in this way can the farmers in areas with an agricultural tradition and deep in difficulty get practical benefits and twice as much can be accomplished with half the effort.

...

If you need the full context, please leave a message on the website.