The year 2004 was one that gave 900 million Chinese farmers hope
for the future. At the beginning of the year, Premier Wen Jiabao
promised to revoke the agricultural tax within five years.
Following Beijing, Shanghai, Tianjin and Tibet, in March
Heilongjiang and Jilin declared they were scrapping the tax.
Following the release of the central government's "No. 1
Document" on agriculture on January 30, another 20 provinces,
autonomous regions and municipalities joined them, relieving a
total of 730 million farmers from the centuries-old levies.
In the five localities (Hebei, Shandong, Yunnan, Guangxi and
Gansu) where the taxes continue to be collected this year, the rate
is to be cut by more than 2 percentage points.
In his government work report at the Third
Session of the 10th National People's Congress, while stressing
that agricultural issues remain a top priority for the nation,
Premier Wen told lawmakers, "The agricultural tax will be rescinded
throughout the country next year, which means what had been
targeted for five years will be achieved in just three years."
Agricultural taxes used to be the main source of local
government revenue. However, during the five years of rural tax and
fee reform that began in 2000, the levies dropped gradually to 20
billion yuan (US$2.4 billion) last year, less than 1 percent of the
nation's total revenue. The central government will offset
decreases in local revenues, but overall, the impact of phasing out
the agricultural tax on the country's overall financial condition
will be insignificant.
Ratio
of Agricultural Tax to Total National Tax Revenue
(%)
??????
(Source: the Caijing magazine)
Rural reform is essential to China's urbanization and
modernization. As a step of decisive importance for realizing the
goal, the exemption of agricultural taxes depends on simultaneous
implementation of coordinated reforms.
Rural tax and fee reform
In 1978, east China's Anhui Province became the first to adopt a
contracted responsibility system with remuneration linked to
output, heralding the nation's reform and opening. Coincidentally,
five years ago Anhui became the starting place again for a new
round of rural reform.
The path of reform has been beset with pitfalls created by
unsynchronized political and economic restructuring. Since the
mid-1990s, indiscriminate fines, charges and levies added to the
farmers' load and sharpened the social contradictions in rural
areas.
In 2000, Anhui began experimenting with rural tax and fee
reform. A multitude of separate fees were merged into the
agricultural tax and its surcharge. Tax revenue, along with that
collected from commerce and industry, was used to run township
governments, while the surcharge went to village-level
organizations.
The consolidation and reduction of farmers' tax liabilities led
to a drastic drop in grassroots governments' revenue, which in turn
adversely affected investment in compulsory education. At the same
time, transfer payments from the higher authorities could not
subsidize all the financial shortfalls.
In April 2001, the central government decided to suspend
dissemination of the Anhui method. To tackle the deep-seated
problems exposed during the trial reform, a year later it promised
to ensure a reduced and stable burden on farmers, normal operation
of grassroots governments and abundant investment in rural
compulsory education.
They soon realized that to achieve the three goals, both
political and financial restructuring were necessary: rural tax and
fee reform alone could not effect a permanent cure.
In July 2004, they proposed incremental reform. Levies and
charges would first be standardized at substantially lower rates to
lighten farmers' burdens, eventually phasing out agricultural
taxes.
Many experts suggest that in tandem with the tax reform, the
central government should absorb responsibility for compulsory
education while enforcing the streamlining of the basic
administrative structure and headcount.
Complications in coordinating
reforms
Funding compulsory education has been a hard goal to make.
In August 2002, the nation adopted a policy making county
governments responsible for subsidizing rural compulsory education,
thus changing the past practice of relying excessively on money
collected from the farmers.
But kicking the ball from farmer to village and town to county
government does not tackle the source of the problem, since the
farmers and villages are the roots that feed the plant.
Heilongjiang Province, for example, scrapped its agricultural taxes
last year, but it has been forced to lay off teachers and
amalgamate village schools in hopes of cutting down educational
costs.
According to the Ministry of Education, the average annual
salary of China's primary and middle school teachers was 13,293
yuan (US$1,620) in 2003 and some 7 million teachers worked in rural
areas. To have all rural teachers in China get paid, a total of
93.1 billion yuan (US$11.3 billion) is needed per year, or 6.2
percent of the total revenue on the central budget in 2004,
amounting to 1.5 trillion yuan (US$181.2 billion).
It is even more difficult to reform the county and township
financial systems, which are closely bound to officials' personal
interests. It is entirely possible that administrative organs at
these levels, whose existence has mainly relied upon agricultural
taxes, will fall into an unprecedented financial predicament.
Performing a surgical operation to tackle the problem is easy,
like downsizing management and laying off employees. Nonetheless,
all seven nationwide structural reforms since 1949 have just been
part of the endless circle of expand-streamline-expand. Lessons of
history, plus deep-rooted interpersonal relations, have made people
less than optimistic about the ongoing restructuring.
Enormous debts of grassroots
governments
At present, a debt crisis has become the biggest block to deeper
rural reform.
Optimistic estimates put the total debts of township and village
governments now at 600 to 900 billion yuan (US$72.3 to 108.4
billion); other experts say it may well exceed 1 trillion yuan
(US$120.5 billion).
The forming of this enormous debt took no more than a decade.
Since 1994, when China began to introduce a system of sharing tax
revenue between the central and local authorities, township
governments have lost all sources of tax revenue except the
agricultural, industrial and commercial taxes. But they are still
responsible for costly expenditures on hygiene, social security,
compulsory education and wage payment.
For example, to complete the national mission to "basically
spread the nine-year compulsory education by 2000," many townships
in Hubei and Henan didn't hesitate to borrow money to erect new
classroom and dormitory buildings and update facilities for study.
Answering another call of the country, some unrestrainedly took out
high-interest loans to set up rural enterprises. Debt
snowballed.
In fact, many grassroots cadres don't see any need to control
the growth of debt. Showing off new facilities and institutions is
an effective way to add to local officials' political achievements
and consequently curry favor with their superiors. And they won't
be the ones who have to repay the money.
But townships and villages that have had to try to break the
debt chains have found that after auctioning off barren hills, they
are at the end of their resources. It is unfair to expect the
central government to take over this messy business.
Package rural reform plans to be
implemented
China announced last October that as of the end of 2003, its
urbanization rate hit 40.5 percent, with a rural population of
768.5 million. However, according to sources with the National Bureau of
Statistics, in that year the rural population still accounted
for 70.8 percent of the nation's total, or more than 900
million.
The error was made because in the original figure, millions of
migrant workers were counted among the urban population, although
they actually cannot register permanent residence in the cities
where they live and work. The statistical inconsistency was created
by the fact of separate administration in urban and rural
areas.
Currently, although farmers constitute an overwhelming majority
of the nation's population, the ratio of total agricultural output
value to GDP has dropped to merely 14 percent. This issue is even
harder to tackle than the agricultural tax.
Decreasing
Proportion of Agricultural Output Value in GDP
???????
(Source: the National Bureau of Statistics)
During the latter half of last year, 10 task forces dispatched
by the central government investigated conditions at the grass
roots. Based on their reports, within this year top policy makers
are expected to work out long-term guidelines for overall rural
reform.
Key points in rural reform
The new round of rural reform focuses on four main areas:
farmers' income as related to rural taxes and fees, grain
distribution system, rural land system, and social circumstances of
migrant workers.
Farmers' income grew 6.8 percent last year, but growth still
trailed that for city dwellers. The gap between town and country
continues to widen. The income disparity between the urban and
rural populations reached 3.2 to 1 in 2003, up from just 2.5 to 1
in 1998.
Since the hike in grain price in October 2003, grain security
has become a popular topic of conversation. Last year, the nation
continued reforming its grain distribution system, further relaxed
controls over grain purchase and paved the way for a grain market
makeover.
The Rural Land Contracting Law, which went into effect on May 1,
2003, has not substantially protected farmers' rights to contracted
land, with some grassroots governments subcontracting collective
land for profit. An unprecedented number of land disputes occurred
last year, leading farmers whose rights had been violated to swamp
higher authorities with petitions for intervention. Meanwhile, the
plan for reform of land requisition was not announced last year as
planned.
China has more than 150 million migrant workers. Although the
problem concerning defaulted wage payments is being addressed, the
1958 residence registration ordinance that is still in effect
divides people into agricultural and non-agricultural population by
residence, preventing the migrant workers from receiving equal
treatment. No big breakthroughs were made in the population
registration system last year.
(Caijing magazine, translated by Shao Da for
China.org.cn, March 14, 2005)
