On December 5, China Economic Weekly reported on a special one-month investigation on rural development and the future of Chinese farmers, focusing on the changes the abolition of agricultural tax may make.

The reduction in rural people's tax burden was announced by Premier?Wen Jiabao?in his government work report to the?National?People's Congress?in March and aims to improve the living standards of farmers, many of whom have been left behind by China's rapid economic growth.

According to the National Bureau of Statistics (NBS), from 1979 to 1994 agricultural tax collected 1,300 billion yuan (US$162 billion), during which time the government invested 370 billion yuan (US$46.3 billion) in rural areas.

At the end of this period, farmers' annual tax burden totaled 81 billion yuan (US$10 billion), 5.2 times more than that in 1979.

In recent years, farmers have contributed around 15 to 30 percent of GDP, and though each farmer creates nearly 25,000 yuan (US$3,100), their income is less than 10,000 yuan (US$1,250) on average.

"The household contract responsibility system with remuneration linked to output can only resolve the problem of food and clothing and under the current situation it cannot promote further development," Cai Fang, director of the Institute of Population and Labor Economics told China Economic Weekly.

Many could return to poverty

Since 1978, millions of rural people in China have been helped out of poverty, but though many are now fairly comfortable, with enough food, clothing and even some extra money, they are still in a vulnerable position where natural disasters or health costs could push them back.

The NBS said that from 1997 to 2004, rural people's annual income growth was less than 5 percent and was slowing.

In 1996, the rate was 9 percent and this dropped to 4.6 percent in 1997and 4.3 percent in 1998. In 1999 it was 3.8 percent and in 2000 2.1 percent.

It rebounded to 4.2 percent in 2001, 4.8 percent in 2002, 4.3 percent in 2003 and 6.8 percent last year, which China Economic Weekly said was due to tax cuts.

China Economic Weekly said the income gap ratio between urban and rural residents was 3.3 to 1 in 2003, even before various benefits available to urban residents were taken into account.

At the end of 2003, according to the NBS, the number of extremely poor people had fallen to 28.2 million, and the number of rural people whose basic needs were met but who were still vulnerable was 58.25 million, 6.2 percent of the rural population.

The Ministry of Finance said the gradual abolition of agricultural tax from next year would benefit more than 800 million rural people as their economic burden would drop 40 percent.

A 2004 China Economic Weekly survey of Jiangsu Province farmers' income found the highest income area to be Suzhou Industrial Park, where the average annual income was 7,800 yuan (US$951) and the financial burden 18 yuan (US$2.2). But in the lowest income area, Guannan County, the average annual income was 2,650 yuan (US$325) and the burden 42 yuan (US$5.2).

Chen Xiwen, deputy director of the Communist Party of China's Leading Group of Finance and Economy, said: "The abolition of agriculture tax and reduction of farmers' financial burden is only an ancillary method. In order to really deal with the problem, we should find new income growth opportunities for farmers."

Lack of investment

According to NBS figures, investment in agriculture in 1996 was 8.82 percent of GDP and in 1997 it was 8.30 percent. Because the huge flood of 1998, it leapt to 10.69 percent, but fell to 8.23 percent in 1999 and 7.75 percent in 2000.

In these five years, GDP increased 121 percent from 740 billion yuan (US$90.75 billion) to 1,638.6 billion yuan (US$201 billion), whereas investment in agriculture increased 75 percent from 70 billion yuan (US$8.6 billion) to 123.1 billion yuan (US$15.1 billion).

On January 30, the government issued an important document that said its focus would shift from "enhancing farmers' income growth" to "improving the overall production capacity of agriculture."

"During the past 50 years, resources from rural areas were sent to cities," Ren Dajun, director of Beijing Dajun Economic Observation and Research Center, told China Economic Weekly. "In many places, resources have left and insufficient investment remains."

Lin Yifu, Peking University professor and rural development expert, said rural residents constitute 58.2 percent of the population, and even if per capita annual income reaches US$3,000 in 2030 this figure will still be 30 percent.

In many places, the outflow of capital is very serious, and China Economic Weekly reported it reached 60 to 70 percent of all rural capital.

"The government should increase investment in rural areas year by year," economist Xiao Zhuo said, adding that the ratio of investment should be 9 to 10 percent of GDP and the government should emphasize rural public infrastructure construction.

Rural public infrastructure

Lin said: "In the past, the government did not pay enough attention to the construction of rural public infrastructure. It can help resolve the problem of an overabundant labor force and increase farmers' income and living standards."

According to China Economic Weekly, China has the widest income gap between urban and rural areas in the world: a ratio of 3.24 to 1 in 2004. However, Qiu Xiaohua, NBS deputy director, said the ratio could be as high as 6 to 1.

Cai said there are two ways to increase rural people's incomes: to improve productivity and to adjust industrial structures.

Despite the positive effects of abolishing agricultural tax, Chen said it also meant less revenue for rural local governments since in 2004 agricultural taxes raised 125 billion yuan (US$15.3 billion).

He said local governments might have to reduce personnel and restructure themselves to help make up the shortfall.

"Governments at all levels could collect 95 billion yuan (US$11.7 billion) from other sources, but that would still leave 30 billion yuan (US$3.6 billion)," he said.

(China.org.cn by Wang Ke December 13, 2005)