International Herald Tribune
China keeps them down on the farm
FRIDAY, MARCH 10, 2006
HONG KONG Necessity as well as good sense lies behind China's decision in its latest five year plan, revealed at the National People's Congress, to play down numerical growth goals and target instead the wealth gap and social and environmental issues. But the new goals look likely to be out of reach without more fundamental policy changes to address rural poverty.

The shift away from numerical targets makes political sense because growth will probably be significantly slower, at least for the next two or three years, than the 9 percent it has averaged over the past five years. There are likely to be significant declines in growth of investment, as recent excesses are reflected in overcapacity and falling profits, and declines in exports, as deficit countries - mainly the United States - finally face up to their trade imbalances.

Labor force growth will also decline and efforts to address environmental problems by reducing air pollution and using less water will cut headline growth rates even as they improve public health and economic sustainability.

The government's own spending plans will also have an impact on growth. First, defense spending, which has few multiplier effects, is rising. Second, more money will be pumped into rural areas - to improve education and infrastructure and, hopefully, raise farm productivity. These investments are seen as socially necessary, but even if they produce the desired results, the returns will only be seen in the long term.

Few inside or outside China doubt that income gaps, particularly between rural and urban populations, have become so wide as to have become a threat to social stability. Abuse of power by local party officials to enrich themselves at the expense of the powerless has exacerbated the political dangers of the wealth divide. Meanwhile, much urban investment has been wasted on prestigious official buildings.

China has the good sense not to try to bolster farm incomes through price subsidies. They make little sense anywhere and can only be afforded by industrialized countries like the United States, Japan and the members of the European Union, where farmers are a small percentage of the work force.

Last year's abolition of taxes on farmers has been a help and funds now promised for rural education will do something to narrow the schooling divide. But the amount of money that a fiscally conservative Beijing now proposes to push into these areas is unlikely to be enough to make a big difference, at least in the more populous of the poor regions.

China's rural answer must be to raise rural productivity, which is indeed the official goal. But land productivity is already high in most of China, a factor reflected in the over-use of water resources. By far the surest way to reduce income disparities is to increase manpower productivity - which can only be done by moving underemployed workers to gainful employment, even at low wages, in the cities. Migration of rural labor has a double benefit, reducing the farm population and creating a stream of remittances back to the rural areas.

Although there is much greater freedom of movement than in the past, local regulations keep rural migrants out of some cities altogether and lack of access to social and educational services for migrant families is a major deterrent. This keeps urban wages, housing and other standards conspicuously high while leaving rural areas near destitution. The favelas of Rio and the slums of Mumbai may be eyesores missing in Shanghai and Guangzhou, but they testify to freedom of movement of people which is still only partial in China. Indeed, though China's urban economy has been growing at double digits, the pace of urbanization has been no faster than that of slower growing India.

China's leaders remain more concerned with keeping its urban residents, and especially those of the major cities, in clover while the peasant majority - which put them into power in the first place - languishes.

The second major change that would raise rural productivity would be to give land title to the tillers. They could then borrow against it to increase mechanization, sell it to raise capital for small businesses, or provide cash to help them get started with a new life in the city. The consolidation of ownership that would result from a free market in land would itself raise productivity.

But no, a party that allows well- placed heads of state enterprises to become billionaires almost overnight and whose officials take land from the cultivators for sale for urban property development nevertheless sticks to its historical "socialist principles" when it comes to farmers and their land. China's ruling party has given a new rural twist to Orwell's fable of the corruption of Communist power, "Animal Farm." Fundamental policy changes, not just tweaks in state budgeting, are needed.