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Cablegate: More Attention On the Rural Sector: Will It Be Enough?

VZCZCXRO2547
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0750/01 0630044
ZNR UUUUU ZZH
P 030044Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 5408
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC

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

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