Cablegate: Chongqing Goals for Balanced Urban-Rural Development

DE RUEHCN #0229/01 2880943
R 150943Z OCT 09



E.O. 12958: N/A

REF: A) 2007 CHENGDU 129, B) CHENGDU 163

CHENGDU 00000229 001.2 OF 002

1. Summary: As one of only two pilot areas in China working to
reduce the economic imbalance between urban and rural citizens
(ref A), Chongqing Municipality -- where rural residents account
for 70 percent of 33 million inhabitants -- is focusing inter
alia on reforming the social security, land use, and rural
banking and finance systems, Chongqing Development and Reform
Commission (CQDRC) officials said. County-level experiments
include offering apartments in lieu of farmland, providing
preferential policies for new businesses, and establishing
agricultural cooperatives. Land use rights are being relaxed to
allow farmers to convert land into shares of cooperatives, and
rural "hukou" or residence registrations are being gradually
reclassified as "urban" to reap social service and insurance
benefits. UK banks HSBC and Standard Chartered have received
approval to operate at the county level in order to expand rural
finance. End Summary.

Urban-Rural Coordinated Development and Reform
--------------------------------------------- -

2. Chongqing Municipality's second ten-year development plan,
begun in 2007, focuses on making Chongqing an important "pole
for growth" in western China and becoming the economic center of
the upper Yangtze River area, CQDRC Deputy Director Shen
Xiaozhong told Consul General on September 22. Key to these
goals is accelerating urban-rural reform to reduce disparities
between urban and rural areas. The State Council thus announced
in 2007 that Chongqing Municipality, with a 70-30 split between
rural and urban among its population of 33 million, was to
become one of two pilot areas (along with Chengdu and six
million rural inhabitants in its environs) for "Urban-Rural
Coordinated Development and Reform."

3. In January 2009, the State Council issued further guidance to
Chongqing, recommending the municipality focus on settling
migrants from the Three Georges Dam (90 percent complete),
develop modern agriculture to boost development of a "new
socialist countryside," accelerate transformation of old
industrial bases, develop a modern service industry, develop an
inland open economy, accelerate infrastructure development,
strengthen resource conservation and environmental protection,
improve public services, and promote scientific and
technological progress and independent innovation. Specific
areas mentioned by the State Council for reform in Chongqing's
urban-rural systems include public budget and revenue, "hukou"
or residence registration, land use and management, social
security, rural banking and finance, and administrative
management and government operations.

Reform Experiments in Three Counties

4. CQDRC Senior Chief of Reform and Coordination, Chen Jihong,
offered examples of pilot urban-rural reform projects being
carried in three counties. In Jiulong County, an economically
backward area close to the main city, the government is
experimenting with urbanizing rural residents by relocating them
to a centralized community, where they can obtain a
government-built apartment in exchange for their farmland. In
Dianjiang County, the government is experimenting with reforming
farmers' land use rights in order to develop an agriculture
product base and develop tourism, offering preferential policies
for farm laborers who return from coastal areas to start their
own businesses. In Liangping County, farmers are being
encouraged to form farmers' specialized cooperatives (nongmin
zhuanye hezuoshe) to focus on specific agriculture areas such as
aquaculture and orchard production. Longer-term, those living
in rural areas will be gradually moved from the mountains to the
plains, and later become urban residents, Chen explained.

Expanding Farmers' Land Use Rights

5. At the Chongqing Academy of Social Sciences (CASS), Deputy
Director Zhang Bo elaborated on attempts to reform farmers' land
use rights under the urban-rural reform plan. Previously, he
said, farmers had only the right to use or rent their land.
Under the reforms, farmers will also be able to sub-contract out
land, as well as obtain a mortgage loan, or form a business by
transforming land value into shares. In the latter case,
farmers can form land use cooperatives (tudi hezuoshe), Zhang
said, becoming shareholders of the co-op by using land value as
shares. These co-ops, once established, can attract outside
investment for future development. Zhang offered examples
including Chongqing's Organic Vegetable Production Base and
Fruit Production Base.

Improving Social Security: Calling Rural "Urban"
--------------------------------------------- ---

6. Due to the imbalance in development between urban and rural

CHENGDU 00000229 002.2 OF 002

areas, China's social security system is also not well
implemented in rural areas, CASS Section Chief Xu Yuming added.
With financial support from the central government, Chongqing
plans to accelerate the process of improving the social security
system and promote reform of medical insurance and insurance for
the elderly. To achieve equal coverage for both urban and rural
residents, the Chongqing government plans to gradually redefine
those currently classified as rural according to their "hukou"
(residence registration) as "urban," as those classified as
urban enjoy higher insurance coverage and public services. This
cannot be done all at once, however, due to the enormous costs
of expanding services to the entire rural population, she said.

Opening County Financial Markets to Foreign Banks
--------------------------------------------- ----

7. To increase rural financial activity, CQDRC Deputy Director
Shen said that Chongqing is working to open up financial markets
at the county level and allow foreign financial institutions to
operate. HSBC and Standard Chartered have already received
approval in two counties (ref B), though no American bank has
yet received approval, he said. To date, some 52 domestic
financial institutions have won approval from the Chongqing
government to set up county level banks. These banks will
provide farmers with easier access to small loans. At the same
time, small-scale commercial loan operators are also being
allowed to provide private capital to farmers. This method is
not only flexible, convenient, and efficient, but will also
create additional job opportunities, Shen said.

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