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Beijing Review Exclusive
Special> NPC & CPPCC Sessions 2009> Beijing Review Exclusive
UPDATED: February 22, 2009 NO. 8 FEB. 26, 2009
Will Farmers Spend More?
The government hopes to stimulate rural consumption and purchasing power by offering subsidies on a variety of products

According to a Xinhua News Agency report, Panasonic Corp. believes that participating in the government subsidy plan is a way for international brands to establish roots in the Chinese market. The company estimates that it will sell 3 million washing machines in China next year, a half million more than it expects to sell this year and 1 million more than it sold in 2007.

Enhancing buying power

Although the subsidies for auto and home appliance purchases are intended to stimulate consumption in the country's rural communities, questions remain about farmers' capacities to spend more money given their low incomes. The questions have prompted some economists to raise doubts as to whether the government's measures can achieve the desired results.

"Whether farmers' income will rise fast decides their purchasing power," Jiang Changyun, a research fellow at the Academy of Macroeconomic Research of the National Development and Reform Commission, told Beijing Review.

Farmers' income in China is composed of three parts: salary income from temporary work in cities; agricultural income from growing and selling farm produce, forestry work, stockbreeding and fishing; and transfer and property income, which includes various government subsidies, profits made from the transfer of land-contracting rights, money earned through home rentals and interest income.

Although transfer and property income have increased quickly in recent years, they still account for a small portion of the per-capita net income of farmers, Jiang said. Farmers must continue to rely on their salaries from doing odd job in cities. At present, their salaries account for nearly 40 percent of their annual income and serve as the major impetus for the fast growth of their per-capita net income.

But the risk that they may suffer a drop in income has increased. Company closures and staff cuts triggered by the financial crisis have meant that some farmers who migrated to cities to work in factories have lost their jobs and have had to return home, Jiang said. If this situation cannot be reversed in the short term, the farmers will see their salary income drop during the next one or two years, he said.

The number of unemployed migrant workers in southeast China's coastal areas is increasing and has not yet reached a peak, according to the Ministry of Human Resources and Social Security. The problem is expected to be aggravated in the first half of this year. The ministry has issued a conservative estimate that the number of unemployed migrant workers will surpass 10 million and account for more than 7 percent of the country's total 140 million migrant workers.

"Under the global depression, China's economy will be driven up by domestic demand, while the key point to expanding domestic demand will be the rural market," Jiang said. "If the unemployment of migrant workers cannot be effectively solved, increasing farmers' income will be empty talk, which will be disadvantageous for steady and fast economic growth by expanding domestic demand."

To accelerate the growth of farmers' incomes, an executive meeting of the State Council has put forward a package of measures that will help companies adopt various measures to stabilize employment, arrange jobs for farmers in urban infrastructure construction projects when possible, support migrant workers who must return home and set up businesses, help farmers with businesses to get credit, and grant them tax reductions and exemptions.

The government also will increase direct subsidies for grain production, the use of improved strains, and purchases of farming machinery and agricultural capital goods. Subsidies for these four items totaled 102.8 billion yuan ($15 billion) in 2008 and will be increased by more than 10 percent to 120 billion yuan ($17.57 billion) this year. Direct subsidies to farmers may become a long-term policy in the future.

Jiang believes that despite the low income of farmers, there is more potential to stimulate their consumption, so that the government should create additional measures to improve farmers' purchasing power and invigorate rural spending.

Systematic reform is urgent

Because China's rural population takes up about 56.1 percent, or 737 million, of the national total, the rural market in theory holds huge potential for consumption growth. It also will play a significant role during the process when the country's export-oriented economy is transformed to a domestic demand-driven pattern.

But for the slowing systematic reform, the absolute amount of farmers' income is limited and the income gap between rural and urban residents is increasing. In 2008, the per-capita net income of farmers was just 4,800 yuan ($700), while the per-capita net income of urban residents reached 16,000 yuan ($2,300).

"For quite a long period in the future, without major systematic reforms and major adjustments to the structure of national income distribution, the income gap between urban and rural residents will be further enlarged," Jiang said. "This is also a big problem in restraining rural consumption."

At the beginning of this year, the government declared that the per-capita net income of farmers would be double that of 2008 up to the year 2020. This means that in the next 12 years, the per-capita net income of farmers must increase more than 5.8 percent annually after deducting price factors. But with the global economic recession and domestic economic slowdown, such a goal will not be easy to accomplish.

Jiang pointed out that between 2004 and 2008, the consecutive annual growth of farmers' income surpassed 6 percent. It would be difficult to maintain such a growth rate in the next few years, he added.

Lu Xueyi, a research fellow at the Institute of Sociology of the Chinese Academy of Social Sciences, told Beijing Review that systematic reform is a must to increase farmers' incomes. He said the government first should accelerate the process of urbanization to increase the employment of farmers in non-agricultural sectors. Second, the government should accelerate the reform of the household registration system so that more migrant workers can live in cities, especially large ones, and have the same rights as urban residents. Meanwhile, migrant workers who are facing unemployment should be incorporated into the unemployment insurance and job training systems. Governments at various levels must seriously consider all these actions, he said.

"In stimulating rural consumption and driving up China's economic growth, a key point is to increase rural employment and create more new jobs, so the big machine of the economy can run more efficiently," Lu said. "The process for China to nurture domestic demand is actually a process to develop the rural economy, increase farmers' incomes and advance urbanization."

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