Some experts estimate that the actual income of urban residents is five times as much as that of their rural counterparts. In terms of social status, farmers, who compose the majority of the country's population, are a very vulnerable group. Consequently, China is now faced with the embarrassing situation of having inadequate domestic demand, while vast rural areas lie undeveloped.

Small individual savings

Long-term economic growth and social stability demands that China correct its segregation policy in rural and urban areas and the present socioeconomic structure provides ample opportunities to remove this unequal practice.

At present, primary, secondary and tertiary industries respectively account for 13 percent, 46 percent and 41 percent of the country's aggregate economic volume. This proves agriculture has dropped to third place in China's economic structure. According to official statistics, in 2004, agricultural tax only made up 0.92 percent of state revenues, while in 2005, the gross agricultural output value contributed to by 70 percent of the country's population only made up 13.2 percent of the year's GDP. Agricultural tax is no longer the country's major source of financial revenues.

Under the current system, since tax exemption, relatively developed eastern coastal areas will not enjoy subsidies from the Central Government, but grain-based and economically less developed areas in central and western areas, where agricultural tax was an important pocketbook of local revenues, will be subsidized through the Central Government's transfer payment. In 2005, the Central Government provided a transfer payment of 66.4 billion yuan ($8.3 billion) or so to local governments. In 2006, the Central Government is expected to raise this transfer by 1.5 billion yuan ($187.5 million) after abolishing the agricultural tax, which it can handle with ease after hauling in revenues of 3 trillion yuan ($375 million) in 2005.

In fact, recent years have seen farmers receive increased payouts from the Central Government, up 50 percent from 2002 to 2005. It was clearly put forward by the State Council, China's cabinet, in the National Agriculture Working Conference at the end of December 2005 that the Central Government would gradually increase its financial support to agriculture in the coming years.

At the same time, the State Council determined that since 2006, tuition and fees for the nine-year compulsory education (six years' primary school and three years' junior middle school) will be totally exempted in western provinces' rural areas, a policy that will begin to benefit central and eastern areas from 2007. In the next five years, from 2006, central and local governments will input a total of 218.9 billion yuan ($27.36 billion) to compulsory education in rural areas.

On average, the overall exemption of agricultural tax is not likely to bring tangible benefits to fanners. According to experts' estimation, the tax exemption will relieve farmers of a total burden of more than 100 billion yuan ($12.5 billion) annually. Yet when it is broken down into individual benefits, China's 800 million farmers will only score a savings of 120 yuan ($15) each. A small amount, yet still good news when considering the per-capita cash income of farmers was only 2,936 yuan ($367) in 2004.

Actually, this tax cut is not the most important contribution of the tax exemption policy.

"The significance of the tax exemption does not lie in the burden reduction, but more importantly, it has changed farmers' unequal status in society," said Xu Hongyuan, a scholar from the State Information Center.

According to Wan Baorui, an expert on agriculture and former Vice Minister of Agriculture, the tax exemption has remodeled the country's traditional structure of primary, secondary and tertiary industries and ushered in the era of "industry back-feeding agriculture."

Agriculture had long been a focus of attention in China's ancient agrarian society, but what mattered to the authorities in the past was farmers' productivity, which was the basis of taxes, but not farmers' interests.

"The tax exemption is a reflection of the Chinese Government's concern for farmers' interests and also shows the progress made in this new era," said Zeng Yesong, an expert on agriculture in the Central Party School of the Communist Party of China, a institution for the Party to train high-level officials.

Removing barriers

At the same time, some believe that the agricultural tax abolishment is merely one of the steps to overcome the country's tough problems related to agriculture. Realistically, several other factors remain.