Of the many divides partitioning Chinese society, perhaps none is as stark or systemic as the rift between urban and rural residents.
Last year, the 760 million citizens living in Chinese cities earned nearly three times as much disposable income as their 590 million peers in the countryside. In many cases, that number was much higher. Beyond money, however, registered urban homeowners have access to social services and benefits — including health care and public education — that all but a few rural residents do not. Perhaps the most important advantage, though, is the effective right to own and sell real estate.
Over the past two decades, that right has driven the greatest wave of wealth creation China has ever seen. But for all intents and purposes, rural residents have been excluded from sharing in the spoils — no small matter for a country whose government rose to power on the back of a dispossessed and rebellious peasantry. Yet even now, after years of calls for reform and numerous local efforts to enact it, measures that will be crucial to improving the economic prospects of China’s farmers and migrant workers remain stuck in their initial stages. And though the government is working steadily to reform the system, overcoming countless obstacles will take time.
On one hand, the lack of progress is surprising. After all, measures such as hukou and rural land reforms are universally seen as critical first steps to solving many of China’s biggest and thorniest problems, including rural-urban inequality, sluggish consumption, lagging agricultural modernization and speculation-driven property markets. (Hukou reform would increase labor mobility nationwide by making it easier for rural residents to move to the city, while rural land reform would expand farmers’ land ownership rights and give them a means to generate money.)
On the other hand, stalls are to be expected since the reforms themselves could give way to problems that are just as vexing. For instance, Beijing fears that substantially relaxing its hukou restrictions will send new migrants flooding from the country to cash-strapped cities that are unequipped to house, employ and educate them. Though rural residents have powerful incentives to hold onto their land, the fear of rural to urban migration is understandable. The government’s concern is that deep hukou reforms might decimate the Chinese countryside as people flock to opportunities in urban areas, causing sharp declines in food production in the process. Beijing also worries that creating rural land markets too quickly — that is, without first building the legal and political infrastructure needed to adequately protect rural landowners’ rights — could lead to more unrest than land expropriation does now.
The ways that rural reforms could go disastrously awry are legion. Then again, the gains they could bring if successful, especially for China’s gradual transition to an economic growth model based on urban consumption, would be enormous. But for China’s leaders, who are concerned first and foremost with protecting employment and stability, the risks easily outweigh the advantages — at least for now.
This is not to suggest that China’s rural reforms have come to a standstill. In lieu of bold, sweeping changes — a style the government has never preferred — Beijing has implicitly and explicitly encouraged local policy innovations that could eventually serve as a model for broader change. For instance, although the outright sale of rural land is prohibited, many localities have allowed farmers to transfer their land use rights to businesses in exchange for a small rental fee and monthly salary. (Those rights, contracted by the state, typically grant each household the use of between 1 and 1.5 acres for 30 years.) In doing so, the farmers’ land use rights are preserved. This also creates a path toward the creation of larger, more efficient agribusinesses that require more land to take advantage of economies of scale.
Yet the system is far from perfect: Weak legal protection often reduces the incentive to rent large swaths of land, and some businesses have even abandoned their contracts, to the farmers’ detriment. But even through its flaws, the transfer system has given central planners important information about the type of problems that might emerge — and the legislation that will be needed to preclude them — when rural land markets are built.
So far, the most ambitious experiment has taken place in Chongqing, a province-sized city in southwest China and the former power base of disgraced politician Bo Xilai. Over the course of a decade, the local government launched a series of trial measures aimed at smoothing rural residents’ path toward urban residency and expanding access to social welfare programs for those who wish to stay in the countryside. Chongqing had also tried to up the supply of affordable urban housing for rural migrant workers and create a system of “land ticketing,” which essentially allows farmers to sell their land for agricultural or industrial development. The central government, and particularly Finance Minister Lou Jiwei, has praised Chongqing’s efforts.
But the experiment has not been without difficulties. City officials struggled to build enough affordable housing units to meet demand. And questions remain over how — and whether — Chongqing will be able to pay for its newly established urbanites to enjoy the services and benefits other residents have come to expect. These challenges, and those facing similar reform efforts, are reminders of the complexity of closing the gap between China’s urban and rural citizens. Public pressure to address the inequity has not let up, however, as evidenced by the recurring outbreaks of unrest in the countryside in response to land expropriation.
It is clear, though, that the nationwide reforms China’s rural residents seek will be impossible to enact until Beijing rebalances the country’s fiscal system. Specifically, the central government must address the fact that local governments’ share of tax revenue is not enough to meet the costs of funding infrastructure development and urban social services. Without a solid financial base and the motivation to manage their money responsibly, local governments will lack the resources they need to absorb large inflows of people from the countryside.
Beijing has vowed to provide cities with both, but like so many of its ambitious promises, the central government has yet to follow through. The upturn in Chinese housing markets has temporarily pulled Beijing’s attention away from making progress on fiscal and local finance reforms, but as the country’s property markets settle back into a steady decline, the question of rural reform and the fiscal measures it depends on will regain its historical sense of urgency.
-STRATFOR COMMENTARY
https://www.stratfor.com/analysis/china-building-its-future-credit?id=be1ddd5371&uuid=c190e925-58f5-4cd9-bf88-046447dc5a99