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UNCLAS SECTION 01 OF 02 BEIJING 006365 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV SOCI CVIS CH
SUBJECT: MIGRANTS, MICROFINANCE, AND MEAT -- SHANXI'S RURAL 
DEVELOPMENT CHALLENGES 
 
REF: (A) 06 BEIJING 24338 
(B) BEIJING 5578 
(C) CPP20070921456001 
 
SUMMARY 
------- 
 
¶1. (SBU) Professors and students at Shanxi Agricultural University 
in Central China said on September 25 that rural development in the 
province is based on non-farm income, local microfinance models have 
been disappointing, and the province's residents are paying close 
attention to inflation.  Local governments are providing subsidies 
to offset rising food costs and maintain social stability in Shanxi, 
but students so far have been relatively quiet about the price 
increases.  END SUMMARY. 
 
TRAVEL TO SHANXI 
---------------- 
 
¶2. (SBU) Econoff and Conoff traveled to Shanxi Province September 
24-25.  Emboffs visited the Shanxi Agricultural University (SAU) in 
Taigu (one hour's drive east of Taiyuan, the provincial capital) 
where they discussed rural issues with professors and students. 
Econoff also delivered a speech on United States-China economic 
relations, and Conoff presented information on the student visa 
process to approximately 300 students.  SAU celebrated its 100th 
anniversary in August and has had a long-term teacher exchange with 
Oberlin College in Ohio. 
 
NON-FARM INCOME IN SHANXI'S NEW COUNTRYSIDE 
------------------------------------------- 
 
¶3. (SBU) Zong Yingsheng, President of SAU's College of Economics and 
Trade, said that rural development in Shanxi, as in the rest of the 
country, remains a long-term endeavor.  The province is implementing 
the Central Government's New Socialist Countryside policy (Ref A), 
as local governments seek to improve farmers' livelihoods.  As in 
other provinces, the best means to increase rural incomes is 
non-farm income, Zong said.  On average, agricultural income 
accounts for less than 20 percent of income in rural Shanxi, with 
the remainder derived from wage labor in urban and rural areas. 
(Comment:  The national average for wage labor as a share of rural 
income is between 50 and 60 percent.  Shanxi's much higher rate 
(approximately 80 percent) is primarily due to the province's role 
as a major coal producer, as many farmers seek work in the mines. 
End Comment.) 
 
RURAL FINANCE, FARMER COOPERATIVES, AND LAND REFORM 
--------------------------------------------- ------ 
 
¶4. (SBU) SAU professors lamented that recent rural finance projects 
in Shanxi have not been as successful as advertised.  With large 
commercial banks already having pulled out of the countryside, and 
Rural Credit Cooperatives (RCCs) largely unable to provide financial 
services, rural watchers had hoped that new microfinance initiatives 
in Pingyao, a Shanxi city known as the cradle of modern Chinese 
banking for its role as the home base for 19th century credit 
houses, would benefit farmers.  Professors said, however, that early 
returns from Pingyao, where two private financial institutions were 
authorized to extend small loans to farmers under a microcredit 
pilot project launched by the People's Bank of China (PBOC) in five 
provinces in 2005, suggest that the microfinance model has not been 
as successful as hoped. 
 
¶5. (SBU) Far more successful have been informal efforts by farmer 
cooperatives to pool their resources and provide small loans to 
members, the professors said.  They acknowledged that China's rural 
finance opportunities are constrained by a land policy that does not 
allow farmers to use their land as collateral for loans, but they 
reiterated concerns heard in Beijing and elsewhere that conditions 
in the countryside are not ripe for land reform.  If market-based 
land transactions were permitted, they said, there would be 
significant risks both for ensuring food security, with the 
potential for transfer of land from agricultural to non-agricultural 
uses, and protecting farmers' social welfare, as land serves as a 
form of social security in the absence of a developed pension 
system. 
 
ADDRESSING FOOD INFLATION IN RURAL SHANXI 
----------------------------------------- 
 
¶6. (SBU) Professors said they are concerned about China's recent 
spike in inflation (Ref B), and they added that farmers, unlike 
shopkeepers and middlemen, are not benefiting from rising food 
costs.  In particular, the professors said they see inflation as a 
 
BEIJING 00006365  002 OF 002 
 
 
potential threat to creating a harmonious society in Shanxi.  The 
provincial government has taken a number of measures to contain 
inflation, they said, including offering subsidies to the poor to 
offset rising costs. 
 
¶7. (SBU) SAU professors did not have exact figures on the value of 
short-term subsidies to counter rising costs.  A September 25 
article in the Beijing City News (Xin Jing Bao), however, reported 
that Beijing Municipality has provided RMB 20 (USD 2.67) per month 
for the past five months to 230,000 low-income city residents in 
order to offset the inflation problem. 
 
QUIET COMPLAINTS BUT NO UNREST IN CAFETERIA 
------------------------------------------- 
 
¶8. (SBU) Students, many of whom are from poor rural backgrounds, 
said they also are concerned about rising food costs, noting that 
many dishes on the cafeteria menu (especially meat dishes) increased 
from RMB 3 to RMB 5 between the spring and fall semesters.  They 
said, however, that there have been no dining hall boycotts at SAU 
as there have been at other schools (Ref C), and they do not 
anticipate unrest in the near future.  American English teachers 
from Oberlin College echoed these sentiments, telling Emboffs that 
they have not heard any complaints about prices in the university 
cafeteria. 
 
RANDT