VZCZCXRO2547
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0750/01 0630044
ZNR UUUUU ZZH
P 030044Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 5408
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 000750 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EAGR PGOV EFIN SOCI CH
SUBJECT: MORE ATTENTION ON THE RURAL SECTOR:  WILL IT BE ENOUGH? 
 
REF: (A) CHENGDU 20 
(B) 07 BEIJING 1081 
(C) 07 BEIJING 1615 
(D) 06 BEIJING 5874 
(E) 06 BEIJING 24338 
(F) 06 BEIJING 11704 
(G) BEIJING 588 
(H) BEIJING 303 
(I) BEIJING 573 
 
SUMMARY 
------- 
 
¶1. (SBU) Beijing-based rural experts say the State Council's 2008 
Number One Document, which identified rural issues as the Central 
Government's top policy priority for the fifth year in a row, 
signals the leadership's continuing concern about the urban-rural 
income gap and restates the case for additional funding for rural 
areas in advance of the March session of the National People's 
Congress (NPC).  The 2008 Number One Document's more comprehensive 
approach is appropriate, the observers said, but there remains 
concern about the efficiency of funding for rural areas.  The recent 
snowstorm highlighted rural infrastructure deficiencies as well as 
the failure of local governments to take care of migrant workers, 
they said.  Our contacts uniformly stated that inflation will be a 
top economic concern during the upcoming NPC session.  END SUMMARY. 
 
URBAN-RURAL INCOME GAP:  A SOCIAL STABILTY CONCERN 
--------------------------------------------- ----- 
 
¶2. (SBU) The National Bureau of Statistics (NBS) drew attention to 
the growing urban-rural income gap on January 24, when it announced 
that urban per capita incomes increased by 12.2 percent in 2007 to 
an average of RMB 13,786 (USD 1907), but rural per capita incomes 
increased by only 9.5 percent to RMB 4140 (USD 572).  It was the 
tenth year in a row that real urban incomes increased faster than 
rural incomes, and the 2007 per capita GDP figures reflected that 
urban incomes are now 3.33 times that of rural incomes -- up from 
2.47 times greater in 1997.  The urban-rural gap is increasingly 
worrisome because of its potential impact on social stability, said 
Wen Tiejun, Dean of the School of Agricultural Economics and Rural 
Development at People's University. 
 
¶3. (SBU) In a People's Daily op-ed on February 15, Han Jun, Director 
of the Rural Economy Department of the State Council's Development 
Research Center, wrote that the Central Government must redouble its 
efforts to bolster the country's agricultural sector in order to 
address the income gap.  In practice, however, provincial officials 
and researchers maintain that rapid urbanization is the most 
effective solution (Ref A).  Regardless of the proposed solution, 
the growing income disparity has attracted increasing media 
attention.  For example, a Xin Jing Bao (Beijing News) article on 
January 2 focused on the problem, headlining that the city of 
Guangzhou's GDP is now 10 times that of Qinghai Province. 
 
NUMBER ONE DOCUMENT:  THAT TIME OF THE YEAR AGAIN 
--------------------------------------------- ---- 
 
¶4. (SBU) Seeking to address the urban-rural income gap, the Central 
Government announced on January 30 that rural development would be 
its top policy priority for the fifth year in a row, stating in the 
Number One Document that strengthening rural infrastructure would 
follow the previous rural-focused themes of modernizing agriculture 
(2007), promoting the New Socialist Countryside (2006), improving 
agricultural production (2005), and increasing farmers' incomes 
(2004) (see Ref B).  Chen Xiwen, Vice Minister of the State Leading 
Group for Financial Affairs, said during a press conference 
following the announcement that the Central Government will increase 
its budget for the countryside from RMB 391.7 billion (USD 50 
billion) in 2007 (approximately 14 percent of budget expenditure) to 
RMB 520 billion (USD 72.8 billion) in 2008 (see Ref C). 
 
¶5. (SBU) Part of that increase apparently will provide additional 
funding for the Rural Cooperative Medical System (RCMS), as the 
Ministry of Finance announced on February 15 that the government's 
contribution to the RCMS would double this year from RMB 40 (USD 
5.60) per farmer to RMB 80 (USD 11.20) per farmer (see Ref D).  Du 
Xiaoshan, Deputy Director of the Rural Development Institute at the 
China Academy of Social Sciences (CASS) said that improving health 
care and other social services in rural areas would be a critical 
component of this year's budget allocation. 
 
¶6. (SBU) Contacts agreed that the 2008 Number One Document does not 
contain any significant new initiatives and is a continuation of the 
Central Government's rural reforms that were launched in 2006 as the 
New Socialist Countryside (Ref E).  Wen Tiejun noted that this 
year's Number One Document reemphasizes the long-term nature of 
rural reform in China, as the leadership recognizes it will take 
 
BEIJING 00000750  002.2 OF 002 
 
 
many years of comprehensive reforms to achieve results.  Zhang 
Xiaoshan, Director of the CASS Rural Development Institute, agreed, 
stating that while there are no new policies in the 2008 Number One 
Document, it is important to continue to promote rural reform and 
invest in the rural sector in order to achieve more balanced 
development. 
 
BUDGETING 101:  IS THE MONEY MAKING A DIFFERENCE? 
--------------------------------------------- ---- 
 
¶7. (SBU) Zhang reiterated his long-held concern, however, that 
budget expenditures for rural areas are managed inefficiently (Ref 
F).  Funding for rural areas continues to be divided among too many 
Central Government ministries and levels of government in the 
provinces, Zhang said, and too much of the expenditure supports 
water projects that provide greater benefit to residents of urban 
areas.  Professor Wu Qing, Board Member of the Beijing Cultural 
Development Center for Rural Women and a Deputy in the Haidian 
District People's Congress, told Econoff that the Central 
Government's budget supervision measures for New Socialist 
Countryside funding are inadequate.  Central Government leaders 
don't want to listen to criticism of the budget for rural areas, she 
said, as they only want praise for increasing the funding.  In any 
event, given the persistent development challenges in the 
countryside, the Central Government will need to continue to 
increase funding for rural areas by 15 percent per year for at least 
10 years, stated Wen Tiejun. 
 
CLASH OVER RESOURCES:  CENTRAL VS. LOCAL 
---------------------------------------- 
 
¶8. (SBU) With limited budgetary resources and with the elimination 
of the agricultural tax in 2005, the Central Government and local 
governments continue to wrestle over resources, Wen said (Ref G). 
In particular, Beijing's edicts on preventing the conversion of 
rural land to non-agricultural uses continue to be ignored by local 
leaders who earn a significant portion of off-budget revenue from 
land takings, stated Wen.  Li Ping, who represents a U.S.-based NGO 
in Beijing, said land policy will again be a major issue at the 
March session of the NPC both for protecting food security and 
ensuring social stability in the countryside, but he does not 
foresee any major policy changes.  Conflicts over land remain a 
major cause of social instability, Li said (septel to follow on land 
conversions and their impact on stability). 
 
SNOWSTORMS HIGHLIGHT SYSTEM'S SHORTCOMINGS 
------------------------------------------ 
 
¶9. (SBU) Our contacts all said that concerns about the urban-rural 
gap are more acute this year because of the recent snow storms in 
southern China (Ref H).  Wu Qing said she hopes the snowstorm will 
help highlight rural infrastructure concerns during the upcoming NPC 
session.  Zhang said the Central Government's lack of preparation 
for the storms and poor execution of the relief effort underscores 
the government's inability to deliver services in rural areas.  Wen 
Tiejun said the plight of rural migrants waiting in train stations 
to go home for Chinese New Year further illustrates the urban-rural 
gap, noting that are few support systems for rural migrants. 
 
COUNTERING INFLATION:  A CONCERN ON TWO FRONTS 
--------------------------------------------- - 
 
¶10. (SBU) Rural observers stated that inflation will remain a top 
economic concern during the upcoming NPC session.  The Central 
Government is worried that rising food prices, which led to an 
increase in the CPI of 4.8 percent in 2007 and 7.1 percent 
year-on-year in January 2008, will create more widespread discontent 
in urban areas if prices cannot be brought under control. 
 
¶11. (SBU) Our contacts expressed also concern that inflation 
currently is higher in the countryside (5.4 percent in 2007) than in 
cities (4.5 percent) (Ref I).  The impact of inflation on real rural 
incomes is a key concern when assessing the urban-rural income gap, 
said Wen Tiejun, particularly since higher transportation costs make 
prices harder to control in rural areas.  If rural income gains 
ultimately are lost to inflation, the government will be faced with 
an even greater stability problem in the countryside, Wu Qing said. 
 
RANDT