With rural reform included as a top priority in the country's recently released five-year plan (2006-10) blueprint, many people are talking about a massive campaign to tap the vast rural market.

The Chinese economy is now growing by more than 9 percent annually thanks to strong investment growth and, in particular, an unprecedented explosion of the trade surplus.

But domestic energy and resource constraints and increasing international trade disputes have convinced most Chinese economists and policy-makers of the necessity to turn to the domestic market. A huge income gap between the urban and rural areas has led many of them to pin their hope on the much under-developed rural consumption market.

Some economists have even predicted that once farmers begin to loosen their purse strings, emerging overcapacity in many domestic industries will no longer be a problem.

Living standards for the country's about 768 million farmers are much lower than those of their urban cousins who, on average, earn as much as four times the former.

Under such circumstances, efforts to boost rural consumption and thus raise farmers' living standards are not only economically viable but also morally admirable.

Of course, to this end, the government must first do a lot to significantly fatten rural incomes. The central government's plan to scrap agricultural tax across the country by 2006 is just one such effort.

Last year alone, the tax burden on the countryside was reduced by 30 billion yuan (US$3.7 billion). And a big harvest and strong supportive policies have, for the first time in a decade, lifted the income growth rate of farmers up to that of urban residents. That is a remarkable beginning to narrow the yawning urban-rural income gap.

However, this encouraging trend is losing its momentum with prices in rural areas climbing.

A latest report from the Ministry of Commerce confirms the acceleration of rural consumption. In the first nine months this year, the growth rate of rural consumption reached 11 per cent, only 3 percentage points lower than urban consumption. A year ago, that difference was 4.7 percentage points.

Nevertheless, the growth of consumer prices in rural areas has exceeded that in urban areas for 29 months continuously since April 2003.

It is reported that the price of some domestically produced chemical fertilizers had increased by 143 yuan (US$17.60) to 1,948 yuan (US$240) per ton in a year by September.

Increases in the price of the means of production and of living costs are already biting into farm incomes. It is estimated that the former type of price increases have practically wiped out the 40-billion-yuan (US$4.93 billion) farm subsidy provided by the government.

If prompt action is not taken by the government to help farmers deal with price hikes, all hopes of turning the vast rural areas into a huge domestic market will remain unfulfilled.

But this does not mean the government should step in to check price increases.

What the government can do is to help farmers better organize themselves into group purchasers who can strike a good bargain with sellers from the industrial sector.

The more urgent task for the government is to quickly translate into reality the new five-year plan that promises stronger investment and financial support for agriculture and the rural areas and better government services to farmers.

(China Daily November 1, 2005)