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Rural Finance Needs Solid Mechanism
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Transforming the nation's vast rural area into a "new countryside" requires all-out efforts from the Chinese government. Of these new efforts, a huge increase in fiscal support is not only what farmers most need, but also what policy-makers are best placed to deliver.

The newly published No 1 Document of 2006 on rural revival, the third of its kind since 2004, has made clear the central government's resolution to increase spending on the rural sector.

Details will not be available until the unveiling of the country's economic plan at next month's National People's Congress. But the government is already committed to spending more on rural development than the previous year.

Such an endeavor has distinguished this national campaign from the one during the 1980s when the central government devoted five "No 1 Documents" to facilitating agricultural development.

Rural productivity was considerably raised to narrow the emerging urban-rural development gap during the early years of China's economic take-off.

Yet, after more than two decades of industrialization-driven economic expansion, the urban-rural divide is widening again to such an extent that it has threatened the country's pursuit of balanced and sustainable development.

Nowadays the country's farmers earn on average only one third of what their urban peers make, not to mention the far better education, health care and social security city dwellers enjoy.

The gaping urban-rural divide cannot be fully bridged in a single stroke. It will take many years to establish the infrastructure high-efficiency modern agriculture needs. We need to first plug the gap from further growth, before working to narrow it.

To this end, generous fiscal support is a quick solution, and possibly an effective one.

In terms of reducing farmers' financial burden, the Chinese government has already achieved some results by gradually abolishing agricultural tax since 2004. A total scrapping of this tax will be carried out across the country this year.

Such a tax cut alone is not enough, as only a fraction of income has been saved for the average farmer by this decision. But it signals a significant change in the focus of the country's tax and fiscal policies. The country has decisively shifted from the decades-old practice of accelerating urban growth at the cost of rural development.

It is time to let industry feed agriculture, and let urban areas support rural ones. A drastic adjustment in the focus of fiscal input should herald other changes.

Only when government-funded infrastructure is put into place will investors follow to seek business opportunities in rural areas. Only when rural health and education are upgraded with ample public spending can farmers get ready to raise their productivity.

The double-digit growth of the country's tax revenues, which topped 3 trillion yuan (US$370 billion) last year, has made fiscally possible a substantial increase of government expenditure on the rural sector.

Moreover, the nationwide consensus on the urgency of building a better-off rural sector also helps tilt the fiscal policy in favor of farmers.

When lawmakers gather in Beijing to review and approve the central government's new budget in a few days, a larger share of public spending for the rural sector will be a sure bet. That should be welcomed.

However, one thing lawmakers need to carefully examine is whether a long-term mechanism to ensure strong fiscal support for sustainable rural development has been brought into form.

The other thing they should pay no less attention to is whether adequate measures have been taken to address low-efficiency in use of public funds by local governments.

(China Daily February 24, 2006)

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