Rural Policy Could Be a Key to China's Economic Overhaul

Article excerpt

Far beyond its plans for opening the economy to market forces, Beijing must also contend with farmland rights and local government finances.

China's Communist Party has burnished President Xi Jinping's plans for an economic overhaul with exultant propaganda about a historic turning point. But the success of his proposals, and the long-term health of the Chinese economy, could rest on policy battles that reach down into thousands of towns and villages over land, money and a misshapen fiscal system that has bred public discontent and financial hazards.

The Communist Party Central Committee under Mr. Xi endorsed a package of 60 overhaul goals, released to the public on Friday, that the government said would propel China closer to becoming a secure, powerful and well-off country by the end of this decade.

The economic goals include expanding the role of markets in energy and natural resources, encouraging private investment in finance and easing state controls on interest rates.

"If the implementation of these reforms is successful, the structures of the Chinese economy and society will change in profound ways," said Eswar S. Prasad, a professor of economics at Cornell University, who was previously in charge of the China division of the International Monetary Fund. "The timeline for accomplishing them is ambitious."

But the Central Committee's decision and Mr. Xi's accompanying statement also dwelled on another set of problems, far from bank headquarters, that could matter just as much for China's economic health: farmland rights and revenues, local government taxes and finances, and chronic shortfalls between many local governments' outlays and the money they receive from the central government.

Mr. Xi spent part of his career as a county official, becoming familiar with the countryside.

He said in a statement accompanying the overhaul goals that the barriers to rural development were among China's biggest worries.

"There has been no fundamental reversal of the constantly growing disparity between urban and rural development," he said in the statement, which was issued through the official news agency, Xinhua.

In many ways, China's rural problems are a knot of issues about land and revenues. Local governments have grown dependent on taking farmers' land for relatively little compensation and selling it to developers for a profit. They have been encouraged to do so because the central government takes the bulk of revenues, while assigning many tasks to local governments that require expenditures.

In China, farmland is, by law, owned by the village collectively, but in practice the land is controlled by the state, giving officials a powerful voice over when to develop land and on what terms.

The central government transfers revenues to local governments, but many town and county officials say the amount is not enough to meet ambitions set by central leaders, economists who study China said. Officials in county and city governments, eager to secure jobs for their constituents and to advance their careers, have also gone into dangerous debt to pay for building and business projects that often use that land as collateral for loans or as a lure for investors. …