Farm Accountants

10-17-2008

While the rest of the world is fixated on the biggest financial meltdown since the Great Depression of last century, it may seem odd that the highest decision-making body of the Chinese Communist Party (CCP) has been holed up for four days talking about farmers. There is, however, an important connection.

With Chinese exports expected to slow dramatically as the world economy contracts, the country’s leaders want to boost domestic consumption by spreading China’s newfound wealth beyond the cities – where it has created breathtaking modern architecture and a new class of millionaires – to the still-impoverished countryside, where two-thirds of the population continues to live.

According to the National Bureau of Statistics (NBS), the country’s total population was 1.32 billion at the end of last year. Of the total, the rural population was 727.5 million, accounting for more than 55%. This percentage could be much higher if the nearly 200 million rural migrants working in cities were taken into account. But consumption of farmers was small compared to their large population.

The whole country’s retail sales, a measurement of consumption, totaled 8.92 trillion yuan ( US$1.3 trillion) in 2007, up 16.8 % from the previous year. Retail sales in cities were up 17.2% to 6.04 trillion yuan, accounting for 67.7% of the total, while retail in rural areas was up 15.8% to 2.88 trillion yuan, or 32.3% of the total. Not only was the total sum of consumption much smaller, but growth of consumption in rural areas was also 1.4 percentage points slower than that in cities.

This is mainly because farmers made much less income than urban residents and growth of farmers’ income was also much slower. Figures from the NBS show that an average farmer’s income was 4,140 yuan (US$606) in 2007, up 9.5% from the previous year. By comparison, an average urban resident’s income was 13,786 yuan, up 12.2%. The average income in cities was 3.3 times that of farmers, though a farmer’s income does not include grain and other foodstuffs grown for family consumption.
State media reports and comments by scholars and other analysts have said that, for the first time, farmers will be allowed to freely dispose land-use rights, including selling them or using them as collateral to borrow loans from banks. In other words, a farmer will be able to capitalize on the farmland he has contracted from the state on which he has hitherto been restricted to farm.
It could speed up industrialization and mechanization of agricultural production as small pieces of farmland currently contracted by households could be merged into bigger farms to boost efficiency and productivity.

In this regard, Xu Xianglin, an economics professor with the Central Party School said at a Xinhua online forum that the major goal of the party’s new policy was to achieve “sizeable” production in agriculture and facilitate urbanization. “A farmer who sells his farmland will no longer be a farmer,” he said.
Xinhua stated: “The global credit crisis freezing up the world’s finances may be a blessing in disguise for China as it aims to modify its economic structure after three decades of breakneck growth.”

In the end, Beijing hopes that as demand for Chinese exports falls in the global economic downturn, an economically liberated countryside will be able to boost domestic consumption, making up at least some of the deficit.

But tight restrictions will remain on the sale of farmland as the country strives to maintain a minimum of 120 million hectares of arable land to assure agricultural self-sufficiency. As Xu put it, the policy is more aimed at modernizing agricultural production than privatizing farmland.

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