October 23, 2008


Farmers may insulate China from global financial crisis


Although the effects may not be apparent in the near-term, the decision by China's government Sunday to relax rules on land-use contracted to farmers may hasten modernisation of farming in China and spur the incomes country's rural population as it transitions from an export-oriented economy to a domestic one.


The announcement of the new rural growth policy at the conclusion of the third plenary session of the party's 17th Central Committee could help create China's second phase of breathtaking economic growth, analysts said.


The current financial crisis, which affected China's exports and recent announcements that China's economic growth has slowed has indicated to authorities that the country's heady economic growth in past years could soon end. Even though the economy is still growing at an enviable 9-percent, it is the first drop in five years and longer since it dropped from double to single digits. 


By boosting farmers' incomes, China's government would allow the rural population to take up the slack as growth of the economic engine slows down, analysts said. 


An average farmer earns US$606 a year, while those in the cities earn three times as much as those in the city.


According to the National Bureau of Statistics, retail consumption in the cities for 2007 is RMB 8.92 trillion, compared to the countryside at  RMB 2.88 trillion even though the latter's population is three times as large. 


Analysts say the Chinese government's recent move to allow greater flexibility in deciding land-use, including the right to sell land titles, would spur consolidation of farmland and hence more efficient farming. Farmers who sell their lands also free up cash to plough into the economy.


By improving farmers incomes, the government would be spurring consumption in the rural areas and hence help the Chinese economy reduce its dependence on exports.


That goal is one reason why the general aim of new rural reforms set by the just-concluded party plenum is to double farmers' income by 2020 from the current level, analysts said.


Although the details have yet to be publicised, it is understood that China's farmers would soon be able to buy and sell agricultural land or use them as collateral to obtain loans for farming.