Rural China Offers Big Opportunities, Too

Departing Chinese Premier Wen Jiabao recently urged his China leadership not to pursue an policy that neglects the needs and wants of China’s significant rural population. According to the Wall Street Journal, Mr. Wen underscored how important it would be for China “to consistently apply scientific principles, to steadily push forward targeted policies, and to coordinate with rural modernization and the establishment of a new countryside.” Wen also remarked that China, “cannot sacrifice rural industry and the interests of rural residents.” Wen has been widely credited with helping lift many rural Chinese citizens out of poverty through a number of targeted policies, including removing agricultural income taxes previously imposed on farmers.

To be sure, still has large pockets of poverty and deprivation. Still, many of China’s agrarian communities have undergone an undeniably radical transformation over the past 20 years. In the 1980s, and even the early 1990s, rural life focused on farming, and it was a hard existence: most people were grindingly poor and lacked basic amenities, including decent schools and health care, paved roads, and a reliable power supply.

Fast-forward two decades and life is much better. Nearly everyone has access to electricity, about 95 percent of towns and 80 percent of villages have paved roads, and some 96 percent have access to basic health care. Incomes remain low, relative to those in the city: average disposable income per person amounts to RMB 5,000 ($760), which is about one-fifth of the income in tier 1 cities. On the other hand, incomes are on the rise. In 2005, average income was $407. Four years later, it was $845 — a 20 percent compound annual growth rate. And while only 34 percent of the rural population earned more than $882 per year in 2009, this proportion is expected to reach 54 percent in 2015.

A major contributor to this increase in living standards is the diversification of employment. Farming practices in rural China have improved marginally over this period. And farmer incomes have only inched up slightly. But rural China is now about forestry, fishing, construction, and the production of bricks and cement. This is expected to continue as the Chinese government, even as it promotes urbanization, also undertakes a substantial and sustained effort to reinvest in the rural communities — to promote growth and social harmony.

For example, in our book we tell the story of Farmer Liu. She is a 58 year-0ld farmer who has seen a dramatic increase in household income as a result of the factory job her son has and the retail earnings of her daughter in law.

Our analysis shows that by the year 2020, the combined consumer markets of China and India will amount to some $10 trillion annually. Approximately $6.2 trillion of that spending will occur in China — $1 trillion of which will occur in rural towns and villages (with the other $5.2 trillion in China’s numerous booming cities).

Although China’s major current focus is urbanization, there is a significant effort on the part of the Chinese government to reinvest in the country’s rural communities, too. On the face of it, the rural population seems to offer limited interest to companies, as people increasingly migrate to cities. In China, we calculate that the rural population will fall from 53 percent of the total in 2010 to 45 percent in 2020, with rural households’ share of the country’s disposable income falling to about 15 percent, down from 25 percent today.

But the rural markets have pockets of rising wealth. Underpinning the transformation of both the urban and rural communities are two revolutions in China: one relating to infrastructure, the other to agriculture. With respect to the latter, there is no doubt that major changes are required in the years ahead, especially those that can help China meet rising urban food demand while also improving the incomes of farmers and rural residents. Specifically, China will hopefully continue to pursue:

• Enhanced education and technical training;
• Improved investment in rural infrastructure, farm mechanization, and irrigation;
• Improved R&D in advanced crop science and new farming techniques;
• Continued land reform to enable formation of more productively sized farms;
• Rural job creation in nonfarm sectors to diversify the income stream; and
• Greater use of information technology and mobile communications to empower farmers.

The good news is that many of these changes are already afoot, and Mr. Wen’s legacy will likely include an historic surge in newly affluent citizens across China’s full landscape both rural and urban.


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