Zhu Rongji

Reform yields meagre harvest

PUBLISHED : Saturday, 09 March, 2002, 12:00am
UPDATED : Saturday, 09 March, 2002, 12:00am


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FOUR YEARS ON, the hopes invested in Premier Zhu Rongji have soured, especially in the countryside.

Mr Zhu looked tired and defeated while he read out his government work report which put the welfare of China's rural poor at the top of the agenda. This time delegates at the National People's Congress only responded with polite clapping.

He had launched himself into an ambitious reform programme in 1998 with a blast of rhetoric. 'Whether there are landmines or an abyss in front of me, I will press on courageously with no hesitation or misgivings. I will do all my best and contribute and devote myself to the people and the country until my last breath,' he had said to wild applause.

In rural China, the disappointment seems particularly acute. As this reporter went to a press conference this week on the new agriculture policies, a petitioner from Heilongjiang, a peasant woman who claims she lost her dairy farm to corrupt local officials, telephoned.

She was in Beijing trying to deliver her appeal directly to the National People's Congress when she was detained. Scuffles and threats from police could be heard in the background as she talked. Before the line went dead, she shouted: 'If I disappear, you will be able to tell the world what happened.'

Peasants remain powerless against local bureaucrats. Mr Zhu had promised to slash state intervention in agriculture and halve the size of the costly bureaucracy.

His top priority was reform of the 'grain circulation system', a sprawling bureaucracy that squanders billions every year.

Peasants are heavily taxed to pay the wages of officials who buy, store and sell grain and cotton at fixed prices. Government control over grain production empowers local cadres to control the land tenure system. They can take away land or tell peasants what to grow in order to meet state planning targets.

Mr Zhu has now become the third premier to try and then fail to push China's agricultural sector closer to the market. He set out to cut subsidies and mandatory targets and to break the state monopolies over the distribution of grain.

China must complete this task if it is to comply with World Trade Organisation requirements. Ideally, China's domestic grain prices would be freed and set by the market. Market forces, instead of central planners, would guide farmer's decisions about what to grow.

Mr Zhu halted state purchases of early spring rice, a low-quality hybrid which was unpopular. Grain was rotting while urban consumers tended to buy tastier imported rice.

His predecessor, Li Peng, had raised state purchasing prices far above those on world markets in order to bring down inflation. This resulted in surpluses so big there was not enough room to store the grain.

By 1998, when Mr Zhu started his reforms, prices were falling and peasants' incomes also fell. Between 1993 and 1998, the average price of grain tumbled 30 per cent, but agricultural taxes, even excluding unauthorised fees, tripled. For four consecutive years, average national peasant incomes stagnated or fell.

Two years ago, villagers had abandoned fields in prime grain-growing areas in Hubei province.

They had to grow grain to sell to the state, but they lost money when they did so. In other areas designated as grain-growing regions, including Jiangxi and Anhui, peasants staged riots against corrupt officials who paid too little for grain and extorted too many illegal taxes. Last year the harvest of wheat, maize and rice fell by 11.5 per cent.

Between 250 and 350 million peasants depend entirely on agriculture for their incomes. Others rely on jobs in townships and villages, and enterprises which went bankrupt when the boom ended in the mid-1990s. Many local governments were left deeply in debt, struggling to pay the wages of local officials.

Despite the gravity of the rural crisis, Mr Zhu has been powerless to force through his most praised reform - halving the size of the state bureaucracy. He even talked of reducing the numbers of township officials by 70 per cent.

After trips to the countryside to see for himself the extent of the crisis, Vice-Premier Wen Jiabao took charge of the agriculture portfolio. In a series of emergency meetings, he thrashed out a number of interventionist policies that effectively reversed Mr Zhu's failed liberalisation effort.

He restored the 'responsibility system' making provincial leaders accountable for meeting state targets for the production and distribution of grain in their districts. The state is now back fixing and enforcing prices through the state grain marketing system.

Mr Wen, who is tipped to take over from Mr Zhu next year, has won a great deal of credit for his efforts. By raising grain prices again well above world market levels, he has helped stem the decline in rural incomes and the fall in grain output. Rural incomes rose 4.1 per cent last year, Mr Zhu reported this week.

Yet Mr Wen still faces the biggest challenge since the break-up of the communes nearly 25 years ago. He unveiled his new reform programme in January, but while the goals are the right ones, no one can be sure if he has the stomach for pushing through the tough choices.

China's leaders continue to believe the priority remains ensuring social stability in the cities, and subsidising state-owned enterprises, rather than the countryside - which means keeping peasants out of the cities. A recent meeting on the household registration system - or hukou - failed to agree on new steps to lift the restrictions that hinder peasants moving to the towns.

No bold initiatives have been outlined to complete China's partial reform of the land tenure system. Peasants cannot own, sell or mortgage their fields, and the 30-year leases they were promised remain in the hands of officials. They have the power to sell the land rights to anybody or to force peasants to grow grain and sell it at whatever price they offer.

The tinkering with the hukou that Mr Zhu initiated during the past four years will continue. Strong resistance by local officials has also thwarted his efforts to replace their unofficial taxes and levies by a uniform tax code. Experiments in Anhui are only being slowly extended to other parts of the country.

Behind these dilatory experiments is a lack of political will. The subsidies inflating the state grain distribution system are only a temporary means to support rural incomes.

Mr Zhu last year admitted the central Government did not have enough money to extend the Anhui tax experiment and finance local education costs. Rural credit co-operatives plundered by local officials to finance many failed commercial ventures also need to be recapitalised.

Peasants, with an average annual income of about 2,000 yuan (HK$1,860), need to be able to borrow money if they are to modernise Chinese farming and make it competitive.

'Give more and take less from farmers' is the watchword of the new agricultural policy which Mr Wen is leading.

Jasper Becker is the Post's Beijing bureau chief