There's a consumer down on farm, but he can't buy

PUBLISHED : Monday, 06 March, 2006, 12:00am
UPDATED : Monday, 06 March, 2006, 12:00am

The mismatch of a vast population and weak domestic consumption has long been a headache for mainland officials and economists.

The idea that China has 1.3 billion people and so there should be a market for 1.3 billion pairs of jeans does not work as the majority of the people still live in the countryside with low incomes and poor access to commodities.

When painting a rosy picture of GDP growth, economists often point to the worries that growth is mainly investment-led - most of it being propelled by the huge government investment in infrastructure as well as the private sector's investment in property and business.

Domestic consumption remains wobbly and stimulating domestic demand has topped the government agenda.

It is clear that the key lies with the rural market, which represents about 60 per cent of the population. Officials hope that by stimulating rural consumption, the economy may shift to a healthier growth based more on the domestic market.

According to Liao Jiancheng, director of the market construction department of the Ministry of Commerce, despite representing two-thirds of the population, rural people contribute just one third of consumption.'The average daily consumption of farmers is less than six yuan. The focus, the key and the difficulties of expanding the domestic market demand all lie with the countryside,' he has said.The idea behind all major rural policies is to boost rural spending by cutting financial burdens and raising incomes for farmers. Earnings off the land for farmers are minimal because of the continuously rising cost of fertiliser, pesticide, seedlings and machinery.

Most of the cash income for farmers actually comes from working as manual labor in cities, and instead of spending that money on consumer goods, rural dwellers save it to build houses, send children to school or meet health costs.The government has promised to ease the financial burden on farmers by scrapping agricultural taxes, setting aside money for rural health and education and subsidise machineries and small irrigation works. Investing more in the countryside will be the dominating policy for the coming years as the government has kick-started a socialist new village movement in a bid to close the widening urban-rural wealth gap.

However, Ha Jiming, chief economist at the China Investment Capital Corporation, said it was 'wishful thinking' to boost rural consumption as an engine for economic growth as farmers' incomes remained low.

He said: 'The government has used all these policies such as tax policies, subsidies and they are all one-off policies and what are the other methods left?'

While accelerating urbanisation may be a way out, many economists are increasingly wary about the rising numbers of landless farmers whose plots have been acquired in the process of urbanisation but have failed to secure a means to earn a living in the cities.

Distribution of commodities also remains a leash on rural consumption as farmers simply have no access to the goods.

The government is trying a three-year programme to subsidise supermarkets or grocery stores in the countryside.

Under the programme launched by the Ministry of Commerce last year, authorities will pay firms to 'modernise' or set up rural supermarkets or stores.

In what is described by local media as an attempt to build a rural Wal-Mart, the government is hoping to set up 250,000 outlets, covering 70 per cent of the 38,000 towns and half the 680,000 villages.

A Ministry of Commerce official said 1,150 businesses were in the programme and 77,000 supermarkets or groceries stores in 777 counties have been set up or converted from small stores.

But Mr Ha said it remains questionable if these stores could thrive if rural consumption power remained weak.