ARE CHINA's peasants really upset? If so, what can be done about it? The incidents of rural unrest reported from several provinces have been a timely warning to the nation's leadership that ultimately it will be judged as much by what is happening in rural Hunan as by the boom in centres such as Dongguang, Pudong and Wenzhou.
The unrest is also a reminder to China and the world that most industrialised nations would have to face the same major dilemma at a critical moment in industrialisation: how to price agricultural products. This has huge consequences for international trade and for the domestic economy.
First, the short-term problem of unrest. From the evidence available, the incidents seem less a result of prices than of abuses by local officials, the imposition of local levies and taxes, or payment for produce by local authorities in the form of IOUs rather than hard cash.
The IOU problem is not new but is exacerbated by double-digit inflation. Because IOUs do not bear interest, delays in cash payments become a form of tax. In other words, the problems are more a result of administrative weakness than of product pricing.
Farm prices and trade have been significantly liberalised over the past two years. The situation varies according to province and locality, but variations have diminished as market forces have gained the upper hand.
The grain subsidy for urban workers was abolished in 1991, bringing prices up to procurement levels. The ration system, while still in practice, has little impact on prices. Procurement prices for grain - the price at which the state distribution systemsbuy from farmers - are roughly in line with free market prices.
