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Rural market failing to spur domestic demand
2002-08-20
Business Weekly
China's rural market has failed to stimulate domestic demand, despite its huge potential consumer base.
Analysts say that situation won't soon change because farmer's income growth has slowed, they have heavy financial burdens and there are various irregularities in the market.
Many scholars have urged rural residents, who make up more than 80 per cent of China's population, to purchase the country's excess goods.
China's consumer price index, a major indicator of deflation, dropped 0.9 per cent in July. That downward spiral began in November.
China has more than 900 million rural residents, or more than 200 million rural families. However, officials say about 100 million of those people are living and working in urban areas.
Average possession of durable commodities remains very low among rural residents.
In 2000, there were 54.4 colour televisions, 13.6 refrigerators and 29.9 washing machines per 100 rural families. That is about equal to the possession level in the mid- 1980s among urban Chinese.
China would form a huge domestic market to consume its excess production if it could spur rural residents' spending.
Farmers' spending, however, has been limited by inadequate income growth.
Rural residents' incomes rose 4.2 per cent last year, much less than the 7.8 per cent growth of urbanites' incomes.
In addition, rural residents' meagre income growth occurred after having been frozen for four years, leaving farmers with few financial options.
Farmers' incomes have at the same time been affected by decreasing crop prices and increasing urban unemployment. Their financial burdens - including taxes and various government fees - have remained the same.
Many local governments continue collecting these fees to improve their financial positions, despite being urged repeatedly by the central government to reduce farmers' burdens.
The central government has asked local governments to adopt a fee-to-tax policy to help them balance their books.
Farmers in many regions lose 30 per cent of their incomes - about 2,366 yuan (US$285) per capita in 2001 - to taxes and fees.
That was a bit more than one-third of urbanites' average incomes - about 6,860 yuan (US$827) - for the same period.
Farmers must also purchase various production materials such as seeds and fertilizer, taking another bite out of their disposable incomes and subsequently their ability to purchase consumer goods.
Farmers' spending is also affected by conditions in rural areas. They are less likely to buy electrical appliances, for example, because rural communities have inadequate power supplies, tap water and television transmission signals.
Farmers pay higher electricity fees compared with urban residents. They must also pay for much of the infrastructure, such as roads and drainage lines, which governments provide to urbanites.
Many farmers are also afraid to buy durable goods because they often cannot tell the difference between legitimate and counterfeit products.
Counterfeit goods, often called fakes, have inundated China's rural areas. Farmers, therefore, are not likely in the short term to spur domestic demand.
Analysts estimate farmers could produce 235.6 billion yuan (US$28.4 billion) worth of demand for every 100 billion yuan (US$12 billion) they spend on goods.
Farmers' consumption, as indicated by the figures, is vital if China is to maintain healthy economic development.Governments must spur farmers' spending by increasing their incomes and reducing their financial burdens.
The central government must increase spending in rural areas, which will help ease farmers' burdens and create jobs.
The State must reduce farmers' taxes and fee burdens, and spend more to increase rural productivity.
But most important, governments must repeal prejudiced policies that make it difficult for farmers to live and work in cities, and have equal status with urbanites.
Rural residents are not likely to immediately stimulate internal consumption, as these measures are long-term solutions to the problem.
Yan Xianpu is an economist with the National Bureau of Statistics.
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