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15/10/2008 | China - The Party Plenum and the Urban-Rural Gap

Stratfor Staff

The global economic slowdown has forced the Communist Party of China Plenum to split its focus between rural reform and maintaining growth on its coast in a bid to stave off China’s own economic and political crisis.

 

Originally set to focus on Hu Jintao’s rural reforms, the Communist Party of China Plenum — the annual event where the party presents its most recent internal discussions which closed Oct. 12 — had to shift its focus to include the domestic effect of the global economic slowdown.

This shift in emphasis highlights Beijing’s ongoing rural-urban dilemma. If the central government cannot appease its rural population while maintaining growth in coastal regions, Beijing faces not only an economic crisis, but also growing social instability that could portend a political crisis.

The key rural reforms to be discussed involve extending land rights to farmers. Stratfor sources have said that this discussion will revolve around extending farmers’ 30-year land “leases” to 70 years; giving farmers more “private” property rights (the state ultimately still owns all land); and a creating transparent land transfer market, which has been plagued by corruption from local officials transferring agricultural land without the consent of farmers. Assuming that more secure land transfer rights encourage smaller farmers to sell off or lease their plots, restructuring smaller plots of land will also come under consideration. Such reform would create more efficient industrial farming operations with a greater area for larger and more profitable agricultural ventures. Another focus will be on the creation of urban areas in the interior, hopefully spurred by farmers moving off their land and into towns, where they could form their own consumer markets and thus boost economic demand.

These reforms are designed to address China’s rural-urban wealth gap and to propel the domestic economy. The rural population, which makes up a little less than two-thirds of the country, has not benefited from the economic boom of the coast or the social benefits allocated to its urban counterparts. Despite China’s growing middle class on the coast, rural reform is necessary for helping both social stability and domestic consumption by boosting confidence and cash in rural areas. Although domestic consumption has been growing in China, approximately 36 percent of the country’s gross domestic product is still generated by its export industry, which is concentrated on the coast.

To remedy this, Beijing must restructure China’s interior to create a more inviting environment for investment and growth. To this end, the proposal for larger industrial farms would pool agricultural capital, making it more efficient. The establishment of urban centers would allow more efficient distribution of social benefits to a larger swathe of the population. Both of these measures are aimed at boosting domestic demand and expanding the economy — an economy that ideally will not be so dependent on its export sector — in addition to addressing a major source of potential social and political instability.

At present, China is performing a very delicate balancing act. Its focus is split between two very powerful interests: approximately 750 million rural citizens who are dissatisfied with the growing wealth gap and are a potential source of rebellion, and a growing middle class concentrated on the coast that does not want to see its revenues dry up. Chinese peasants are the Party’s historic foundation, and Hu has tried to reinvigorate rural reforms to expand his own power base. Keeping the rural population appeased is instrumental for economic growth, social stability and the preservation of Party rule.

But the global economic slowdown is forcing the Communist Party of China to revise its original emphasis on rural reform. Depending on the scope of the current global crisis, rural reforms might turn out to be a symbolic gesture, used to appease the masses while China is compelled to focus on growth concentrated on the coast to ward off unemployment, as well as to quell dissent from migrants and its urban population.

The international economic environment thus has split Beijing’s focus between rural reform and maintaining coastal growth. Ultimately, neither subject will receive the full attention of the government as it throws less money at U.S. Treasury bills, and more at these domestic hotspots in a bid to deflect its own economic and political turmoil.

Stratfor (Estados Unidos)

 


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