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China to abolish age-old grain tax
By Peter Morris

The grain tax, one of China's oldest institutions, is due to be phased out over the next few years, Premier Wen Jiabao said recently in a speech to the National People's Congress (NPC). Records indicate that grain taxes have been collected for at least 4,000 years, providing the bulk of imperial China's government revenues. Along with levies on textiles, compulsory military service and corvee labor obligations, annual (and sometimes twice-annually) grain taxes have been one of the core responsibilities of people living under the yoke of successive Chinese empires.

In the modern era, emperors have given way to reformers and technocrats. Premier Wen, along with President Hu Jintao and other technocrats representing the Chinese Communist Party's (CCP's) "fourth generation" of leaders, have singled out misguided agricultural policies and rural poverty as the primary factors contributing to China's lopsided economic development.

Beginning this year, the 8 percent agricultural tax rate will be reduced gradually until it is scrapped entirely within five years, with greater reductions for major grain-producing areas and producers. In addition, except for tobacco, the tax on special agricultural products will be abolished altogether as of this year. The move is expected to cut the financial burden on farmers by US$580 million annually.

Dumplings and desertification
Farmers, who still comprise the majority of China's population of 1.3 billion, have for the most part been left on the sidelines of China's economic miracle, as city dwellers have reaped the fruits of the country's booming economy. Rural incomes have risen less than one-fifth as fast as urban incomes, and per capita income for farmers in 2003 averaged $317, compared with $1,000 per year per person for urbanites. The growing income disparity is of deep concern to Beijing, as growing unrest in the countryside has the potential to cause massive instability.

With tax rates currently at 8.4 percent, many grain farmers are barely getting by, and hundreds of millions of farmers have migrated to the cities to work in labor-intensive industries such as manufacturing and construction, leaving rural areas deprived of labor. China's one-child policy and an emphasis on developing cities and towns have also left farmers in the countryside with little room to increase their productivity, and farmers are often poorly compensated for land seizures by local governments working hand-in-hand with developers.

New industrial zones are often constructed on prime farmland, an increasingly scarce commodity in China thanks to desertification, development and ecological degradation. In fact, a rapid decline in arable land over the past few years has sparked fears of severe grain shortages and has led to grain-price increases. This is particularly worrisome in northern China, a region that relies heavily on food derived from grain products as opposed to rice.

Dumplings, noodles and other grain products are the staple of Beijing cuisine, and the capital is also on the frontlines of a hopeless battle against desertification, whereby devastation of the region's surrounding forest cover due to pollution and human settlement has caused Inner Mongolia's arid climate to creep closer and closer to the capital. In fact, Wen disclosed in his speech that rapid industrialization has caused arable land to be reduced from 1.7 billion mu (113.3 million hectares) in the 1990s to 1.4 billion mu this year.

Farmers miss out on grain price hikes
In theory, rising prices for grain and other agricultural goods should benefit farmers. Last year, the prices of many agricultural products jumped by more than 10 percent, according to CNN analyst Willy Wo-Lap Lam. But more often than not, farmers don't enjoy the benefits of rising prices because the state monopolizes distribution and marketing, not to mention the fact that state banks control the vast majority of capital that farmers depend on for loans. In addition, more expensive fuels and fertilizers are cutting into farmers' profits.

Farming experts concede that peasants' margins are being squeezed by state-owned distributors and other middlemen, and that far-reaching structural changes in agrarian distribution and commercial systems - which are largely state-controlled - are needed to correct the problem. With farmers having little say over the price of produce and its distribution, it is no wonder that hordes of young people from the countryside are flooding the cities in search of work.

Both Hu and Wen have gone to great lengths to craft new policies regarding grain, land seizures and rural spending, all of which were outlined at this week's NPC meeting in the form of a 9,000-character document called the "CCP No 1 Document for 2004", devoted exclusively to improving farmers' living standards and boosting agricultural production, a document described by Xinhua news agency as the government's "warm and magnanimous gift" to the nation's 900 million farmers.

Other measures outlined in the document are strengthening research in agricultural science and technology; improving the distribution of farm products; modernizing agricultural operations; strengthening emergency animal-epidemic prevention systems; improving quality standards and systems for inspecting and testing farm products; implementing the "action plan for pollution-free food"; offering vocational training; and finally, providing more information to farmers who are thinking about a career change so as to guide the movement of surplus rural labor. The government also intends to make sure that rural migrants working on construction projects in the city are paid in full and on a timely basis.

Too little, too late?
The government will be the first to acknowledge the complexity of the problem it has on its hands, and analysts are quick to point out that the tax abolition is in essence futile - more of a symbolic gesture with little real impact. Even the state-controlled media have quoted experts reaffirming the idea that the tax move might be too late.

The People's Daily, well known to be the mouthpiece of the CCP, quotes Li Ping, a staff lawyer with the Rural Development Institute in Seattle, as saying, "Even if this agricultural tax policy were fully implemented, the net result would be roughly a reduction of 40 yuan ($5) per farmer per year. Removing the tax will barely impact the gaping income disparity between farmers and urban residents."

Li also pointed out that even after the tax is completely phased out, there is no guarantee that farmers would not be slapped with other fees. Indeed, local officials are notorious for finding ways to demand arbitrary fees and taxes from farmers.

The grain tax, said to have been established as early as the Xia Dynasty around 2200 BC, may be going to way of the dodo bird, but it has left behind an ill-fated class of farmers who have few options but to try their luck in the city or continue producing grain for the state. And now that Beijing has launched a campaign to boost grain output to ensure food security for its huge population, farmers may face new pressures to remain in the countryside and accept whatever grain price the state determines is appropriate in the context of China's quasi-market economy.

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Mar 12, 2004

China's land market creates pressures
(Aug 20, '03)


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