By James Kynge
Much media coverage of rural China remains preoccupied with rustic icons from the past.
Village life is portrayed as sequestered in a bygone age, with farmers trailing water buffalo through postage-stamp paddies and rural labourers trudging home in the twilight from Dickensian factories.
Such scenes can still be found, and in some areas are not uncommon. But they do not reflect changes under way in a rural economy that embraces 720m people. Reforms in rural finance, the monetisation of agricultural land and social welfare appear poised to turn China’s countryside from an indigent backwater to a driver of national economic growth over the next five to 10 years.
Strands of evidence already support this trend. Ding Lei, one of China’s top internet entrepreneurs, announced this year that he planned to invest in pig farms – and broadcast his pigs’ development to prospective consumers over the internet. Goldman Sachs has invested successfully in a leading sausage-maker.
Wahaha Group, China’s biggest beverage company, owes its buoyant earnings performance largely to the rural market, where it commands a 60 per cent share. Rural China has also been a main force this year behind the surging sales of cars with a capacity of under 1.6 litres.
One little-recognised aspect of the rural story is the monetisation of agricultural land – a trend with the potential transformational force to rival the privatisation of the nation’s housing stock from the late 1990s.
Farmland has until recently been a largely inert asset. But since a policy shift orchestrated by Hu Jintao, the president, last year, Beijing has encouraged the sale of land usage rights with a raft of new policies. Research by the China Confidential newsletter and website in the provinces of Hubei, Zhejiang, Jiangsu, Shandong, Henan and Shanxi provinces suggests that transactions are proceeding apace. A new website, Tuliu.com, shows some 4.5m mu – one mu is about 1/15th of a hectare – up for sale.
The transfer of land by small farmers to larger ones or to agro-businesses is spurring the creation of larger, more mechanised and more profitable farms, boosting the sales both of agricultural machinery companies such as First Tractor and farming enterprises such as Zhongpin .
Land monetisation is also taking other forms. In some areas farmers are starting to use land rights as collateral to secure bank loans for new businesses, according to several farmers and bankers, including those at the Agricultural Bank of China and Weifang Commercial Bank. In Zhejiang province, local regulations now permit land usage rights to be assessed as registered capital for new companies.
Thus, the application of a monetary value to land usage rights is creating fertile ground for the spread of financial services to the poorest. Most farmers have never had access to loans but Beijing is backing a flurry of initiatives to change this. To dramatise the point, Wen Jiabao, the premier, recently had an impromptu, televised chat with a somewhat startled, straw-hatted, 67-year-old farmer, Pan Jinmu, who had walked into his local bank in Zhejiang province to get a Rmb5,000 ($732, €499, £461) unsecured loan.
Initiatives are being tested in answer to a call last year by the China Banking Regulatory Commission for more financial services to be extended to farmers. One of these involves insurance companies covering farmers against illness, providing banks with security to lend. Another involves guarantees by a farmers’ neighbours against default; others use houses as collateral.
These moves, plus the rapidly expanding geographical penetration of rural financial institutions, appear poised to underpin a rise in investment and consumer spending.
Already this year the growth rate in rural retail sales has outpaced that in the cities. It remains to be seen if this can be sustained but the rollout of a rudimentary social welfare system – including an ambitious plan to provide healthcare in every village and pension cover for all rural residents by 2020 – might free up disposable income.
Almost unnoticed amid the fanfare and military parades on national day on October 1 was the inception of that rural pension scheme, launched in 10 per cent of China’s 2,488 counties.
James Kynge is editor of China Confidential – www.ftchinaconfidential.com
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