The pace of China's rise as a global superpower often amazes visitors, with cities seeming to transform themselves overnight. However, this is only one side of modern China: most rural areas remain overwhelmingly poor. While urban development is undoubtedly important, the development of rural China is a far greater challenge.

The rise of rural-urban inequality in China is a more significant, if less reported, story than the nine percent annual economic growth rates focused on by the media. In 2004, average urban incomes were six times that of rural incomes. This disparity is the highest in the world; tackling this should be China's development policy priority.

Research in rural China illustrates the some of the realities of this inequality:

• The recent book 'An Investigative Report on the Chinese Peasantry' reports experiences in Anhui province, including corruption, violence against villagers, and the illegal extortion of fees and taxes.
• Research summaries from id21 look at unfair taxation and unequal inheritance laws (see id21 summary by Zhang).
• In Henan, at least 25,000 villagers who sold their blood at illegal blood banks were infected with HIV.
• Other rural problems include high primary school non-attendance and dropout rates, inadequate health care and social security, and illegal land occupation.

Recently, the Chinese government has prioritised rural problems. The last two ‘Number One’ documents, which identify key government policies, have focused on rural development and agriculture. The 2004 document announced - to great surprise - plans to abolish the controversial agricultural tax within five years. The government has also promised to provide funding for all children to complete their basic education. Other recent laws tackle a range of rural issues, including village organisation and land management. A law for Protection of Villagers' Rights is currently under discussion. Other government initiatives are having positive impacts, such as wasteland auctions and resettlement schemes (see id21 summaries by Ho and Merkle). Furthermore, rural people are helping themselves through exciting farmer innovations and organisations (see id21 summary by Wu).

These recent developments are encouraging, but important challenges remain. Government legislation to promote people’s rights is important, but awareness of these rights remains extremely low in rural areas; many villagers do not know that their children have a right to nine years of basic education, or that certain fees and taxes are illegal. Even where people do know their rights, it is often difficult to enforce them. While the introduction of village elections could increase empowerment, village governance is often criticised as ineffective.

So how can rural China develop further? There several policy options, but many have potential problems.

• Greater redistribution of money from China's economic growth, through transferring funds to poorer areas, is difficult to facilitate. Wealthier regions resist tax reforms and expect to keep locally generated revenue to meet the growing expectations of their own citizens.
• Urbanisation is a key government policy; the government expects 50 percent of the population to move to urban areas by 2030. However, even if these optimistic targets are realised, it will still leave a rural population of around 800 million people. 
• Remittances are vital for supporting rural livelihoods, but it is unclear if they will continue over time, particularly if households settle permanently in new locations.
• Agriculture presents a policy challenge: how can agricultural incomes increase, when, following entry to the World Trade Organisation, tariffs are coming down for key commodities, leaving some areas uncompetitive and with few alternatives?
• Effective rural development requires coordinated government action, but the large number of separate governance institutions, both within regions and between different levels of government, makes implementing rural participation difficult.
• Local government resources are often limited, especially areas where economic growth is slow.

The challenges for policymakers in promoting development in rural China are daunting. Whether the Chinese government and local organisations can achieve equitable growth, better governance, and effective realisation of rights for rural people, while also managing rural-urban transition, is an unanswered question. Rural-urban inequality is already a source of unrest in China; in worst-case scenarios it could grow and threaten political stability.  Given the size of China, such unrest would have much wider effects. These might include impacts on neighbouring Asian countries and on global security and economic growth. Successful development policies are vital if change in China is to be smooth and peaceful.

Source(s):
'Income inequality in China', Institute of Economics, Chinese Academy of Social Sciences, Beijing, by Li Shi, 2004
'Fifteen arrested in blood selling scandal', China Daily, 14th April 2005
'An Investigative Report on the Chinese Peasantry, Renmin Wenxue Chubanshe, Beijing, by Chen Guidi and Chun Tao, 2004 (in Chinese)

id21 Research Highlight: 26 May 2005

Further Information:
James Keeley
Institute of Development Studies
Falmer
BN1 9RE
UK

Tel: +44 1273 606261
Fax: +44 1273 621202
Contact the contributor: j.e.keeley@ids.ac.uk

Institute of Development Studies, UK

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'Wasteland auctions in rural China'

'Moving out of poverty - resettlement schemes in China'

'How social networks enable new agricultural developments in rural China'

'Men first: inheritance rights and women in rural China'