Beijing Invokes FDR's New Deal

What a difference a mere $1.41 can make. To most residents of affluent countries, the figure is minuscule, small change. The same goes for most middle-class residents of China's booming cities. But for rural Chinese farmers, whose $460 average income is less than a third what China's city dwellers earn, it's a very different story. One dollar and forty-one cents drove 20,000 residents of Zhushan Village in Hunan province into the streets last Monday, to violently protest a rise of that amount in bus fares; $1.41 meant life or death to one student, who was reportedly killed in the clash with 1,500 baton-wielding police. Several dozen more protesters were injured. As600 cops continued to patrol Zhushan last Wednesday, a farmer named Sun, who requested anonymity to avoid trouble with authorities, explained why she and others had risked their lives over so small a sum. Their village is remote and desperately poor, she said. "Some men go and work in construction in town, earning just $64 a month for a few months a year," she said. "But my family has no income to speak of. We raise just enough crops to feed ourselves, that's all."

Multiply that predicament by 800 million-plus—the number of rural Chinese—and you can begin to appreciate the problem facing Beijing. Even as the country charts spectacular growth—GDP spiked 10.7 percent last year—China's country dwellers are falling further behind. The rich-poor gap is largely an urban-rural one, and the divide is widening. China's Gini coefficient—a statistic economists use to gauge income inequality—has already reached 0.496, which is worse than in the United States. Anything above 0.40 is considered alarming.

Now President Hu Jintao and Prime Minister Wen Jiabao are accelerating efforts to address imbalances that they inherited in 2003—and which could threaten the regime's stability if unchecked. During the recent 12-day session of the National People's Congress, which concluded last week, the country's leaders made headlines by announcing new measures to protect private property. But equally important were a raft of programs aimed at helping the poor: a 15 percent boost in rural expenditures (to $50 billion) to bankroll guaranteed minimum living allowances for farmers; a waiver of tuition and school fees for all rural students up to ninth grade, and an 87 percent hike (to $4 billion) for the health-care budget. These measures, says Wen Tiejun, an economist at Renmin University, amount to a "total change in strategy [by China's leaders], to focus on the people and the environment" instead of no-holds-barred economic growth.

For several years Hu and Wen Jiabao have extolled "a harmonious society"—namely, one not roiled by conflicts between haves and have-nots. Now they want to put their own stamp on economic policy before a crucial party congress this autumn. Without exaggerating, one could call the campaign China's New Deal; after all, Communist Party strategists have started explicitly evoking President Franklin Roosevelt's Depression-busting agenda, which created big federal programs to cushion the blows of the free market. "They've studied the New Deal and Lyndon Johnson's Great Society enough to see parallels with their own 'harmonious society'," observes one foreign diplomat in Beijing. More to the point, party strategists "have studied even more carefully the collapse of the Soviet Union" and how to avoid it, says a scholar with the Chinese Academy of Social Sciences.

All this represents a big change for China's communist leadership, which for years has seemed to focus on one economic goal—rapid GDP growth—while ignoring the mounting social and environmental costs. Deng Xiaoping, the late architect of China's market reforms, declared, "Let some get rich first," so that others can follow. The rest haven't followed quickly enough, however, and explosive growth left an underclass of hundreds of millions of people earning less than $1 a day. Almost as soon as he became head of the Chinese Communist Party in 2002, Hu began laying the groundwork for a shift away from the get-rich-quick mind-set.

One of Hu's early priorities was abolishing the 2,600-year-old tradition of agricultural taxes; the cut was implemented nationwide by late 2005 and is beginning to pay off. The official number of grass-roots protests in China, euphemistically called "mass incidents," fell from 26,000 in 2005 to 23,000 last year. More important, rural conflicts made up only 21 percent of the total "compared to 60 percent before 2005," says Wen Tiejun, who credits the removal of farmers' heavy tax burden as a big factor in reducing rural unrest.

Still, Hu and Wen Jiabao are racing against time. The longer China's rural poor feel left behind by its economic miracle, the angrier they'll become, as demonstrated by last week's Hunan protesters, who shouted "Beat the government dogs to death!" as they set fire to five police cars. Beijing needs to find a way to create more employment in the countryside as well as in the cities; China will have 24 million job seekers this year—roughly equivalent to the entire population of Malaysia—and will be hard pressed to meet its target of generating 9 million new jobs, predicts Tian Chengping, minister of Labor and Security. "The country faces huge job pressure and a grim market in coming years."

Some of the biggest budget hikes will help fix China's tattered medical care and pension schemes. Prime Minister Wen promised that rural health cooperatives will expand this year to cover four fifths of the Chinese farmers; most still have no medical insurance and spend more than 80 percent of their cash on health care. Many farmers even prefer to die quietly at home rather than bankrupt their families by paying for expensive drugs and hospital stays.

In addition to the new central-government initiatives for the rural poor, authorities are trying to mobilize private-sector involvement as never before. In late 2005, for example, pilot microcredit companies were allowed to set up in the provinces of Shanxi, Guizhou, Sichuan, Shaanxi and Inner Mongolia, with the participation of wealthy local entrepreneurs. This experiment follows the virtual failure of commercial banks and state-run cooperatives to extend credit to farmers and other low-income groups with insufficient collateral for loans.

The new pilot projects aim to make it easier for poor individuals, as well as small and medium businesses, to get loans by allowing them to name a guarantor who agrees to make good on the loan in case of default, says Jiao Jinpu, the top microcredit expert at the People's Bank of China. The new microcredit companies are still fledgling and are registered as commercial small-loan businesses (unlike the Grameen Bank model in Bangladesh, championed by Nobel Peace Prize winner Muhammad Yunus). But already they're helping. In their first year's operation, the two oldest projects, both in Shanxi, issued nearly $9 million in loans and reported zero defaults on interest payments. Wang Zhongfeng, a rough-hewn chicken farmer, returned to the Rishenglong Micro-Credit Co. last week to apply for a second loan, having already repaid last year's 15,000-yuan credit. "It used to take five days of red tape to borrow money from a [state-run] rural credit cooperative," he said, "but here it's more convenient." For one thing, the company delivers cash to its borrowers.

The two Shanxi schemes are funded by local businessmen persuaded by authorities to use their capital to help the rural poor. "Because my coking plant is relatively pollution-heavy, I was looking for something new to invest in," admits Han Shigong, board director of Pingyao's Jinyuantai Micro-Credit Co., Ltd. In a similar vein, a growing number of nongovernmental groups are tapping into the social conscience of private citizens to assist poor farmers. In Hebei province, the private Yanyang Rural Construction College, which has been teaching organic farming and "green" building techniques since 2003, is supported by donations and volunteers. "It's the cities' turn to support the peasantry," says Wang Chunguang of the Chinese Academy of Social Sciences (CASS), "since the peasants supported the cities for so many years in the past."

Beijing also seems to have recently realized that alleviating poverty for rural residents can't happen just down on the farm. More than 200 million Chinese born in the countryside have migrated to the cities to find work in the past decade and a half, and their numbers keep growing. Unfortunately, the supply of unskilled urban jobs hasn't kept pace. Some NGOs have begun training migrant workers for city jobs such as waiting on tables or hairdressing.

Government strategists have decided that the only lasting way to help most migrants is to allow them to become officially registered city dwellers, since arable land is too scarce to support the rural population through agriculture. A number of cities are experimenting with such schemes, but the vast majority of migrants are still compelled to maintain "household registration" back home—in part because the government hopes this will encourage them to return to farming if they can't find city work. That's one reason the highly controversial new law on private-property rights neglects to grant farmers the right to legally mortgage or sell their farmland.

The official fear is that if the rural poor are given the right to sell their plots, tens of millions of peasants could become landless overnight and head to metropolises such as Beijing and Shanghai, turning them into teeming, nightmare cities. The best way to help enliven China's hinterland may be "to allow farmers to organize grass-roots cooperatives so that they can defend their interests in the face of land grabs by unscrupulous developers," says economist Wen Tiejun. Agrees CASS professor Wang, "If farmers' land-use rights are protected, their situation will improve day by day." Empowering poor farmers like this is one way for Hu to show that creating what he calls "the new socialist countryside" really does represent a New Deal, and not just empty slogans.

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