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Brett Zhu

Introducing China’s Next Economic Frontier: Rural Farmers

(via Bigstockphoto)

As they made their debut, China’s new leadership laid out a promising vision of the future for the world’s second largest economy, but may face difficulties making that vision a reality.

New Premier Li Keqiang unveiled a plan during a National People’s Congress press conference: 10 million rural residents will move to cities each year, joining the existing 260 million migrant workforce. He remarked, “I used to live in the countryside, and I know the biggest dream of a villager is to live a life similar to those of people in towns. It used to be an extravagant dream.” The reasoning behind his plan is that urbanization is supported by industrialization, and as more and more rural residents move to towns, they will find jobs in factories. As a result, a great migration will reshape China as it further industrializes.

But if these millions of migrant workers could find good jobs in their villages, would they sacrifice so much to work in towns? Would the mayor of a small town in America tell his recession-afflicted constituents to move to another city? For a rural resident in China, even a US$3,899 net annual income is attractive, but will China be able to fulfill these new job seekers’ demands each year?

These are pressing concerns. Though the ruling Communist Party is made up of high-status individuals, the rural poor make up a large proportion of China’s population. Many urgent societal problems involve rural residents: for example, China’s long-standing, controversial hukou system requires everyone to register as either an urban or a rural resident and places corresponding restrictions on the kinds of education and medical care to which they are entitled.

Over the past few decades, agricultural laborers haven’t benefited from China’s rapidly growing economy; on the contrary, as the income gap between the rich and the poor has increased, farming has come to be regarded as a low-paying, low-prestige profession. Without full consideration of how to improve life for the majority of Chinese, whose interests have long been neglected, policies intended to reform the financial system and steer the country back in the right direction will not solve anything.

Cities losing their lustre

Back to 2005, World Bank leader Paul Wolfowitz visited a small village named Dongchuan in Gansu Province, China. He asked villager and farmer Ma Sheba what he wanted his two boys to do when they grew up. Villager Ma replied: “I hope they can go to college and stay in the city.” Sensing the American’s confusion, Ma added, “They will have better lives in towns.” Wolfowitz pressed, “You don’t think they could live better if they do farm work?”

“The empty streets of Beijing and Shanghai during the Spring Festival may be a glimpse into the future for two of China’s greatest cities.” (via Bigstockphoto)

Over the past decade, China has developed industrially and urbanized at an incredible rate. Many rural residents have ventured into the cities and found work in labor-intensive manufacturing, which has caused a number of problems. The resulting de facto two-class system has been a source of social instability. Transportation, the environment, and education have all been affected.

Rural residents have become accustomed to discrimination and second-class treatment as they pursue their dreams, but if they cannot afford housing and healthcare, and if their children are not allowed to receive a quality education, they may decide to leave the cities where they may have lived for many years.

Now, as more and more migrant workers are leaving the cities, it is causing yet another problem: a labor shortage. As people leave, even top notch companies cannot recruit enough workers. The empty streets of Beijing and Shanghai during the Spring Festival may be a glimpse into the future for two of China’s greatest cities.

Birth of the “family farm” and death of the city village

The upside is that the government has realized that finding the source of the problem is more critical. A new concept called “the family farm” was brought up in this year’s No.1 Central Document. The thrust of the document was to encourage more people to stay on farms, and to attract investment, absorbing and guiding scattered funding in agriculture. With 6,670 pilot projects in operation, China is seeking out more ways to stimulate the economy. Additional policies on funding, tax subsidies and insurance are due to be rolled out as well.

Chinese is experiencing pressure from inflation: two-thirds of all stock market value has been wiped out during the past five years, and the huge shadow banking problem has yet to be resolved. One major cause of this problem is that both private and sovereign capital requires a reliable source of economic growth. Since capital injection in the real estate and automobile industries cannot serve this purpose forever, could decision makers consider agriculture?

An app to manage Goldman Sachs’s hog breeding plants might be a worthwhile investment. The key is to find a reliable method that will benefit the rural poor. In the past, taking advantage of the rural poor was often the method of choice. Well-known economist Wu Jinglian revealed during the 2013 China Development Forum that during the past several decades, government has earned 30 trillion RMB from urbanization by buying cheap from villagers and selling high to developers.

The frustrations of microfinancers

Microfinance, as the major source of development assistance in rural China, offers one of the best solutions to global poverty. However, it has never been favored by the finance industry because of its low rates of return and the high cost of due diligence. There are 6,000 microfinancers in China, but seldom are they willing to provide loans to the rural poor who desperately need them.

In 2006, Casey Wilson and Courtney McColgan, two American girls who met while studying at Tsinghua University in Beijing, started a nonprofit called Wokai. Through their website, they connected contributors from around the world with entrepreneurs in rural China to help them start small businesses. Unfortunately, they had to terminate the business due to fundraising difficulties, although they were able to raise US$100,000 and successfully helped hundreds of Chinese poor before they shut down.

Taobao, China’s e-bay, also announced that it would suspend its microfinancing business earlier this year. Since the Ali Group is considering an IPO, it was deemed reasonable for the group to focus on businesses with higher returns. Their “Bank for the Poor” lasted for five years.

Since 1978, China’s national wealth has grown to 300 times its former amount, but at the same time, 9,000 times the currency has been printed. Inflation has made  30 of today’s renminbi equal to just one RMB from 1978.

The extensive pattern of economic growth could help China achieve its 2020 goal of doubling average income, but will the average Chinese feel the increase in purchasing power? Urbanization may help China maintain an 8% GDP growth rate, but will China’s rural poor notice? These are issues China’s leaders must ask themselves if they hope to strike at the roots of the problems they face.

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Brett Zhu

Serving as a regional manager with a Chinese company, Brett takes charge of business exploration in the Middle East and East Europe. He can be reached through LinkedIn
  • http://www.weibowatcher.com/ WeiboWatcher.com

    Good read Brett.

  • China Newz

    With rising wages in China, Vietnam and India will be seen as alternatives to outsource factory work, which could mean less work for migrant workers. If this happens, some may have to return to farming occupations. With that said, if the Chinese government brings in new technology to help farmers, won’t this benefit them and make them more productive? Couldn’t this improve their standard of living?

    • SAP

      Yeah, the problem, I mean how to develop rural poor’s life is unavoidable, need to find a way out eventually.