Cablegate: Migrants, Microfinance, and Meat -- Shanxi's Rural

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UNCLAS SECTION 01 OF 02 BEIJING 006365

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV SOCI CVIS CH
SUBJECT: MIGRANTS, MICROFINANCE, AND MEAT -- SHANXI'S RURAL
DEVELOPMENT CHALLENGES

REF: (A) 06 BEIJING 24338
(B) BEIJING 5578
(C) CPP20070921456001

SUMMARY
-------

1. (SBU) Professors and students at Shanxi Agricultural University
in Central China said on September 25 that rural development in the
province is based on non-farm income, local microfinance models have
been disappointing, and the province's residents are paying close
attention to inflation. Local governments are providing subsidies
to offset rising food costs and maintain social stability in Shanxi,
but students so far have been relatively quiet about the price
increases. END SUMMARY.

TRAVEL TO SHANXI
----------------

2. (SBU) Econoff and Conoff traveled to Shanxi Province September
24-25. Emboffs visited the Shanxi Agricultural University (SAU) in
Taigu (one hour's drive east of Taiyuan, the provincial capital)
where they discussed rural issues with professors and students.
Econoff also delivered a speech on United States-China economic
relations, and Conoff presented information on the student visa
process to approximately 300 students. SAU celebrated its 100th
anniversary in August and has had a long-term teacher exchange with
Oberlin College in Ohio.

NON-FARM INCOME IN SHANXI'S NEW COUNTRYSIDE
-------------------------------------------

3. (SBU) Zong Yingsheng, President of SAU's College of Economics and
Trade, said that rural development in Shanxi, as in the rest of the
country, remains a long-term endeavor. The province is implementing
the Central Government's New Socialist Countryside policy (Ref A),
as local governments seek to improve farmers' livelihoods. As in
other provinces, the best means to increase rural incomes is
non-farm income, Zong said. On average, agricultural income
accounts for less than 20 percent of income in rural Shanxi, with
the remainder derived from wage labor in urban and rural areas.
(Comment: The national average for wage labor as a share of rural
income is between 50 and 60 percent. Shanxi's much higher rate
(approximately 80 percent) is primarily due to the province's role
as a major coal producer, as many farmers seek work in the mines.
End Comment.)

RURAL FINANCE, FARMER COOPERATIVES, AND LAND REFORM
--------------------------------------------- ------

4. (SBU) SAU professors lamented that recent rural finance projects
in Shanxi have not been as successful as advertised. With large
commercial banks already having pulled out of the countryside, and
Rural Credit Cooperatives (RCCs) largely unable to provide financial
services, rural watchers had hoped that new microfinance initiatives
in Pingyao, a Shanxi city known as the cradle of modern Chinese
banking for its role as the home base for 19th century credit
houses, would benefit farmers. Professors said, however, that early
returns from Pingyao, where two private financial institutions were
authorized to extend small loans to farmers under a microcredit
pilot project launched by the People's Bank of China (PBOC) in five
provinces in 2005, suggest that the microfinance model has not been
as successful as hoped.

5. (SBU) Far more successful have been informal efforts by farmer
cooperatives to pool their resources and provide small loans to
members, the professors said. They acknowledged that China's rural
finance opportunities are constrained by a land policy that does not
allow farmers to use their land as collateral for loans, but they
reiterated concerns heard in Beijing and elsewhere that conditions
in the countryside are not ripe for land reform. If market-based
land transactions were permitted, they said, there would be
significant risks both for ensuring food security, with the
potential for transfer of land from agricultural to non-agricultural
uses, and protecting farmers' social welfare, as land serves as a
form of social security in the absence of a developed pension
system.

ADDRESSING FOOD INFLATION IN RURAL SHANXI
-----------------------------------------

6. (SBU) Professors said they are concerned about China's recent
spike in inflation (Ref B), and they added that farmers, unlike
shopkeepers and middlemen, are not benefiting from rising food
costs. In particular, the professors said they see inflation as a

BEIJING 00006365 002 OF 002

potential threat to creating a harmonious society in Shanxi. The
provincial government has taken a number of measures to contain
inflation, they said, including offering subsidies to the poor to
offset rising costs.

7. (SBU) SAU professors did not have exact figures on the value of
short-term subsidies to counter rising costs. A September 25
article in the Beijing City News (Xin Jing Bao), however, reported
that Beijing Municipality has provided RMB 20 (USD 2.67) per month
for the past five months to 230,000 low-income city residents in
order to offset the inflation problem.

QUIET COMPLAINTS BUT NO UNREST IN CAFETERIA
-------------------------------------------

8. (SBU) Students, many of whom are from poor rural backgrounds,
said they also are concerned about rising food costs, noting that
many dishes on the cafeteria menu (especially meat dishes) increased
from RMB 3 to RMB 5 between the spring and fall semesters. They
said, however, that there have been no dining hall boycotts at SAU
as there have been at other schools (Ref C), and they do not
anticipate unrest in the near future. American English teachers
from Oberlin College echoed these sentiments, telling Emboffs that
they have not heard any complaints about prices in the university
cafeteria.

RANDT

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