China to switch urban spending to countryside
(Bloomberg)
Updated: 2006-03-03 13:49

China's government will pump more money into education, health care and road-building in rural areas this year as it seeks to narrow inequalities in the world's most populous nation.

More than 100 billion yuan ($12.4 billion) previously earmarked for urban projects will be switched to the countryside this year, the government said Feb. 22. Finance Minister Jin Renqing will unveil details of spending plans when he presents his 2006 budget at the annual session of parliament Sunday or Monday.

China has run budget deficits every year since 1986, helping drive average annual growth of almost 10 percent over the same period. That expansion hasn't benefited China's rural dwellers, many of whom still live in poverty, prompting Premier Wen Jiabao to make raising countryside living standards a top priority.

``There will be a big change in the structure of the budget by moving funding for the urban sector to the rural sector,'' said Jun Ma, chief economist for Greater China at Deutsche Bank AG in Hong Kong.

The budget shortfall may narrow this year as Wen slows spending on infrastructure in towns and cities as part of a push to curb excessive investment, and as booming economic growth lifts tax receipts. China's tax revenue jumped by a fifth to a record 3.1 trillion yuan last year.

Jin set last year's budget deficit target at 300 billion yuan, about 2 percent of gross domestic product. The deficit will shrink this year, Ma Kai, head of the nation's top economic planning agency, the National Development and Reform Commission, said in comments carried by the China Securities Journal yesterday.

Inequalities

China will also sell fewer long-term construction bonds this year, Ma said, winding down a stimulus that began in 1998 to shield the economy from the Asian financial crisis. The Ministry of Finance may cut bond issues to 60 billion yuan this year from 80 billion yuan in 2005, said Ha Jiming, chief economist at CICC Corp, China's largest investment bank.

Wen is diverting money from towns and cities to rural areas, home to 800 million people, or three-fifths of the population. Average household income in the countryside is less than a third of that in towns and cities and is growing slower.

China abolished the last remains of the national agricultural tax on Jan. 1, aiming to lessen the financial burden on farmers. The nation has 200 million people living below the $1 poverty threshold, according to World Bank 2004 estimates.

Roads, Health Insurance

The central government will spend 125.8 billion yuan more on rural education between 2006 and 2010 than in did during the previous five years, Chen Xiwen, deputy director of the Office of Central Financial Work Leading Group, told the China Youth Daily on March 1.

Almost 5 billion yuan will be provided from central government funds for health insurance for farmers this year, compared with less than 1 billion yuan in 2005, Chen said. Another 100 billion yuan will be spent over the next five years on building roads in the countryside to link villages.

The budget presentation to the National People's Congress won't carry much detail, giving only estimates for the deficit, government revenue and expenditure, and some figures for spending on areas such as education, social security and agriculture.

``The Chinese budget is just like the gross domestic product numbers, it misses a lot of necessary details,'' said CICC's Ha. ``But by comparing the big ticket items, we can still see trends and changes in spending.''