When the Peoples Republic of China was founded it was mainly a country of peasant farmers. Sixty years later, the Chinese communists are obsessed with companies and giving them a multitude of subsidies and tax breaks carefully designed to entice them to industrialize the backward agricultural sector. This strategy of "industry feeding agriculture" and "cities supporting the countryside" sometimes appears carefully-crafted, but it changes from year to year depending on what crisis has popped up.
Ironically, a Farmers Daily article about Yunnan Province's "No. 1 Document" for this year emphasizes tax breaks, interest subsidies, and favorable access to land for agribusiness companies that lead farmers out of poverty to become full participants in the modern global economy. While this is only a provincial document, the provisions of bigger investment and integrating companies with farmers seem to be a general strategy for the 12th five-year plan that begins this year.
The document calls for pouring more money into agricultural investment. During the 12th five-year plan Yunnan will expand its "agricultural industrialization fund" by 200 million yuan annually. At least 30 percent of the net proceeds from converting rural land to state-owned urban land and revenue from the tax on using rural land should be reinvested in agricultural infrastructure.
"Dragon head" agribusiness enterprises get lots of tax breaks, loans, and help with accessing land. Several provincial financial organizations (banks and credit cooperatives) will earmark 20 billion yuan (about $3 billion) in loans for dragon head companies at concessionary interest rates with interest subsidies from the provincial government. The loans are targeted for storage, processing, and marketing, company technology development and setting up "production bases." Since this year's crisis is expensive vegetables, the support is focused on nonstaple commodities (i.e. vegetables, fruit, meat, etc).
After years of neglecting rural lending and pouring rural savings into cities, there is now an adventurous push to offer creative rural finance and risk management products. Yunnan is encouraging banks to set up special credit funds for purchase of special agricultural products like tobacco, tea, rubber, walnuts. Banks are encouraged to offer "innovative" financial products, move forward with setting up agricultural loan guarantee companies, and the province will push ahead in enticing insurance companies to offer [subsidized] crop and livestock insurance. They are continuing the "struggle" to establish a Yunnan Province agricultural insurance company. The document calls for investment in a new "loan risk compensation fund" for dragon head enterprises. There are new short- and medium-term securities and "collective debt" instruments for small and medium enterprises.
There are a host of tax incentives to entice companies to invest in agricultural-related business. Dragon head companies get a waiver of the business tax for a series of services: mechanized cultivation, irrigation, pest control, plant protection, agricultural insurance, technical training, animal breeding and disease control. Companies are exempted from the land occupancy tax if they use the land for agriculture, forestry, or aquaculture. Agricultural vehicles and fishing boats are exempt from the vehicle tax. Companies using the "company + farmer" integration model pay lower income taxes. Self-produced agricultural products are exempt from the value-added tax (VAT), and agricultural equipment, seed, saplings, fertilizer, and pesticide are also exempt. Tax bureaus are encouraged to adopt a pilot "tax separation system" which takes a portion of agribusiness tax payments and returns the funds to local governments in the (county? town?) where agricultural raw materials were procured.
The province says authorities will fast-track approval and give subsidized loans for investment projects by agribusines companies in poverty areas. Dragon heads that make investments of at least 20 million yuan in poor regions will get "awards" of 3% to 5% of the project's value.
There is also an incentive to export. Agribusiness companies that manage to generate at least $10 million in exports get an award of 1% of the export value from the provincial agriculture department.
We're not finished yet. Companies also get help getting approval to use land for agricultural storage, processing, or market construction projects. Rural land designated for construction can be used for livestock or poultry housing, aquaculture, or factory-style farming, as long as it complies with all the other national and local regulations.
Finally, agribusinesses get discounted electricity rates and they are assured access to coal and fuel they need.
The article says these company-support policies constitute only 5 of the Yunnan "No. 1 Document's" 31 points, but they are expected to "spawn a harvest of hope."