Deflated Money Bags and New Water Pumps

Earlier this month Industry and Economic News Net posted an article signaling that 2012's rural policy emphasis will be on building water infrastructure. The article includes quotes from the head of Renmin University's School of Rural Development, who said the 2012 "Number 1 Document" will focus on construction of water-management infrastructure. The article doesn't specify what kinds of projects this includes, but other sources cite irrigation infrastructure, pumping stations, repair of degraded reservoirs, and rural drinking water projects.

The 2011 "No. 1 Document" also included a focus on water management. However, the article emphasizes that rich cities need to send money down to poor rural counties to facilitate investments in irrigation and water infrastructure. The Renmin University scholar says it would be a terrible thing to leave the water management construction task half-finished.

The article focuses on financing problems, specifically the role of real estate in local government finance. When local governments collect financial windfalls from selling rural land to developers they are supposed to set aside a significant portion of the proceeds to finance agricultural development. However, in May-June of this year a Chinese Academy of Social Sciences team conducted a survey of 11 counties and found that only 10% of the funds from these real estate windfalls was spent on water projects. The team said the water infrastructure campaign's implementation was impeded by this financial bottleneck and a national meeting on water management work was held in July to discuss this problem. According to one of the team members, the policy shift to address this problem was initiated in the second half of this year.

The article says the slowdown in the real estate market "deflates the money bags" of local governments, especially governments of major grain-producing counties and poor counties. The article notes that a communique issued by the national audit office reported that debts of provincial, prefecture and county governments totaled 10.7 trillion yuan at the end of 2010. The lack of funds could leave rural water projects as "orphans of local governments."

In the current environment, the article says, there can be no question of the government cutting [spending?] across the board. It says there has to be some "tilting" and "focus." The article asserts that rural counties make a great contribution to grain security but they are usually less-developed [i.e. poor] regions. On the other hand, wealthy cities rely on these counties to supply them grain. The current party line is that China needs to set up a mechanism for transferring funds from wealthy regions to agricultural regions to facilitate investment in water management infrastructure.


Last month the dimsums blog reported on the new fiscal federalism strategy of government transfer payments and the new model for agricultural development embodied in a Henan development plan.