Working for the Peasants? Strategic Interactions and Unintended Consequences in the Chinese Rural Tax Reform

1 The "building the socialist new village" (jianshe shehui zhuyi xin nongcui) campaign was first endorsed by the CCP central plenum in November 2005, and by the National People's Congress in March 2006 (http://news.qq.eom/a/20060310/001383.htm. accessed on 14 March 2006). Borrowing the idea from a similarly-named campaign in South Korea (in Chinese, xin curt [New Village] yundong) in the 1970s and 1980s, this initiative aims at enhancing rural development and improving rural welfare in the Chinese countryside. Ten provinces and municipalities started piloting the "green GDP" notion in their development in 2005 (see http://finance.sina.com.en/g/20050301/04291391079.shtml. accessed on 6 April 2006), and three (Guangdong, Zhejiang and Guizhou) had "green GDP" formally written in provincial 5-year plans in 2006 (see http://www.gdepb.gov.cn/hjgl/lsgd/zxdt/t20051101 18812.htm. http://www.gov.cn/test/2006-02/07/content 181020.htm. http://www.gov.cn/test/2006-02/08/content 181813.htm. accessed on 6 April 2006). Introduction How should we interpret such recent rural policy developments as reforms to reduce peasant tax burden, initiatives to build "Socialist New Villages", or the quest for a "Green GDP" index? 1 Official rhetoric inside China has depicted them as a succession of coordinated central measures with coherent objectives, namely social harmony and sustainable development.2 This paper cautions against such an interpretation. Focusing my analysis on the rural tax reform, arguably the beginning of this policy shift, I contend that it is misleading to see the burdenreduction reform as a "central project" intentionally reaching out to help the once-neglected rural population. I argue that subsequent developments were more the unintended consequences of strategic interactions between central and local state actors. The story is more nuanced and complex than the official account admits. National policy on peasant burden reduction was engineered around 1998, when the views of then Party secretary General and State President Jiang Zemin and then Premier Zhu Rongji converged on the need to tighten controls on local extraction.3 Six years later, Premier Wen Jiabao described the ongoing burden reduction reform as a two-phase process, "a result of central government's planning". 4 The first phase, from the release of the original reform package in 2000 to its implementation in 2003, involved the reduction of the fiscal burden and the rationalization of the rural tax regime. The extensive range of local fees charged to peasants at the township level, with many imposed by the county level and above, was placed under tight scrutiny and many items were abolished, whilst the rate of the formerly nominal Agricultural Tax was raised to compensate townships in part for the lost income.5 Then, with the release of Central Document No. 1 (2004), the reform entered the second stage, in which the burden was further reduced through the progressive abolition of Agricultural Taxes, while measures were introduced to raise peasants' income, for example through direct subsidies to grain-growing peasants.6 As the Chinese economy develops and the national financial situation improves, the central government has gained a larger capacity to address the needs of the rural population, and considerable resources have been allocated to these matters.7 Numerous studies have elucidated the historical and institutional embeddedness of the "peasant burden" problem.8 The consensus is that fees proliferated out of historically grounded institutional mismatches, in particular between the growing needs of local bureaucracies and their limited ability to finance themselves through existing fiscal channels, and not exclusively because of local corruption. The fiscal system had evolved incrementally as the country edged away from central planning. During this process, necessary local (and rural) services were left largely unfunded whilst the size of township administration snowballed, partly as a result of the policies, regulations, appointments and actions of higher levels of government, and partly as a by-product of lackluster economic development and thus shortage of non-farming job opportunities. …