64 very small extent, if at all.<sup>129</sup> Second, per capita social transfers are about 10 times as large in urban as in rural areas (UNDP, 2005, p. 3). Indeed, the dispersion of per capita public-sector spending across provinces seems to have widened rather than narrowed in recent decades (UNDP, 2005, p. 25).

One rationale for concentrating the arrangements of income insurance to urban areas is simply that systems of income support are more difficult to organize and administrate in agriculture than in other sectors. Indeed, the income (partly in kind) of individual members of farm families is even difficult to assess. Another rationale might be that the need for such systems would be less urgent in rural than in urban areas, since informal transfers within families, including remittances from relatives in urban areas, might be more important in the countryside. A third rationale for confining income insurance to urban areas might be that income risk for individuals would be smaller in agriculture than in industry, where business cycles are notorious. However, the last two rationales are rather weak, since the family is a very narrow unit for risk pooling and since fluctuations in factor income are hardly smaller in agriculture than in other production sectors.<sup>130</sup> Moreover, rationales do not constitute explanations. The latter have to be expressed in terms of the political process. One explanation why the authorities have favored urban insiders might be that these have more political clout than the rural population, possibly because the authorities are more concerned about social unrest in the cities than in the countryside. Sooner or later, however, strong political demands are likely to emerge for comprehensive arrangements of income security also among rural citizens in China. The

> 129 According to a study by Gao et al. (2002) concerning five major cities, 74 percent of permanent urban residents were covered by pension benefits in 2000, while the corresponding figure for temporary residents was 10 percent. The corresponding figures for health insurance were 68 percent and 12 percent, respectively, for unemployment benefits 33 percent and 1 percent, and for workplace injury insurance 25 percent and 14 percent.

130 A study by Jalan and Ravallion (1999) suggests, however, that such arrangements are rather limited in rural areas as well. Moreover, the need for income insurance is well established also for citizens in rural areas in China, for instance in connection with fluctuations in harvests and prices of agriculture products. This seems to be a particularly serious problem for the poorest groups of the rural population. For instance, Jalan and Ravallion (1999) report that while only 10 percent of the income shocks are passed onto current consumption in the case of individual households in the highest wealth decile in rural areas (in their sample), the corresponding figure is 40 percent for individual households in the poorest decile. Since many individuals in rural areas are tightly liquidity constrained, they may not be able to smooth consumption very much, for instance, in the event of fluctuations in agricultural output and prices. In other words, poor people often cannot afford to accumulate precautionary savings or take private insurance. Moreover, as an inheritance from the pre-reform period, there are probably rather few (formal and informal) moneylenders in the Chinese countryside specialized in loans to households as compared, for instance, to India, although the situation has been rapidly changing in recent years.