Deep in the arid mountains of southwest China, a native plant is giving hope to 1.3 million peasant farmers. Farmers in Guizhou, Sichuan and Yunnan provinces, more than 45% of whom belong to ethnic minorities, are being urged to grow the Jatropha Curcas L tree. They then develop its seeds into bio-diesel to meet local energy demands and provide a source of revenue.
In turn, those farmers are pointing the way to a development pathway perched between China’s ambitious development dreams and its limited resource realities.
This project – as well as one in the Xinjiang region to grow ingredients for Chinese traditional medicine and another in Inner Mongolia to produce wind turbines – are all part of a US$8.6 million Green Poverty Reduction in China program. It was established by the United Nations Development Programme (UNDP) and the Chinese government to support the development of minority communities in ecologically fragile and remote regions of China.
"Fostering the potential of green industries and energy sources in remote mountain areas and deserts is an important vehicle to generate income and employment opportunities, while protecting the environment," said Alessandra Tisot, the UNDP senior deputy resident representative in China.
This is the friendly face of China’s future. Multiply the effort by 50, factor in urbanization and industrialization, and the full scale of the challenge comes into view. Facing increasing pressure to share the spoils of rapid growth, Beijing is pushing its vision of a "prosperous" (xiaokang) society in which rural dwellers – 57% of the population – get a better deal.
"If you were to take the xiaokang objectives seriously, which is to quadruple incomes to 2020, using 2000 as a base, 300 million people will be urbanized as a result," said Khalid Malik, UNDP’s resident representative in China.
The government has pledged to do more for rural communities but it’s unclear where the money will be found.
In December, a report released by China’s cabinet warned that funding just state pension and health care programs targeting the elderly will be a daunting challenge in a rapidly ageing society.
Add rural infrastructure development, the cost of environmental cleanup, healthcare and education reform to the list, and the price of reform climbs up.
The National Development and Reform Commission estimated the country will need to spend US$1.5 trillion on infrastructure between 2006 and 2010 if it hopes to keep growth on track and extend economic development to rural areas.
One potential source of funding could be state-owned enterprises. As the major shareholder in the SOEs, the government is entitled to draw dividends from them but has not done so since the 1990s. Thanks to China’s growth boom, some – but certainly not all – of these once bankrupt SOEs have become cash cows.
Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, told the Financial Times in December that approval for the return of dividends was due early in 2007. Rather than have the SOEs reinvest profits in business – 58% of fixed-asset investment is self-financed – money could find its way into social welfare schemes.
The International Finance Corporation (IFC), the investment arm of the World Bank, champions bonds as a source of project funding.
In November, the IFC issued US$110 million in RMB bonds, known as Panda Bonds. Money from this second issue – the first, of US$144 million, took place in October 2005 – has been earmarked for social sector-related companies.
"The market has a more difficult time financing the social sectors so small- and medium-sized enterprises, health and education do have our focus," said Nina Shapiro, the IFC’s vice president of finance and treasurer, at the bond launch.
Another option, which has gained traction recently, is microfinance. Beijing hasn’t been a keen backer of microfinance programs – there are said to be over 100 in China but they have attracted only 100,000 customers in 12 years – a number of international organizations and individuals have been pushing for it.
They include Muhammad Yunus, who won the Nobel Peace Prize for his pioneering microfinance projects in Bangladesh through the Grameen Bank.
Yunus said in Hong Kong in December that the Chinese government had agreed to let him carry out a market test of his system, which specializes in loans of US$100 or less.