Pots with no gold

Financing China’s rural infrastructure

Bingqin Li, Jing Wang

Development, Government and governance | East Asia

9 March 2018

Bingqin Li and Jing Wang ask who should pay for China’s rural infrastructure – the state, collectives, business, or the villagers themselves? 

Developing and maintaining rural infrastructure has been a big challenge in China. Failing to gain access to basic infrastructure and services deprives the poor of the support they need to escape poverty. China’s system of financing rural infrastructure has been reinvented overtime, but challenges lie ahead.

In the past 30-odd years, poverty reduction in China benefited remarkably from urbanisation, with cities attracting at least 220 million migrant ex-farmers.

However, it is financially inefficient to invest in infrastructure and services in villages that are declining in population. Attempts to enhance this efficiency in the 1980s and 1990s resulted in the marginalisation of those villagers left behind.

From 2000 to 2004, a series of changes were introduced to reform China’s system of rural infrastructure provision. The state assumed only the role of providing basic infrastructure and services, allowing other fund-holders to add to state provision.

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In 2006, a national campaign was initiated to ‘equalise access to basic social services’ (“基本公共服务均等化” in China’s 11th Five Year Plan) by investing more in rural areas. The increased investment has significantly improved infrastructure for social development, however the state has not actively engaged with other actors in this period.

What explains the recent policy changes, and what challenges might the new system face in the future? To answer these questions, we analysed the availability of four types of rural infrastructure – road, public transportation, healthcare, and aged care – based on data from 307 rural villages contained in a survey carried out in 2011.

The results show that rural infrastructure had indeed been funded by diversified sources: the local government; rural collective businesses; urban enterprises located in rural areas; and members of rural communities.

But the outcomes have been unequal. More affluent rural villages with thriving local businesses provided all sorts of rural infrastructure and services to the villagers. In this context, rural collectives played a dominant role. However, when a village depended on community members themselves, in particular the contributions of its non-resident migrants, infrastructure was inadequate. Migrants did not live in the villages and were reluctant to spend money on facilities and services they would rarely use.

The 2011 data shows that villages fared best where the state was the sole investor in a certain type of infrastructure (for example healthcare clinics). Since implementation of the national campaign began in 2008, rural villages have benefited from improved social service infrastructure and road access. However, the state’s minimalistic approach to service provision cannot guarantee the quality, maintenance or even the actual operation of China’s rural clinics.

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The availability of rural infrastructure investment was also affected by how the resident villagers govern their communities. We found that if older people were better organised and more active in a community, they could be a driving force for improving infrastructure.

This is the case particularly for aged care infrastructure and facilities, even if the funding came from the non-residents (migrants). While this phenomenon has not been discussed in the research on Chinese migrants, internationally it has been shown that when there is a stronger sense of community, migrants are more likely to send social remittances.

China’s experience since 2004 shows that some collective action may support rural infrastructure investment. This can take the form of enhancing collective identity through villagers’ participation in rural governance and strengthening rural collective or state investment.

However, there is no guarantee that villagers will self-organise or that local business will thrive. As a result, many rural areas have been left behind and inequality has persisted.

Some of these issues are being addressed through reform which began in early 2017, when the State Council of China published a Guideline on Creating an Innovative Rural Infrastructure Investment and Financial System. The policy aspires to create “a diversified and dynamic investment and financial system” for rural infrastructure by 2020.

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In this system, financial companies, state-owned enterprises, social investors and villagers all contribute to rural infrastructure investment. It is designed to better target local needs, bring in extra sources of funding and enhance villager participation.

This is a welcome step forward from the earlier financing system, as it emphasises the role of the state as a leader and coordinator. The new policy strategy may help to bring in more actors and better coordinate them for longer-term results. In particular, the involvement of the private sector may enhance the capacity of the state to develop more innovative ways to finance and maintain infrastructure.

The Chinese state is under growing pressure to fulfil its ambitious poverty reduction goals by 2020 and is tempted to solicit more involvement from other sectors. It would be ideal if business can find sustainable solutions to support rural infrastructure.

However, it is worth highlighting that the state’s leadership role cannot be coercive if the initiatives are to be sustainable. Whether innovation can truly emerge remains to be seen.

This article is based on the authors’ paper in Asia & the Pacific Policy Studies: ‘Governance and finance: availability of community and social development infrastructures in rural China’. All papers in Asia & the Pacific Policy Studies are free to read and download.

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