Despite a generally sound situation, some problems in agricultural development should arouse the government's attention.

One worrying situation is the growing income gap between rural and urban residents. Infrastructure in rural areas is in serious short supply. Township enterprises and individual farmers have few routes to obtain finance.

To effectively solve these problems, agricultural policies should be given a proper and timely readjustment. Two major policies will be set in the next two years.

Top of the agenda is to increase farmers' income.

Today, grain security is no longer the biggest concern in agricultural development.

Some worry that for a country like China, with its limited farmland and huge population, the oversupply of farm produce in the past several years was only a temporary phenomenon.

But facts proved that scientific and technological progress in the past two decades have dramatically improved comprehensive agricultural productivity to satisfy the population's needs.

Even though some grains may be in short supply, the country has enough foreign reserves to buy it from the international market. Furthermore, after the WTO entry, China has promised to open its agricultural market even wider.

So the thorny issue in rural development is the slow increase in farmers' income, which has not only hindered the further development of agriculture, but also frustrated the consumption market.

Amid the pressure of deflation and insufficient domestic demand, it is urgent to activate the domestic consumption market to drive economic growth. The slow growth of the income of the rural people, who make up about two-thirds of the country's population, proves to be the bottleneck to the expansion of the consumption market.

Since the 1990s, of the country's total, the share of consumption in markets at county and lower levels has decreased continuously. In 1993, the figure was 42 per cent. In 1995, it dropped to 40 per cent. In 2001, it plummeted to 36.6 per cent.

So the focus of the government's rural policies should be shifted to raising farmers' income, which will contribute to the prosperity of rural economy and the improvement of domestic demand.

Second, rural policies should be aimed to channel more government funds into rural public facilities.

For a long time there were two separate sets of policies governing the supply of public facilities.

In urban areas, the government has covered almost all the cost in building facilities of water, power, road, communications, schools, hospitals and libraries. The cost of such public facilities in rural areas is mainly shouldered by farmers themselves, with the government giving limited subsidies.

The annual net income of farmers is only one-third that of urban residents.

Rural infrastructure, like that in cities, also belongs to the category of public facilities. The government should adopt equal policies for the supply of the same facilities in both rural and urban areas.

Differentiated policies will lead to unequal development opportunities, which will further expand the income gap between rural and urban people.

In fact, apart from farmers' low income, the insufficient supply of rural infrastructure is also a key factor contributing to the sluggish rural consumption market.

Bottlenecked by insufficient infrastructure, farmers find difficulties with access to transport, communications and electricity. In such a situation, farmers will not buy industrial products, even though they can afford them.

So, enlarging government investment in rural infrastructure is a policy that can benefit all sectors.

To realize the policy aims, the following measures should be taken.

First, to readjust the structure of government revenue and pump more State bond revenue into rural infrastructure. The government should also encourage non-State capital into rural public facilities by offering preferential price and taxation policies.

Second, to unremittingly carry on the tax-for-fee reform in rural areas.

Since 2000, the government has allocated a huge amount of money to sponsor the reform on a trial basis in some provinces. The experimental programmes indicate that farmers' burden could generally be relieved by up to 30 per cent.

The speed of the reform should be quickened to promote it to rural areas all over the country.

The central revenue should steadily improve its payment transfer to ease local governments' fiscal shortage and create a favourable environment for the smooth process of the tax-for-fee reform.

The responsibility to fund the nine-year compulsory education in rural areas should be shifted up to provincial and central governments. Currently, expenditure on primary and middle schools accounts for more than half of the revenue at county and township levels.

After the tax-for-fee reform, the government should also cancel the agricultural tax on a step-by-step basis.

From 1990 to 2000, the country's agricultural tax revenue jumped by 4.3 times, which had directly led to the rapid increase of cost in agricultural production.

In the country's tax structure, agricultural tax occupies only a small proportion. And since the mid-1990s, that share has declined further. In 2000, the share from agricultural tax dropped to 3.7 per cent from the 4.6 per cent of the country's total in 1995.

Exemption of this tax would cause little problem to the country's economic development, but would promote the growth of agriculture.

As an initial step, the government should cancel the tax on special agricultural products.

Third, the government should give farmers proper subsidies.

The AMS, a measure to access the government's comprehensive support to agriculture, is only 2 per cent in China today, while the figures in the United States, the European Union, Japan and Canada were 9.5 per cent, 25 per cent, 41 per cent and 15 per cent respectively during the 1996-98 period.

Subsidies should be focused mainly on production process, instead of on circulation, to help promote advanced technology and high-quality products.

Fourth, to increase farmers' financing channels.

The financial policies have been tilted in favour of urban development, rural areas have thus suffered a shortage of capital.

Now the government should encourage State commercial banks to expand operations in counties and towns. Given that currently the operation cost in rural areas is comparatively high, these banks should be given flexible policies in interest rates.

The reform of the rural credit co-operatives should be sped up. And the opening of private banks in rural areas should also be given the green light.

The author is director of the Industrial Development Research Institute under the State Development Planning Commission.