Western China's challenge

Microcredit programs are well-known for creating opportunity. But they are far from a cure-all.

With every knot she ties in her hand-made rugs, Bahar Wushoniaz weaves a little more prosperity into her life.

Earnings from the rugs, based on the traditional Uighur patterns of her Islamic ethnic group in western China, have helped double the family income to $120 a year. With that, she can afford the $12 annual public school fee for her children.

Ms. Wushoniaz is a member of a rural banking cooperative started by a Canadian aid agency that gives small business loans to poor farmers. Across the developing world, similar programs based on the famed Grameen Bank model in Bangladesh have been effectively used to help the destitute.

With China's expected accession to the World Trade Organization, programs to raise incomes will be needed more than ever. Experts say cheaper, better quality agricultural imports will lower the already depressed wages of the country's 800 million farmers. But the lack of appropriate laws and a deep-seated lack of confidence in the abilities of the poor and uneducated have limited such efforts in China to a handful of foreign aid projects. Administrators of the projects are finding that more than just trying to help the needy, they also have to educate the government.

"We're trying to make the poor bankable," says Sue Carrey, head of the Canada/China Women's Income Generating Project. In 1996, the program set up a series of credit cooperatives using $1 million in seed money. They began lending $60 to $240 to 3,000 women for small businesses, such as carpet weaving and sheep rearing as an alternative to raising cotton, the traditional cash crop in this arid region.

Dwindling subsidies

Central planning and a government cotton purchasing monopoly have stunted development of this oasis near China's border with Pakistan. Farmers have to fulfill a quota and sell their crops at state-set prices, which have been halved in the past three years. The government is no longer able to sustain high subsidies in the face of lower international prices.

The problem goes beyond cotton or Xinjiang Province. Despite market liberalization in the past 20 years, China still maintains a policy of food self-sufficiency that forces farmers to grow unprofitable crops such as wheat and rice for state granaries. Economists estimate Chinese wheat is 75 percent more expensive than on the international market. And the surplus grains are rotting in China's aging silos.

Particularly hard hit will be China's 55 ethnic minorities, who make up a large proportion of the 200 million people in China earning less than a $1 a day, according to the World Bank. All the farmers in Hetian are Uighurs, a minority with close cultural ties to the Turks.

The government estimates 10 million farmers nationwide - though Western economists predict 40 million - will join the 100 million peasants who have already abandoned farming in favor of more lucrative factory jobs in the cities.

But the government is afraid such massive migrations will weaken their already tentative hold on power and tightly controls farmers ability to migrate. Cities limit migrant workers and confine them to low-paying jobs. Migrants are allowed to settle only temporarily, and few bring their children because of the high-school tuitions they must pay.

Besides, not everyone wants to move, even if by Chinese standards, Hetian is a poor county. Houses are made of mud and thatch; water is drawn from wells in the grape-vine covered courtyards. Electricity works sporadically.

"This is my place, this is where I was raised," says cotton farmer Bumaran Tochtebaken. Her micro-credit loan enabled her to set up a small shop in the nearby town to make oil from sesame seeds. "There's no point in leaving here. What would I do? How would I be able to make money?"

That leaves the government faced with finding a way to help farmers where they are. For Chinese leaders, it's more than just a question of raising living standards. It's a question of survival of the Communist Party, which rose to power in large part by promising China's disenfranchised peasants a larger slice of the pie.

"The decline in the income growth will hinder the overall economic development and even undermine social stability," said Chen Xiwen, a researcher at the government-affiliated think tank, the Development Research Center, in the state-run China Daily.

Slow to adapt

Despite the benefits of micro-credit programs, such as the one in Hetian, the government has moved slowly to change laws that would make their operation easier. The government has not allowed nonbanking institutions, such as cooperatives to collect interest because of widespread corruption in the banking sector. China's banks don't have the manpower necessary to coach illiterate farmers through loan procedures and business plans. So, only a handful of foreign aid agencies forge ahead because they are exempt from the rules.

"The legal framework isn't there," Ms. Carrey of the Canadian aid program says.

The challenge also goes deeper, Carrey adds. While local officials embrace any help they can get, they miss many of the subtle points that make the cooperative more than just another government handout. For example, women are supposed to form groups of 40 friends to guarantee each other's loans. But local officials mobilized people into groups of strangers. The women feel little obligation to help someone who's about to default. Also, the loans were supposed to be incrementally larger - but only if the members proved themselves capable. Instead, bigger loans were given regardless of a member's ability to repay, leading to a string of defaults.

Yet the impact of even this small step is hard to deny. Since Wushoniaz started weaving rugs, the family has bought a motorcycle and renovated its packed-mud house. Besides the money, she has earned a stronger sense of pride and hope for her children's future. She plans to send her youngest daughter to college.

"I'm still a peasant because I have no education," she says.

(c) Copyright 2001. The Christian Science Publishing Society

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