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transition. These factors include specific government policies, especially its policies on taxes, family planning, education, the social safety net, and SOE restructuring; the lack of effective institutional mechanisms for resolving social conflicts and private grievances; and the breakdown of political accountability that makes local government authorities insensitive and unresponsive to public needs. The combination of socioeconomic dislocation, harmful policies, and flawed political institutions turns social frustration into political protest, not merely because of economic deprivation, but because of a growing sense of political injustice.

Rural Decay and Discontent

As discussed in the previous section, the institutional decay of the ruling party is more advanced in rural areas than in the cities. Such political decay, coupled with the relative economic decline of the rural sector, is the main source of rising tensions in the countryside.116 Media reports and official disclosures indicate that such tensions reached dangerous levels in the 1990s. In a startling internal report, the MPS admitted that “in some (rural) areas, enforcement of family planning policy and collection of taxes would be impossible without the use of police force.”117 Of all the incidents officially classified as “incidents of instability” in the rural areas, 70 percent was caused by “tensions between the cadres and the masses.”118 On the surface, economic factors, especially stagnant income growth, appeared to be mainly responsible for declining governability in the countryside. But a closer look shows that three political causes—high taxes on the peasantry, the decay of the administrative institutions, and the forcible seizure of land by local authorities for commercial use—have perhaps played a more important role in fueling discontent.119

Rural income, a gauge of the well-being of the peasantry, fluctuated during the reform era. At the initial stage (1978-7985), per capita income in the countryside rose sharply, averaging a net increase of 15.2 percent per year. But per capita income growth began to stagnate afterward, rising only 2.8 percent a year during 1986-1991. It recovered somewhat during the early 1990s, averaging 5.7 percent annually during 1992-1996.120 In the late 1990s, rural income growth entered another period of stagnation. Official data show that net income per rural resident grew 9 percent in 1996, 4.6 percent in 1997, 4.3 percent in 1998, 3.8 percent in 1999, and 2.1 percent in 2000. Per capita net income from agricultural activities, however, registered negative growth from 1998 to 2000. In 1998, rural per capita income from agriculture fell 30.25 yuan from 1997; in 1999, it declined by an additional 57.42 yuan; in 2000, it registered a further decline of 43.94 yuan. The absolute three-year decline totaled 131 yuan, implying a 6.3 percent reduction in net income from 1997 to 2000. Because close to 80 percent of rural residents derived most of their income from agricultural production, this meant that a majority of rural residents experienced negative growth in net income.121

There were several reasons for declining income from agriculture, such as an oversupply of major agricultural products (especially grain), rising costs of inputs, low labor productivity, high taxes, and underdevelopment of rural finance.122 For example, the costs of agricultural inputs, such as seeds, fertilizers, and fuel, increased while prices for agricultural products fell steadily. During 1997-1998, for example, prices for agricultural products fell 22 percent, resulting in income losses estimated in the range of 300 billion to 400 billion yuan.123 The combination of low prices, high production costs, and high taxes made agricultural production unprofitable. In 1999, the average costs of producing the three main grains—rice, wheat, and corn—reached 43 percent of their sale price. The agricultural taxes and other legal levies added an additional 16 percent. Thus, after paying for inputs and taxes, the residual for peasants was only 40 percent