For example, the tax-for-fees reform in rural areas has helped to reduce farmers' financial burden. First-quarter per capita taxes and fees people dropped 2.2 yuan (27 US cents) or 36.3 percent compared with a year ago.

Per capita income from non-farming sectors climbed 37 yuan (US$4.50) to 337 yuan (US$40.60), an increase of 12.2 percent.

Due to a domestic grain price rise, rural residents earned more from selling farm products, Zheng said. Per capita income from this source was 321 yuan (US$38.70) during the first quarter, up 44 yuan (US$5.30), or 16 percent, from a year ago.

Analysts expect grain prices to rise further in the coming months.

Zhang Xueying, a senior economist with the State Information Center, said there is still room for further price hikes, because grain supplies will continue to fall short of demand. "It is almost certain that summer grain production will be reduced."

The government, which seeks to boost income for rural residents, will not intervene in the market with its large grain reserves, he said.

The grain price rises began last October.

Chen Xiwen, deputy director of the Office of Central Financial Work Leading Group, noted that grain prices, rising between 10 and 20 percent last year, were still below 1996 levels. The government should allow them to resume their rational levels, he said.

The price hikes will not have a significant negative impact on the quality of life for ordinary citizens, so long as the government gives proper support to low-income residents in cities, Chen noted.

Per capita spending by urban residents on grain, cooking oil, meat and fresh vegetables dropped 131.2 yuan (US$15.80) in 2001 compared with 1996, he said.

Qi Jingmei, another senior economist with the State Information Center, said that grain prices will be kept high this year.

"If rural income levels increase considerably, rural consumption is likely to be stimulated," she said.

The slow income growth for rural residents has long been a headache for the central government, because it greatly affects the implementation of the demand-stimulating policy, Qi said.

Chinese rural residents, which account for more than two-thirds of the country's total population, contribute only one-third of the nation's total consumption.

"The slow income growth will hinder overall economic development and even undermine social stability," she said.

Last year, per capita net income of rural residents rose 4.3 percent from the preceding year, to 2,622 yuan (US$315.90), according to the National Bureau of Statistics. In the same period, urban residents saw a rise of 9.3 percent.

(China Daily April 28, 2004)