Liu Jinhuan, a 48-year-old farmer in Yuexi County in east China's Anhui Province, suffered from rheumatic heart disease that hampered her normal work for many years. She could not get proper treatment because she couldn't afford it.

Early last year, she joined the rural co-operative medical programme, which was launched in 2003 and covered about 8 million farmers in Anhui. Under the programme, she paid an annual 10 yuan (US$1.25), and the central and the local governments each allocated a similar amount per year for every participant.

Last Feburary, Liu had heart surgery in Hefei, the provincial capital, and fully recovered weeks later.

One-third of her US$3,800 medical bill was reimbursed by the co-operative medical care fund. The rest came from family savings, the largesse of friends and relatives, and borrowings.

"The co-operative medical care programme saved my life," said Liu, whose family's net income is about US$300 per year. "I hope this good policy will continue forever."

Liu is one of the millions to benefit from a nascent but developing welfare network.

The Ministry of Finance's guiding principle in this year's budget was "guaranteeing support for public expenditures while reducing general expenditures." It promised to give high priority to "weak links" in economic and social development such as agriculture, education, employment, social security and public health.

Backing the promise is big money. For example, the ministry has allocated 186 billion yuan (US$23.25 billion) for social security allowances and re-employment programmes, a 14.5-per-cent increase from last year. Local governments are also required to increase their budgets in these areas.

"The priority of the national treasury is noticeably shifting from direct investment to public service," said Zheng Gongcheng, a professor at the School of Labour Relations and Human Resources of Renmin University in Beijing.

"It is a fundamental job for an administration to provide public service. A service-oriented treasury is in line with the government's responsibility of providing welfare to citizens."

Since 1998, China has adopted a proactive fiscal policy featuring the massive issuance of treasury bonds that were largely used in infrastructure construction, which helps propel the gross domestic product. The spectacular growth, however, has been coupled with inadequate expenditure in education, healthcare and other social programmes.

"The incomplete social security system has clogged consumption as many people have had to tighten their purse strings and save as much as possible in case of rainy days," Zheng said.

Sluggish private consumption adds to the economy's reliance on resource-guzzling fixed-asset investment and massive exports, which have become politically sensitive issues amid fusses over China's trade surplus as well as a surge of anti-dumping charges, Zheng noted.

"Farmers and the urban working class are the biggest source of potential consumption," he said. "Improving social security, education and healthcare will help tap that potential."

At the end of 2004, the central government halted its proactive policy in favour of a steadier line. Statistics from the Ministry of Finance indicate the national budget deficit for 2005 dropped to 300 billion yuan (US$37.3 billion) 19.2 billion yuan (US$2.3 billion) lower than for 2004, while expenditures on education, social security and public health all posted double-digit growth.

This year the treasury has projected an increase in spending on public welfare, particularly in rural areas. It has allocated 339.7 billion yuan (US$42.3 billion) for rural development, a growth of 42.2 billion yuan (US$5.2 billion), or 14.2 percent, year-on-year. By comparison, the growth in the central government's overall budget this year over 2004 is 9.7 percent.

The central government plans to waive the tuition fees in rural primary and junior middle schools in 12 western provinces this year and ensure free compulsory education to rural areas nationwide in 2007. Nine-year free compulsory education is mandated in China's laws, but insufficient funding in some places had led to backpay to teachers and ad hoc charges to students.

The Ministry of Finance has projected 218.2 billion yuan (US$27 billion) of treasury expenditure in the next five years for rural compulsory education, which will benefit about 160 million children.

The central government also plans to extend the rural co-operative medical care network to 40 percent of counties in the country this year from the 23.5 percent at present, and to all counties by 2008.

Meanwhile, central and local treasury per-person subsidies to the programme will both double to 20 yuan (US$2.50) this year. The national treasury alone has earmarked 4.73 billion yuan (US$583 million) more than eight times the expenditure last year for the expansion.

The central government also released a new decree that took effect in March, stipulating that local governments guarantee basic living conditions of rural orphans, widows and the disabled, which used to be taken care of by rural communities.

"This new policy relates to just a small number of rural residents, but it's quite symbolic in that government-financed social security is starting to extend from cities to rural areas," said Yu Jianrong, a senior researcher with the Rural Development Institute of the Chinese Academy of Social Sciences.

"Undoubtedly the public welfare rural residents enjoy remains at a very low level," Yu said. "But the encouraging thing is that the government is taking steps to improve it in a down-to-earth manner."

The increased input in public welfare is backed by solid growth in tax revenue. National revenue reached 3.16 trillion yuan (US$393 billion) in 2005, up 19.8 percent from 2004 and double the level in 2001.

"Improving public welfare has always been the administration's main objective, and now its financial strength is much greater, that solidifies its motivation to provide more and better service to the public," Yu said.

The government has promised to ensure that 100 million rural residents get safe drinking water, build or renew 1.2 million kilometres of rural roads and furnish 3.5 million more rural residents with access to electricity.

"One main cause of the backwardness in rural areas is poor infrastructure, including transport, power and water supply and telecommunication service," said Ding Jianchen, a professor of finance with the University of International Business and Economics.

"Improving the infrastructure will help lower rural people's cost of living and development and, therefore, contribute to their well-being."

(China Daily April 14, 2006)