China’s Income Gap

Tuesday, November 21, 2006 20:31
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The Wall Street Journal is reporting today in their article In China, Growth at Whose Cost? That in China the rich are getting richer and the poorer are getting poorer. The article is based on a World Bank report that has yet to be released, but has been recently presented to Chinese government officials.
For those who are not subscribers, the following important parts are being made: 

  • From 2001 to 2003, as China’s economy expanded nearly 10% a year, average income for the poorest 10% of the country’s households fell 2.5%
  • City dwellers average annual income gains are 8% to 9%, compared with less than 5% for rural households
  • Roughly 130 million Chinese earn $1 a day or less
  • Only about 20% to 30% of the poorest appear to be long-term poor, and even they have some savings

Bert Hofman, the World Bank’s chief economist in China, says that the above finding are very important because “If true, it sheds doubt on the argument that a rising tide lifts all boats”

The article finishes up by paying homage to the fact that China has brought 400 million out of poverty in the last 25 year, and that the government has recognized the income gap as an area of concern.

Where I am a bit lost in this article is how anyone could think that 1.3 billion boats could all rise at the same time equally? When in history has the occurred? The only time in history that income levels in China were in parity was the during the Cultural Revolution, and I am pretty sure that if I were to ask any cab driver they would tell me that they prefer these days to those.

The study, and the articles to follow, are sure to have some very interesting points and may offer some clues as to how to close the gap… But my guess is that the leaders in Beijing are already well ahead of the World Bank, ADB, and the news outlets on this and policies like “Revitalize the Northeast” and “Go West” are perfect examples of this.

In the last 2 years, the leadership under Hu jintao has been more open and vocal than previous leaders about a concerning income gap. The government is working to bring investment and create jobs in the inner provinces so as to right the ship, and as we have shown in a number of posts, the second tier cities and provinces are coming up.

Anyone who traveled to the cities of Chengdu, Xian, Wuhan, Kunming, or Nanchang 5 years ago will tell you how much things have changed in time as these cities have literally been rebuilt and industries have begun to take hold. As the process continues, and the second and third tier cities continue to expand, the residents of these cities will only benefit… And their percentage rises in income will most definitely come into line with the gateway cities.

The problem is clear, and the worst case scenario is scary. Last year there were 85,000 “riots” (still waiting for a clarification on what a riot is), and in most cases these were in reaction to an issue related to this imbalance (access to health care, environmental pollution, land grabs, unemployment, etc).

As is most often the case, little effort is used to show the moves the Chinese government has made to remove corrupt government officials within their own ranks, increase economic opportunities within the various regions, etc. Instead, a slice of time has been analyzed and used to create a blanket analysis (WB only used 2005 data to create this report) and a standard that China is not living up to the obligations of their one country two systems approach.

With a population of 1.3 billion people living in 31 provinces that span nearly every geographic terrain imaginable, some areas are going to naturally develop faster that other areas. Germany and Italy did not have growth that was in parity any more than New York and Missouri did, and to expect the situations in Fujian and Ningxia is a bit much….

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