Growing Gap Threatens Stability

China's income inequality is growing along with its economy, experts warn.
By Michael Lelyveld
2010-01-19
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homeless-china-305.jpg A homeless man sleeps outside a restaurant in Beijing, Nov. 20, 2007.
AFP

BOSTON—China's growing gap between rich and poor poses serious challenges for the government and the economy, analysts say.

On Dec. 21, researchers of the Chinese Academy of Social Sciences (CASS) presented their annual "blue book" report, finding that income inequality between urban and rural residents widened further last year, official media reported.

Income distribution has become "increasingly unfair," said Li Peilin, director of the CASS Institute of Sociology, according to the Straits Times.

While incomes in China's cities rose by an estimated 10 percent last year, disposable incomes in the countryside grew by about 6 percent, said Li.

State media reports have noted that farmers' incomes have risen by at least 6 percent for six years in a row. But other figures suggest huge disparities.

In Beijing, for example, per capita GDP is reported to have risen above U.S. $10,000 (68,315 yuan), but the average farmer's income reached only 5,000 yuan ($731.90) last year, according to an official statement by the Central Conference on Rural Work.

"The income disparity is indeed quite high," said Lowell Dittmer, a China specialist and political science professor at the University of California in Berkeley. "It's among the highest in the world."

Wage gap rising

The wage gap has been rising for decades, as measured by an international index known as the Gini coefficient, a report by the United Nations Human Settlements Program said last year.

"Today, China has the highest level of consumption inequality in the Asia region, higher than Pakistan, Bangladesh, India and Indonesia, among others," the U.N. study said.

Li reportedly estimated China's Gini coefficient as 0.47, saying that anything more than 0.4 is "alarming." The figure was 0.3 in 1982.

The CASS linked the disparity to social unrest, citing six "mass incidents" last year. Problems like forced relocation and use of industrial land have also "deepened the discontent of the population," said Li.

Dittmer told Radio Free Asia that public protests have been growing, although the government has not reported figures since 2005, when there were said to be about 80,000 significant incidents.

The number has since risen to about 130,000 a year, said Dittmer, citing informed sources. Dittmer blamed the rising inequality on local officials who pursue high GDP growth rates to advance their careers.

"It's anything to get growth. That means let the rich get richer faster and let the poorer fend for themselves," he said.

'Realms of instability'

Low rural incomes are a downside of China's success story after a year of conspicuous consumption in cities.

As China became the world's largest car market, Mercedes-Benz sold over 68,000 of its luxury models. Chinese consumers bought 484 Bentleys and 118 Laborghinis last year, manufacturers said. The cheapest Bentley costs over U.S. $175,000, about 240 times a farmer's annual wage.

David Bachman, a University of Washington professor of international studies, said disparity is a major problem for the government as it pursues economic growth.

"It certainly creates many realms of instability or unhappiness," Bachman said. "The issue for the regime is how long are people in the rural areas going to go along with this, and that's the key question in some ways."

Bachman said the government is pursuing its plan to promote migration to cities, potentially increasing the urban population by 200 million. There are some 700 million rural dwellers now.

Much depends on the success of urbanization to equalize opportunities and incomes, said Bachman.

"If there still are opportunities for people to migrate out with reasonable chances of doing better in urban areas, I think the regime can continue with a fair amount of
expectation that it's not going to be an unmanageable problem," he said.

Rise of a middle class

Gary Jefferson, professor of international trade and finance at Brandeis University, also noted a long-term perspective to the wage gap problem.

"The pattern of income inequality in China has grown markedly over the past 30 years," Jefferson said.

"But one also has to recognize that 30 years ago after the Socialist period and the beginning of the reforms, China had achieved a remarkable degree of income equality, but at an enormous cost. Incomes were very low and poverty was very high," he said.

The rise of a middle class has brought growth in inequality, said Jefferson. But he questions whether protests are a direct result of the wage gap or associated problems, like pollution and corruption in land management.

"These are issues that clearly have to be addressed," he said.

Jefferson said disparity is "a pitfall" for China because it represents a potential source of unrest and a poor use of human resources. But slower productivity growth in coastal regions is starting to even out with industry growth in interior areas, he said.

"I suspect that over the next decade, you're going to see some smoothing out of the inequality that has been growing over the last 30 years," Jefferson said.

Edited by Sarah Jackson-Han.

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