Increasing income disparity in China

Description:

With the undertaking of many market reforms China has achieved sustained high growth and rapid progress in poverty reduction. The World Bank estimates that in the last two decades since reforms started average income per capita in the country has quadrupled and more than 270 million people have been lifted out of poverty. The dark side to these statistics lies in the current income disparity in the country.[1]

As of 2007, China had a Gini coefficient of 0.447.[2] This income disparity can be seen between farmers and city dwellers and between the employed versus unemployed in the cities. The pace of the poor's growing affluence is by far slower when compared with the richer portion of China. Much of this income disparity has been caused by economic growth and migration to cities as there is a large gap between the country's urban and rural areas and between the booming coastal regions and underdeveloped western regions. This results in a multi-level society which could eventually lead to democracy or civil war.

Enablers:

1. Income disparities between different areas and industries: Urbanites and those working in government monopolistic sectors, for example telecommunication and banking, generally earn much more than farmers and city dwellers in non-monopolistic industries. [3]
2. Discrimination against different social identities: In China today, seldom can farmers gain an equal footing while competing with their urban counterparts in job-seeking. Such discrimination also further pushes farmers to a disadvantageous corner while they try to elevate themselves through other means, for instance education and vocational training. [3]
3. Economic growth: As China continues to grow and urbanization increases more people move to the cities to get higher paying jobs. This trend increases the income disparity between city workers and farmers.
4. Improved transportation structure: As the transportation structure in China improves, more people are able to move to the city and work which increases the income disparity between city workers and farmers.
5. Increased number of households: An increase in the number of households makes more homes available for people to move into in the city. Moreover, the increase in the number of households is also contributing to the development of a more individualistic mentality and a decrease in collectivism. This decrease in collectivism further exacerbates the income disparity issue as more people are concerned about their own success rather than the success of the community.
6. Government policy favoring economic growth: Income disparity worsens as the government continues to implement policies and programs that favor economic growth.
7. Elections of moderate factions of Communist Party: Moderate politicians move the focus from Communism to economic growth. The last two heads of state have been from the moderate party and have emphasized economic growth over Communism and socialist policies, leading to increasing income disparity.
8. Increasing education levels: As educational opportunities increase so does the rise of "blue collar" and "white collar" classes.

Inhibitors:

1. Governmental policy: If more conservative politicians are moved into the head of state then the country may return to a more Communist policy, or one that will downplay the importance of economic growth.
2. Backlash to current state of capitalistic countries in global crisis: The Chinese government may revert to more sustainable growth policies after seeing the effects that capitalism has had on other countries during the global financial crisis. Sustainable growth may in turn reverse the growing income disparity.
3. Social programs: China may give more priority to social security, health care programs, welfare programs, education programs and give more support for rural areas. These measures would help eliminate some of the income disparity within the country. The current Chinese President, Hu Jintao, has been responding to rising social tensions and China's wealth gap by promising greater spending on health and education in rural areas. [6]
4. Tax reform: China may use high-consumption taxation and legacy taxation as ways to reduce the rich-poor gap.

Paradigms:

Income inequality could have a massive effect on social, economic, and political futures. Most likely, this income inequality will spark changes to social programs such as welfare, social security, health care, and education as reforms in these programs will help eliminate an income gap. This income inequality could also lead to a renewed fundamentalism and return to the Communist ideology where the best interests of the community and equality prevail. On the other hand the increased income inequality could lead to a push for democracy.

More extreme scenarios could also result from this driving force. The widening gap between the rich and poor cities could result in a multi-level urban society and cause confrontation between different groups. These problems could breed more unstable factors which could endanger social stability and public security, eventually leading to civil war.

Experts:

http://www.mof.gov.cn/index.htm
http://www.mof.gov.cn/english/english.htm

Timing:

• 2003 - President Hu Jintao is elected by the National People's Congress
• 2004 - China's Gini coefficient hit 0.465 in 2004

Web Resources:

1. Qin, Cagas, Duncanes, He, & Liu. 2005. Income Disparity and Economic Growth: Evidence in China.
2. Poon, A. 2007. China's Gini Coefficient and Market Economy
3. People's Daily. 2002. China Urged to Heed Enlarging Income Disparity.
4. http://www.xinhuanet.com/english/index.htm
   
5. http://www.btmbeijing.com/contents/en/business/2005-09/focus/chinaamendtaxlaws
6. BBC News. 2009. Country profile: China.