Growing Chinese inequality gap could cause problems for the economy

20 Feb

In recent years the Chinese economy has developed significantly, making it one of the largest economies in the world. This economic development has hugely benefited a number of entrepreneurs and politicians, making many billionaires and significantly improving their standard of living. However there remain thousands of citizens who have not experienced this growth in income and are still living in poverty, showing that despite this rapid economic growth, China remains a developing country.
While China has the second largest economy in the world, it’s GDP per capita figures, which fall behind those of countries such as Jamaica, suggest that despite impressive growth, it remains a developing country. This development gap is further highlighted through the rising levels of income, health and education in richer provinces. A report by the UN showed that in such areas development was catching up with that of some European nations, while other, poorer regions were on the same level as countries like Namibia. After having kept statistics of the level of inequality a secret since 2000, China finally released figures last year produced by the “Gini coefficient” measure of economic inequality, which ranges from 0 (perfect equality), to 1 (total inequality). The statistics released showed Chinese economic inequality to be 0.474, which according to a report by a Chinese NGO is a dangerous level of wealth inequality and makes it one of the world’s most unequal countries.

Half of the Chinese population still lives in rural areas and earns a very small salary, in contrast to those living in wealthy areas who are earning huge amounts of money. This is simply widening the inequality gap, which could pose a considerable threat to the economic stability of China. A report by the UN came to the conclusion that “inequalities that have emerged during rapid growth have widened to levels that pose additional obstacles to development”. This is due to the fact that such inequalities have led to a decrease in demand for goods and services and lower productivity, as families are forced to save money so that they can afford services that are not heavily subsidised by the government, such as health, education and pensions. One author of this report stated that the “equalization of basic public services is an important condition for expanding domestic demand and maintaining steady and rapid economic growth”, suggesting that unless action is taken soon to decrease the development gap, demand within China could continue to decline. What’s more, exports play a major role in the growth of the Chinese economy and demand for these have already suffered a decline as a result of the global financial crisis, causing a considerable threat to the economy.

It is clear that if the gap between the rich and the poor continues to grow, the Chinese economy could suffer a terrible recession, which could have devastating consequences. It is for this reason that decreasing the development gap is one of the most important issues facing the Chinese government; who has made a pledge to tackle this problem through a plan that involves raising the minimum wage.

Sources:
http://www.bbc.co.uk/news/business-21347819
http://www.itv.com/news/2012-11-02/chinas-great-growth-means-widening-gap-between-rich-and-poor/
http://www.telegraph.co.uk/finance/financialcrisis/3470664/Gap-between-Chinas-rich-and-poor-threatening-economy-.html
http://articles.economictimes.indiatimes.com/2012-09-17/news/33902854_1_gini-coefficient-inequality-economic-reforms

Advertisements

One Response to “Growing Chinese inequality gap could cause problems for the economy”

  1. na8g10 February 21, 2013 at 1:24 pm #

    Agreed, and the inequality in China is something that has been known for a while, so the lack of progress on this front is a major worry for China.

    The standard of living in China has increased, but many people believe these effects are not felt by everyone “In the economic realm, while standards of living have improved for the vast majority of Chinese, and the country’s middle class has expanded tremendously, there is nonetheless a widespread belief that not everyone is enjoying their fair share” (BBC, 2010). In the same poll “81% of those polled agree that today the “rich just get richer while the poor get poorer””. In any other democratic country, if 81% of people held this view, the government would have been voted out by now. But obviously results like this you can only take with a pinch of salt due to the sample used for the survey, but this is a widely accepted few by a majority of the Western countries so I’d say this result is fairly valid.

    One thing associated with China is economic prosperity, and this is true to a large extent, but China are in danger, as you point out. They handled the recession well, but now they have problems such as inequality and inflation coming to the forefront.
    So it’ll be interesting to see how China adapt/reform to try and tackle these problems in the future.

    Source:

    1) http://www.economist.com/news/finance-and-economics/21568423-new-survey- 2) illuminates-extent-chinese-income-inequality-each-not
    http://www.bbc.co.uk/news/world-asia-19953634

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: