Tag Archives: #China #DeepThoughtBlog #Inequality

Inequality in China: The Rural and Urban gap widens

22 Mar

Introduction

In the last 50 years China has undergone what can only be described as an economic miracle. To many, China’s growth is deemed as the most rapid of any economy on this earth. The last half a century have seen changes to China in an economic, social and environmental manner on a scale unprecedented before them. Since the ‘Open Door Policy’ was established in December 1978, the east coastal regions of China have expanded and developed in phenomenal ways to adjust, accustom and utilise the new influx of various types of business from foreign land (Wikipedia 2014). This has caused China to acquire wealth fast over a relatively short period of time. Wealth which was utilised for a country wide development scheme. This expansion and development however, hasn’t affect China in a universally equal way. The more western parts of the country suffer from poor geographical conditions and a lack of good infrastructure which has kept its usage more for agriculture and less for development (Wu, M. 2006). Over time the inequality of income and growth between the two main regions of China has become a very big problem, a problem of a scale that can slow or even retard the excellent growth China as a country has displayed up until now (Seeking alpha 2014). Overall the problem of inequality can become a roadblock for China in terms of social stability as well as its emergence as a world power and thus must be dealt with as soon as possible. In this blog I will talk mainly on the post reform era of inequality in China

 Image

The graph above shows a drastic increase in income inequality since the 1980’s. It must be stated however, that this doesn’t mean the rich are getting richer and the poor poorer.

Extracted from the sources website of this graph, it states that “While inequality has been rising in China, hundreds of millions of people have been lifted out of poverty

Source: lowyinterpreter.org

 

Image

Above is an image of railway infrastructure in China. As you can clearly see the eastern coastal areas of china have a well-connected and expansive network which slowly decreases in railway available the further west you go until eventually there are no railway links available.

Source: wikimedia.org

 

The Inequality Crisis Now

Before the reform, China was considered to be approaching what is known as economic convergence. Economic convergence is when the poorer parts of an economy may grow quicker (catch up) with the richer parts of the economy to reach an equilibrium.  After the reform however, China’s economy began to see an economic divergence as the divide been the Urban and Rural populations grew (Wikipedia 2013). A graph posted by the ‘National Bureau for Statistics in China’ (Fig.1) shows that from 1978 to 2010 the average wealth per Chinese citizen has increased by $17,126. This is a value almost double that of other countries considered high-growth economies (India for example). This however is coupled with a median wealth of $6,327. These figures indicated an uneven distribution of wealth within China (BBC 2011).

 Image

Fig.1

As you can see from Fig.1 also, the rural net income has slowly shown a greater margin between itself and the urban disposable income since 1978. This indicates the wealth is uneven between the Urban and Rural areas. Inequality is shown in a more personal manner in table by the ‘National Bureau of Statistic for China’ (Fig.2). In this table we can see that that the rural areas lack many appliances and technologies considered necessary for living in this day and age compared to that of the urban population. The problem seems to be bettering however, as from the table we can see a slower growth in the number of these appliances owned by urban households compared to rural in which the growth of their appliances and tech over the years have shown an exponential increase. These trends indicate that in China’s current state the inequality is slowing and may even be reversing to a more equal economy but this is too big an assertion to be making already.

Urban v rural China

 

Urban households

Rural households

(OWNERSHIP PER 100 HOUSEHOLDS) SOURCE: NATIONAL BUREAU OF STATISTICS OF CHINA

 

1990

2000

2009

1990

2000

2009

Colour TV

59

116.6

135.6

4.7

48.7

108.9

Cars

0.5

10.9

0.1

0.7

Motorcycles

1.9

18.8

22.4

0.9

21.9

56.6

Computers

9.7

65.7

0.5

7.5

Washing machines

78.4

90.5

96.0

9.1

28.6

53.1

Refrigerators

42.3

80.1

95.3

1.2

12.3

37.1

Fig.2

The main area of inequality in China as you can see is money distribution. As mentioned earlier, China is showing a growing inequality in the distribution of money throughout the country, mainly divided into a more generalised inequality for riches among the west and the east. As you would expect from such a divide in money distribution, standards of living throughout have been affected and are now also unequal. This is the case in many countries, including developed ones.

Closing The Gap

China does have plans and are taking steps to tackle their overwhelming inequality crisis. China has stated that one of their key focuses for their ‘five year plan’ revolves around tackling the issue of inequality. One way that China is trying to tackle inequality is by its new ‘Tax & Wage Reform’ announced last tear. The aim of this reform is to “raise wages, make interest rates more flexible and improve households’ return on assets”. This is all with the aim of reducing the population in poverty and increasing the middle class which would therefore begin to alleviate the inequality margin. In the ‘U.S.-China Economic and Security Review Commission Staff Research Backgrounder’ it is stated that China intends to raise the minimum wage to about 40% of the average wages in China. This is a step in the right direction, however, by the time this raise comes into full affect the effects of inflation may neutralise any potential gains in equality across the nation (Salidjanova, N. 2013). Since 2008 the income gap in China has decreases showing progress in China’s efforts to tackle inequality. For the past 5 years the GINI coefficient of china has decreased indicating change for the country in the right direction (Fig.3) however, experts say a coefficient above 4 can lead to social unrest that of which China still has. The GINI Coefficient is a measure of income distribution among countries residents. A lower score meaning a better distribution (Investopedia 2014).

 Image

Fig.3

Source: http://img1.caijing.com.cn/2013-01-18/112445270.jpg

*WORD COUNT (Without References): 1078

 

References (Harvard):

BBC (2011) Inequality in China: Rural poverty persists as urban wealth balloons [online] available at: http://www.bbc.co.uk/news/business-13945072 [Accessed 12 March 2014]

Wikipedia (2014) Open Door Policy [online] available at: http://en.wikipedia.org/wiki/Open_Door_Policy#In_modern_China [Accessed 12 March 2014]

Wu, M. (2006) China’s Wealth Disparity Between City and Country and the Government’s Policies

Toward It [online] available at: http://economics.uwo.ca/undergraduate/undergraduatereview/undergraduatereview07/3_Wu.pdf [accessed on 10 March 2014]

Seeking Alpha (2014) Chinese Inequality And The Growth Imperative [online] available at:

http://seekingalpha.com/article/2004171-chinese-inequality-and-the-growth-imperative

[Accessed on 10 March 2014]

Wikipedia (2013) Convergence (economics) [online] available at: http://en.wikipedia.org/wiki/Convergence_(economics) [Accessed 12 March 2014]

Salidjanova, N. (2013) China’s New Income Inequality Reform Plan and

Implications for Rebalancing [online] available at:

http://origin.www.uscc.gov/sites/default/files/Research/China%20Inequality%20-%203%2012%2013.pdf [Accessed on 8 March 2014]

Gini Index

http://www.investopedia.com/terms/g/gini-index.asp [accessed one 14 March 2014]

*WORD COUNT (With References): 1233