Wednesday, May 03, 2006

CHINA: Capitalist restoration worsens inequality

CHINA: Capitalist restoration worsens inequality
Eva Cheng

The gap between the rich and poor in China, which started to widen when Beijing embarked on the pro-market reforms in the late 1970s, has now widened to an unprecedented level. According to a recent study by China’s National Development and Reform Commission, the richest 10% of the country’s urban population control 45% of urban assets while the poorest 10% hold only 1.4%.

According to the China Human Development Report 2005 released by the UN last December, in 2002 the richest 10% of urban dwellers controlled 34% of urban wealth while the poorest 10% held a mere 0.2%. When extended to the richest 20% of the urban population as compared to the poorest 20%, their respective shares in 2002 were 51% v 3.2%.

In the rural areas in 2002, according to the UN’s report, the wealth gaps were less extreme but were still at a high 31% versus 2% between the top and bottom 10% of rural residents and 47% versus 6% between the top and bottom 20%. Rural dwellers were on average far poorer than their urban counterparts.

In 2002, when the rural wealth per capita was 12,638 yuan (about US$1500), the urban wealth figure was 46,134 yuan per head — 3.7 times higher. Measured by income, the picture has hardly improved. The UN’s Gini coefficient for income distribution, which ranges from zero for perfect income equality to 100 for perfect inequality, rose in China from 28.8 in 1981 to 38.8 in 1995 and 45 in 2002 — a 50% jump in inequality in 20 years.

In 2000, China’s Gini rating was 44.7, far worse than even India which scored 32.5. China’s 2000 rating earned it an embarrassing 90th place in terms of income equality among the 131 countries measured by the UN Development Program.

According to a 2002 survey by the Chinese Academy of Social Sciences, of China’s richest 10%, urban and rural residents accounted for 93% and 7% respectively, while among the country’s poorest 10%, the urban and rural shares were 1.3% and 98.7% respectively. Commenting on this urban-rural income gap, the UN’s 2005 China report noted that this “is perhaps the highest in the world”.

Going backwards

The UN’s 2005 China report observes: “Compared to the early days of reform, China’s inequality in income distribution has increased sharply. This phenomenon has been noted both in urban and rural areas, between cities, between regions, and between population groups, and is leading to a widening gap in wealth distribution between the rich and the poor.”

Things got particularly worse around two turning points — in the early 1990s, when the Beijing regime sought to “deepen” the reforms (i.e., shifted to a full-on drive to restore capitalism), and since around 1997 when the sweeping privatisations of state enterprises began.

The report points out: “Widening inequality in urban personal income became dramatic after 1992, when Deng Xiaoping made his tour of southern China, spurring another wave of economic reform.” It continues: “In the early 1980s, China’s rapid economic growth was accompanied by a dramatic drop in rural poverty. But in the 1990s, although the economy continued to grow quickly, the reduction in poverty slowed down. One reason for this was widening income inequality.”

The report notes that the “urban-rural disparity in the level of human development failed to narrow between 1990 and 2002, and even gradually widened after 1997. This trend was to a large extent caused by the widening income inequality between urban and rural areas.”

The UN Development Program gauges human development by an index — the Human Development Index — that is a weighted measure of three factors: Life expectancy, education (measured by literacy and formal education enrolment), and economic development (measured by GDP per capita in parity purchasing power).

While China’s average life expectancy at birth increased from 64 years in 1979 to 71 years in 2000, the urban-rural life expectancy gap widened from 3.5 years in 1990 to 5.6 years in 2000. Despite China’s adult literacy rate rising from 71.9% in 1985 to 84.1% in 2000, net primary school enrolment declined from 94% during 1985-87 to
91% in 1998. Over the 10 years from 1985-87 to 1995-97, public education expenditure stagnated at 2.3% of GNP, though rising slightly from 11.1% of government expenditure to 12.2%.

In contrast, over the same period, India, which is infamous for social inequality, spent 3.2% of GNP on public education and increased such expenses as a percentage of government spending from 8.5% to 11.6%. China’s primary school enrolment recovered partially to 93% in 2000, but it was still below the mid-1990s level and fell considerably short of the country’s 1993 goal to achieve 100% enrolment for the nine-year compulsory education by 2000.

Both urban and rural Chinese increased their income per capita more than four-fold between 1979 and 2003. But the urban-rural income gap widened throughout the period — from 824 yuan in 1990 to 1578 yuan in 1995, 4027 yuan in 2000 and 5850 yuan in 2003.

Moreover, the gap was understated by the fact that China’s National Bureau of Statistics excluded from the calculation of urban income all subsidies in kind that urban residents enjoyed but their rural counterparts didn’t.

Why is disparity widening?

The problem is inseparable from Beijing’s drive to restore capitalism — the so-called socialist market economy — beginning in 1992. This drive was justified as a project to build “socialism with Chinese characteristics”.

The increased use of market mechanisms, on its own and within a limited period, doesn’t necessarily contradict the goal of building a socialist society. But the role of the government in defending the interests of the working people is particularly crucial if the socialist project isn’t to go off-track.

Before the “reform”, the state enterprises not only provided jobs but were also the main conduit through which Beijing redistributed income and provided for various basic social needs, such as housing, health care, education, child care and pensions, to the urban population.

Cooperative enterprises played a similar but subsidiary role in both the cities and the countryside, while rural people’s communes were the main form through which production as well as basic needs were organised in the rural areas. Through manipulating the pricing of agricultural produce, Beijing sought to develop China’s weak industrial base by draining resources from the countryside. So even in the past, the urban-rural wealth gap existed as a tool for income redistribution. Despite lip service to building socialism, because this broad social goal is no longer being pursued, with society driven mainly by private profits, the urban-rural gap would become an increasing source of social discontent.

Moreover, fiscal decentralisation in the 1990s meant that funding to meet basic social needs to be sourced locally rather than nationally. This contributed to impoverishing even more the already underprivileged areas, a situation made worse by rampant corruption as government officials attempted to turn themselves, family members and cronies into “entrepreneurs”.

The rural area, where the bulk of China’s population lives, is hit most by the capitalist restoration, with detrimental implications for jobs, health care and education. The lack of local financing has directly contributed to the ramshackle state of education and health care in the rural areas in the wake of the dismantling of the people’s commune system in the 1980s.

This is the critical reason why many rural areas in China are mired in a spiral of deepening poverty. It is no accident that problems associated with the rural areas have become a top national issue in China in recent years.

The urban population is better off, but only relatively. Massive privatisation since 1996-97 meant the loss of secure jobs with decent entitlements for many urban workers. Housing, health care and education have once again become a luxury for many urban dwellers, though not as out of reach for them as for their rural counterparts.

No wonder a recent survey on the quality of living of the Chinese people, quoted in the February 20 China-based Number One Business Daily, concluded that education and health care have become the most significant causes for the disparity between the rich and poor in China.

The survey, which covered samples in eight major and medium cities (including Beijing, Shanghai and Guangzhou), seven towns and their neighbouring rural areas, revealed that 40-50% of the poor being interviewed named education expenses as the main cause of poverty for their households. In the year to October 2005, education expenses accounted for 32.6% of household expenditure of the rural samples, 25.9%
for samples in the major cities, and 23.3% for those in the sampled towns.

Quoting figures released by the Development Research Centre of the State Council, Number One Business Daily further highlighted the serious burden of medical costs, noting that treatment for a major illness costs an average of 7000 yuan, as compared to the average rural net monthly income of 2000 yuan.

Poverty and the lack of jobs have prompted 140 million rural people to flood to the cities to find work. They are excluded from the welfare entitlements available to other urban residents, and can get only the worst jobs, for the worst pay, with 58% of them, according to the UN’s 2005 China report, working seven days a week.

People in China are far from happy with the income disparity. According to the UN report, even though China’s Gini coefficient for income distribution is very close to that of the US, only 65% of US residents concluded that income inequality was too big while those holding this view in China was as high as 95%. The report speculates: “Apparently, people in China and the former socialist countries have a lower tolerance for inequality. In these countries, more than 90 percent of people believed income inequality was too great; and about 80 percent saw their governments as having the responsibility to reduce income inequality.”

These higher social expectations of the people from the former socialist countries is a testimony of the residual socialist consciousness of their populations, their expectation of their right to social equality.

From Green Left Weekly, April 12, 2006.
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