China: Gap between the Rich and the Poor - Case Study Example

China: Gap between the Rich and the Poor Name Institution Date Introduction Gap between the Rich and the Poor Case Study: China China has been in the international scene for some time now pulling out tremendous performance in terms of economic growth and industrialization. The country has witnessed great industrial developments in the recent pasts proving itself a major economic powerhouse in the international scene. Of great concern however has been the persistent and growing gap between China’s super rich city dwellers and the poor rural agriculturalists, with this subject being centre of discussion of several debates. Picking up the debate, this paper discusses the possible reasons behind this economic inequality and the reasons why this gap may not be eliminated soon. Gap between the Rich and the Poor The economic gap between the rich and the poor in china has been a subject of discussion both in the Chinese government as well as the international community. The government recently released statistics showing great gap in terms of income between the two groups of citizens after keeping it a secret since 2000 (VOA News, 2013). In estimating this gap, the National Bureau of Statistics used a standard of measure called the Gini coefficient. The standard which ranges from 0 (for perfect equality) to a maximum 1 (for total inequality) showed China’s coefficient at 0.474. This placed the country among the world’s most unequal countries. The flourishing economy has resulted in few entrepreneurs making billions and has seen some Communist Party officials live in luxury while the majority of the Chinese population experiencing little or no growth in their income (VOA News, 2013). While the government has expressed its desire to minimize this gap, the reasons why it came to exist remain unaddressed, and the differing measures in income remain to present a big challenge. The ridge between the rich in the cities and the poor in the rural areas has been increasing since the 1990s. Together with the official corruption, the inequality remains a major cause for the social unrest witnessed in the country. In China, there are over 2.7 million millionaires, with some 251 billionaires, all these figures in US dollars. Surprisingly, about 13% of the population lives on no more than $ 1.25 per day, as reported by the United Nations data (Yin, 2013). Yet, the average annual income is about $3,500 in the cities.In an interview with the Global Times newspaper, professor Zheng Xinye estimated that the real Gini coefficient for China may be well above 0.61 noting that it is difficult to arrive at the accurate value since it is extremely difficult to survey the richest men in China. He further noted that the widening gap may be a result of restrictions that prevented the small and medium –sized firms from reaching the high-profit sectors of the economy and the widespread discrimination in employment (Duggan, 2013). Great inequality is obvious between the wealthy east, where the large cities of Beijing and Shanghai are, and the interior. The gap between the rural and the urban incomes is almost 26% higher than that in 1997, but compared with 1985, it is 68% higher, statistics provided by a report by the Chinese Academy of Social Sciences. This great inequality is a direct consequence of the big number of China’s workers who now live in the cities. Rural migrants have moved to the cities for more employment options, with 252 million migrant workers now living in the cities with over half of the entire population living in the cities. The migrants are not usually entitled to pension, free education or healthcare as dictated by China’s household registration system, which categorizes citizens as urban or rural residents so that public services are allocated accordingly (Duggan, 2013). Sociologist professor Martin Whyte says that this divide between urban and rural Chinese is one of the major reasons for the large gap between the rich and the poor. China has experienced rapid growth in its economy over the last few years. Last year, the country was named the second largest economy. With all this growth however, China remains in position 121 when nations are ranked according to their wealth per capita. It has shown double digit economic growth, that which other European countries experienced in centuries (Walker, 2013). The result for such growth will always benefit just a handful and is usually characterized by exploitation and suppression of the weak, knocking them off with strict regulations and difficult procedures. The wealth does not spread to all the members of the country but remain concentrated within the high class. Still, the country strives to achieve middle income status by 2020! Liao Cheng, an economist says that the gap between the rich and the poor continues to widen due to governments monopolies. He says that the officials use and abuse their powers to exploit other citizens and make so much money. He says that another serious contributing factor has been the state control and manipulation of the press. The press lacks freedom and the officials do all they please since the complaints from the public do not threaten them at all. The government has continued to increase its spending, with an increase of over 100 billion yuan yearly since 2005 (Yuanhan & Ping, 2010). By 2010, common people earned less than 20% of the GDP, while the government administration spent about 30% of the GDP. The country’s official policy has allowed some people become rich extremely first, most of which have been close to the communist party resulting to charges that corruption is the contributor of the income gap. A survey by the government run People’s Daily with the People’s Net indicated that the corruption in the government ranked higher than other issues like housing, health insurance, the wealth gap and expenditure control (Yuanhan & Ping, 2010). The government has been criticized of their “loud words with little action”. The central government lacks the determination as well as the intention to fight against corruption. A survey in 2009 showed 90% of the public were for thought that the officials publicize their wealth. The officials on the other hand were against this with 97% rejecting such a requirement. In the early 1980s, from the late 1970s, economic reforms were aimed at introducing several policies directed at reducing urban-rural division. The policies increased procurement prices of agricultural products, promoted the adoption of the household responsibility systems, as well as encouraging the relaxation of previous restrictions on labour mobility to the nonagricultural businesses in rural areas and employment in the cities. The consumption, which is considered a better measure for living standards than peoples’ income, showed a rising trend in the late 1970s, but significantly declined towards the mid and end of 1980s. This was in response to economic reforms that failed to establish an environment that would encourage reduction in rural-urban inequality. The years towards the 1990 saw enforcement of policies worked negatively for the rural population. The prices for farm produce stopped rising while those for agricultural inputs started to rise. The state had begun to focus heavily towards the urban sector and the industrial world while neglecting the rural agricultural sector. This immediate shift of attention worked out positively to those in urban areas who took the opportunity to go into business while the rural population remained locked in desperation and poverty. The government then continued to suppress the rural migrants who came forward into the cities b y barring them from accessing basically all kinds of services and benefits that were accessed by other urban residents. The poor therefore experienced harder times spending heavily for housing, healthcare and education. They were forced to move away from affluent societies, crowding in dirty suburbs and remaining to do low class jobs like cleaning. They therefore became locked in poverty while the already established extended their businesses and made more money (Yao et al, 2004). According to a survey by China Family Panel Studies, the country’s unemployment rate is at 4.4% but the figure goes to 9.2% when discouraged workers are included. This figure is higher than in USA where the unemployed and discouraged workers represented 8.4% of the population by June 2013. Youth unemployment is high with about 15% of men between the ages of 16 and 19 years out of work. Although most people are engaged in some kind of work, the majority of the poor are paid little wages that do not much the amount of work. Trend showed that those with highest unemployment were the middle school graduates, with graduates having the lowest. The situation is feared to have deteriorated more since the conduction of the survey in 2012, pointers including the reading for the HSBC Markit Purchasing Managers Index showing that the manufacturing sector had shaded more workers at the highest rate since the year 2009. There are several factors behind the persistent and even fast growing inequality between regions. The country is in transition, modifying its economy and institutions rapidly but with consequential variations evident across provinces. This regional inequality has been suggested to be explainable by the region’s share of heavy industries, the degree of decentralization as well as the degree of openness. Other authors argue that for the cases of China, the regional inequality was majorly fueled by the increased globalization, privatization, and uneven domestic capital accumulation noting also that the effects of urbanization, location and dependency ratios have been reducing. Meng et al (2005) on the other hand say that the discontinued free education, medical care and housing together with rising uncertainty fueled the incidence of the urban poverty. Study to explain the regional inequality found that the gap between the rich and the poor regionally is a result of structural and other long term factors including labour quality, geographical information, regional labour supply, and the industrial composition. Although the restrictions on internal rural-urban migration are not as strict and inconveniencing as they originally were, this has not been the reason for people to migrate. The survey further found that inter-provincial transfers do not necessarily offset the wage inequality and neither do inter-province migration, suggesting that the regional inequality problem is not likely to be gotten rid of easily in China. But since the productivity of labour may be high in some industries than others, the industry composition is likely to affect average wage in the region (Candelaria et al, 2013). Economists argue that trade liberalization and fiscal decentralization are great contributors to the rise of inequality in China. By fiscal decentralization, the rich provinces at the coast were enabled to further increase their revenues. They thus promoted their economic development and accumulated more wealth. Trade liberalization on the other hand enabled the provinces at the coast to increase their growth by taking advantage of their geographical positioning and the fact that they were treated with preference by the central government. Government assistance came in the form of infrastructural developments and encouragement of foreign direct investment. It was established that inequality attributed to income difference between the rural interior and the coastal regions had increased from 3% to about 10% of the overall province-level inequality from 1980 to 2007. The fiscal relationship between the provincial and the central government was a major contribution to the increase in inequality among the provinces. Great power vested upon the central government after the 1994 fiscal recentralization so that the government could redistribute the revenue to other poorer provinces. Rule-based transfers are equalizing but over two-thirds of the transfers which are specific and which are subject to negotiation are always diequalizing since they need matching funds or they produce rent seeking. Recent fiscal transfers from the central government to provinces have not done much to correct the income divergence in the provinces. Conclusion In conclusion, it is worth noting that although the country has made tremendous progress towards industrialization and self sufficiency, a major challenge for the Chinese government over the years has been to reduce the gap between the super rich tycoons on Chinas affluent cities and the poor populations in the rural China living below the poverty line. The Chinese government has recently stressed its intentions to address this issue in the middle of rising unrest while still promising to reach middle income economy in the near future. While inequality paints the China with the wrong picture in the international scene, this is a common characteristic of any other developing country. References Yao S., Zhang Z, & Hanmer L. (2004). Growing inequality and poverty in China. China Economic Review; 15, 145– 163. Duggan J., (2013). Income inequality on the rise in China. Retrieved on 13th September 2013 from Yuanhan L. & Ping Z., (2010). Gap Between Rich and Poor Widens in China. Retrieved on 13th September 2013 from Meng, X., Gregory R., and Want Y. (2005): Poverty, Inequality, and Growth in Urban China, 1986-2000.Journal of Comparative Economics, 33(4), 710{729. Yin S. C., (2013). In China, a Vast Chasm Between the Rich and the Rest. Retrieved on 13th September 2013 from Walker A., (2013). China's great growth means widening gap between rich and poor. Retrieved on 13th September 2013 from VOA News (2013). China Reveals Economic Gap Between Rich, Poor. Retrieved on 13th September 2013 from < http://www.voanews.com/content/china-reveals-economic-gap- between-rich-and-poor/1586295.html> Candelaria C., Daly M. & Hale G. (2013). Persistence of Regional Inequality in China. Retrieved on 13th September 2013 from < http://www.frbsf.org/economic- research/files/wp2013-06.pdf> Read More