China’s Rich And Impoverished: What The Future Holds For The Country’s Continuously Growing Income And Wealth Gap
China has not always been one of the world’s leading economies. The country had gone through many struggles under the leadership of Mao Zedong until his death in the late seventies. From the start of the 1980’s however, through several political as well as socio-economic reforms, China quickly grew to become one of the world’s biggest market economies. By 2050, it is predicted that China will become the world’s leading economy. Nevertheless, despite its economic success, there is still a massive wealth gap within the population and different areas of the country. This paper will explore how China developed into one of the biggest economies, how it maintained its position over the years and how this growth impacted the country as a whole. Moreover, it will also discuss why there is such a large wealth inequality among its’ people, and how this problem could be solved in the future, as it has been a growing prevalent issue for decades.
From the beginning of the 1950’s after the Communist Party of China came to power, the leaders set certain long-term goals with the intent of transforming the nation into an independent, modern, socialist land. At the time, the majority of the Chinese population was living in poverty, therefore the aim was to improve living standards, industrialization and increase the income per household. Mao Zedong had an idealized, almost utopian vision for the country, influenced by Marxist ideologies and the Bolshevik revolution. Chairman Mao was among those in the Communist Party that were more focused on the political reforms and thought they were to be prioritized over economic goals. However, China needed to stabilize their economy after being in warfare with Japan this is when the “Five-year plans” were inaugurated. The first five-year plan followed the Soviet economic model based on state ownership and focused on growing the economy at a fast rate. With the help of the Soviet Union, the plan was fairly successful: it included changes in the field of agriculture and converting all enterprises to become owned by the state. Yet, the big boost in the economy occurred post-Mao’s leadership. Another reform launched in 1978 by Deng Xiaoping, which established new policies, including for foreign trade to be increased. From then onwards, China focused on industrialization, intensive agriculture, as well as exporting more goods. This ultimately resulted in the development of the rural economy, and thus, led to China’s economy growing at an impressive rate in a short amount of time. Further development meant producing higher quality goods resulting in a constant rising economy. In the period between 1990 and 2004, China’s economy grew on average by 10% per year, making it the highest growth rate in the world. However, starting with 2013, a decrease of China’s GDP (gross domestic product) below 8% was a sign that economic measures have not been accompanied by necessary readjustments in the wealth distribution (i.e. fostering domestic consumption), in its exports’ policy (i.e. continuous support to its export sector) or in its total indebtedness of its economy (e.g. huge costs of environmental degradation due to its polluting industry, increase of imports of agricultural products due to its insufficient production of food at national level (Hung, 2016). However, according to a study of the International Monetary Fund (IMF) “China’s economy continues to perform strongly with growth projected at 6.6 percent for 2018”.
Despite this tremendously successful economic growth, there is still a massive wealth gap when it comes to salary incomes and standard of living among Chinese citizens, and between cities and rural areas. According to Forbes China Rich Lists (2018), the wealthiest 100 persons in China have accumulated an unbelievable wealth of 643 billion US dollars. In comparison, the bottom 40 percent of Chinese households (around 425 million people) collectively own just around 637 billion US dollars’ worth of assets. In terms of the Gini coefficient, (a statistic measure determining the distribution of incomes of households ranging from 0 to 1; 0 being perfect equality and 1 meaning highest level of inequality) China is at a 0.465 which is a fairly high inequality according to the United Nations. This raises the question, how did this disparity come about? One of the main factors impacting the wealth gap seems to be the inequality of access to education. People who pursue higher levels of education are more likely to receive higher salaries; this can be examined over several generations: families that live in the countryside generally remain there, working in agriculture. Another major factor is the so-called “rural-urban gap” – urban areas are generally favored: urban residents have better opportunities and more resources to further their careers and make more money. This also relates to the rural-urban gap, since poorer rural regions aren’t able to afford the costs of basic education. If China will keep growing as an economy, equality in terms of income becomes a less and less achievable goal. What does this mean for the future of the country?
According to David Shambaugh (2016), China’s political system and government are at fault for the country’s unstable and unbalanced economy, which is closely related to the polarization between rich and poor. Ultimately, a new reform is needed in order for the country to re-gain economic balance. Shambaugh (2016) believes that a rebalance is needed, primarily due to the “Middle Income Trap” (an economic developmental situation, in which a country that attains a certain income, plateaus at that level). In order for this trap to be avoided, China must change their political regime, following a path of political liberalization. Of the four political pathways proposed and analyzed by Shambaugh neo-totalitarianism (considered the current path), hard authoritarianism, soft authoritarianism and semi-democracy, only the two latter ones could provide for a moderate and respectively successful reforms, bringing economic stability and growth, as well as creating the conditions for reducing the wealth gap. The above conclusion is supported by a 2018 IMF study which recommends an acceleration of economic rebalancing by “increasing health, education, and social transfers” which could be covered by the introduction of “taxes on income, property and carbon emissions”.
A drawback in terms of this problem is the amount of information surrounding it. Overall, there is a lack of transparency in terms of this issue. Most papers are not able to give concrete reasons as to why the income inequality has gotten to the level that it’s at today. This problem is deeply complex, and not many papers manage to explain the actual causes for this, remaining purely at the surface.
In conclusion, China’s income inequality is not a problem that can be fixed easily. In a global context, a number of people have argued that China’s economic boom may be the cure for the ongoing economic global crisis – Ho-Fung Hung (2016) argues against this, stating that China is in fact one of the contributing factors for this economic imbalance which resulted into the crisis that it is today. In conclusion, China’s economy is an issue that will be very hard to fix.
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- International Monetary Fund (2018, July 26) China’s Economic Outlook in Six Charts. IMF County Focus. https://www.imf.org/en/News/Articles/2018/07/25/na072618-chinas-economic-outlook-in-six-charts