China: Income gap rings alarm

[Ray]

Income gap rings alarm

* Source: Global Times

By Guo Qiang

Stepped-up efforts to reform the way China spreads out its wealth are being reviewed amid warnings and fears that a widening income gap is jeopardizing social stability across the country.

A plan to curb the yawning wealth distribution will be drafted, according to officials with the National Development and Reform Commission (NDRC) who declined to give a timetable. The efforts come as experts warn that the nation can ill-afford a growing disparity in earnings.

Such a plan could be written into the country's next Five- Year Plan for 2011-15, according to the 21st Century Business Herald newspaper.

State media outlets have featured intensive coverage on the issue, with the latest report appearing Tuesday in the overseas edition of People's Daily, which commented that China is faced with a growing income gap and an accompanying sense of social inequality despite a steady growth since the 1980s in the national average salary.

The Xinhua News Agency reported earlier this month that the top 10 percent of the richest people earned 23 times more than the poorest 10 percent of people in 2007 - up from 7.3 times in 1988.

Cong Yaping and Li Changjiu, economic analysts with Xinhua's Center of World Studies, warned that China's Gini Coefficient - an indicator of income inequality - has exceeded 0.5, threatening poor economic security, a weaker development outlook and social instability, the Xinhua-owned Economic Information Daily newspaper reported last week.

The warning threshold, as commonly recognized by the international community, of the Gini Coefficient is 0.4.

A World Bank report said the index for China surged to 0.47 last year.

Income inequality in the country was also highlighted by a widening income ratio between urban and rural residents, which is at 3.33:1 this year, compared with 2:56:1 in 1997, according to the latest figures from the National Bureau of Statistics.

Yang Yiyong, director of the Social Development Research Department at the NDRC, warned that China can't afford any further rises in the Gini Index, as growing disparity could result in social unrest and "could even cause distrust in the country's public-ownership economic system."

"Social problems, including migrant workers consecutively taking their lives and serial attacks on schoolchildren, are related to conflicts stemming from the income gap," Yang said.

Yang's words referred to seven unrelated attacks on primary school and kindergarten students in less than two months, in which more than a dozen children were killed. Also this week, the number of apparent suicides at Taiwanese company Foxconn hit 10.

The rural-urban income gap constituted a major part in the overall gap, Yang said, urging the free mobilization of labor and the implementation of equal pay for equal work, both of which are hindered by the current household registration system, or hukou.

People's Daily reported that the existing hukou system has helped push up the gap between the rich and poor.

Citizens with rural hukou cannot generally enjoy the same social benefits as urban residents, even though they live and work in cities.

The increasing gap between the rich and the poor has also raised concerns that China will follow some Latin American countries, such as Brazil, where the Gini index once reached 0.69.

Yang, however, said such concerns are unnecessary, as countries adopt different development patterns.

Li Shi, director of the Income Distribution and Poverty Research Center at Beijing Normal University, noted a growing gap between monopoly in-dustries and other types.

He said employees at monopoly industries, including telecommunications, finance, insurance and tobacco ones, can earn two or three times more than those working in other industries.

The gap could widen to five to 10 times if housing, employees' welfare and other forms of income are taken into account, Li told Xinhua.

Meanwhile, the wages proportion of China's GDP growth has been decreasing for 22 years against the backdrop that China is on track to replace Japan as the world's second-wealthiest country, Zhang Jianguo, an official with the All-China Federation of Trade Unions (ACFTU), told workercn.cn, a website under the group.

The proportion peaked at 56.5 percent in 1983, but it fell to 36.7 percent in 2005, he said, and that did not show major improvements in recent years, the report said.

Zhong Dajun, director of the Beijing Dajun Economy Observe Institute, however, cautioned that any reform would be difficult, as it would involve various interest groups, while "the rights of workers should be strengthened, and their voice should be expressed so as to determine that they are not underpaid."

The income gap will not only bring social unrest but also hit the country's economy, Zhong warned.

Officials say tackling the growing income gap has been a top priority for the country's leadership, with Premier Wen Jiabao pledging to increase the proportion of residents' income to the entire national income, and to use financial and tax leverage to narrow the income gap and promote social security.

Meanwhile, senior officials have headed to different localities to learn about income distribution for the much-anticipated policy change.

Kang Juan contributed to this story

Global Times

Though from Global Times, one would like to know that if this report is correct then how will it affect China, in so far as:

1. Political stability.

2. Change in policy to pay attention not only towards the economic resurgence of China as a whole, but also on the social issues as eradicating
a. the income gap.
b. eradicating poverty.
c. improving social security and stability.

How has the Hokuo system helped in increasing the gap? It appears to be a very benevolent system where none can 'go under', since all aspects of existence is catered for.

What is meant in the report - 'growing gap between monopoly in-dustries and other types'?

What is exactly meant in real terms of the report - The gap could widen to five to 10 times if housing, employees' welfare and other forms of income are taken into account, Li told Xinhua.

The report states -Zhong Dajun, director of the Beijing Dajun Economy Observe Institute, however, cautioned that any reform would be difficult, as it would involve various interest groups, while "the rights of workers should be strengthened, and their voice should be expressed so as to determine that they are not underpaid."

Could this be explained in real terms?

The report states - The income gap will not only bring social unrest but also hit the country's economy, Zhong warned.

How will social unrest hit the country's economy? Strikes are not allowed I believe.

 

[p2prada]

Though from Global Times, one would like to know that if this report is correct then how will it affect China, in so far as:

1. Political stability.

The industrialized sectors of the country are politically stable.

2. Change in policy to pay attention not only towards the economic resurgence of China as a whole, but also on the social issues as eradicating
a. the income gap.
b. eradicating poverty.
c. improving social security and stability.

India's economic gap is smaller if you read Gini coefficient. But the actual numbers are much larger. So, this is something both countries have in common.

How has the Hokuo system helped in increasing the gap? It appears to be a very benevolent system where none can 'go under', since all aspects of existence is catered for.

Hokuo has a lot of rules and regulations that affect rural folk. The Urban folk need this system to register their "urban" land like houses. But rural workers, if they want to work in the city, have to go through a lot of bureaucratic hurdles for migration. This policy is not free for all. It's like a villager trying to get a Visa to work in Shanghai. Not all of them get lucky.

Also, those rural folk who want to leave their state or registered domain will have restrictions on food rations, housing, healthcare, marriage etc.

If you have a Beijing Hokuo, you are a first class citizen. If you have a Lhasa hokuo. Well, you will have a difficult time trying to get govt jobs and join politics. This is primarily meant to keep a citizen anchored in his place of birth. This way he cannot travel to more affluent regions and be discontent about his home town. Such a system does not exist in India.

What is meant in the report - 'growing gap between monopoly in-dustries and other types'?

Similar to India. How DRDO and HAL control or monopolize nearly everything related to defence. This way small scale and medium scale industries cannot catch up or compete with them.

The smaller industries cannot compete with larger ones because govt does not provide any major subsidies or tax breaks to them compared to the state owned industries.

What is exactly meant in real terms of the report - The gap could widen to five to 10 times if housing, employees' welfare and other forms of income are taken into account, Li told Xinhua.

An experienced scientist or manager at a monopoly industry will get paid more than a startup. Most of these monopoly companies in China are state owned. These companies will provide extra benefits in the form of housing loans, employee welfare to the scientists or managers to retain them.

For eg: You told me one of your children works for a pvt company and gets to stay in a house that costs Rs 2 Lakh/ month paid by the company over the existing salary. I may not be accurate with this, but I guess you get the point. Such benefits increase the difference 5 to 10 times. Then there are extras like Rs 1 Crore medical insurance, company car, company maids, paid vacation, free travel etc.

The report states -Zhong Dajun, director of the Beijing Dajun Economy Observe Institute, however, cautioned that any reform would be difficult, as it would involve various interest groups, while "the rights of workers should be strengthened, and their voice should be expressed so as to determine that they are not underpaid."

Could this be explained in real terms?

The Hokuo system is a designed to have "adequate" workers available throughout the year. Only a designated number get through. So the ones who get through believe they are the lucky ones and will not complain about pay due to fears of losing their permits. It's like how Indian software engineers are dying for the H1B American Visa and still work at half the salary the Americans get paid for the same job. Pretty much the same situation.

If I am the guy on top, then I want to pay my workers less. Who cares what the workers think as long as they come in time, do what they are told and go back without complaining.

The report states - The income gap will not only bring social unrest but also hit the country's economy, Zhong warned.

How will social unrest hit the country's economy? Strikes are not allowed I believe.

Sir, like you told me in the other thread. There are certain social dynamics that will go out of hand even if PLA wants to use a hammer. The case in Egypt is due to unemployment and poor lifestyle.

If you have a maid at home 24/7(because you are rich) and if you have a very high quality of life which improves every year. The maid sees that and notices that she is seeing no change in the quality of her own life. This could lead to discontent. She could attempt thievery or cause unnecessary problems like being cold towards small children of the household while the parents aren't watching.

In Bangalore, we can openly see the CITY TAXI cab drivers and their discontentment towards other private companies like Easy Cabs and Meru. For eg: If you get out of the station and call Easy cab, the City Taxi drivers will get into a big fight with the easy cab drivers because they charge nearly half that of city taxi drivers(bloated prices though). The Private companies will openly tell you they will not do pick up and drops at railway and bus stations. But these private cabs monopolize every other sector including airport pick ups and drops. Even such small things lead to discontent folk.

Don't take this article as real ground situation though. Problems like income disparity exist everywhere including India. Only the Hokou system is messed up, but as long as CCP controls everything, there will be little problems for China as a whole.

 

[Ray]

Thanks P2P.

Very educative.

Any Chinese posters to comment?

 

[amoy]

Lots of misreading of Hukou system.

Besides income disparity (esp. btwn urban and rural residents) is a big problem for China. Nurtured in revolutions/Socialism Chinese are more of equalitarian than Indians, less tolerant of social gaps

 

[JustForLaughs]

personally, i feel equality is amazingly overrated. if with your own skill and wit you become very rich and end up being 20 times+ richer than average citizen. i see nothing wrong with that.

 

[Ray]

Lots of misreading of Hukou system.

Besides income disparity (esp. btwn urban and rural residents) is a big problem for China. Nurtured in revolutions/Socialism Chinese are more of equalitarian than Indians, less tolerant of social gaps

If the Chinese are less tolerant, then what do they do to show their intolerance. Since it is a single party govt, how does it matter to the Govt regarding intolerance?

In India, they go on strike, collective bargaining, defeat the incumbent govt in the hustings, raise Cain in the parliament, file PIL cases in the Supreme Courts and then the Supreme Court pulls up the Govt etc.

In China, that does not happen. So, how is intolerance of the Chinese people reflected on the Govt?

What is the misreading of the Hukou system? It is a report from Global Times which says so.

 

[Ray]

personally, i feel equality is amazingly overrated. if with your own skill and wit you become very rich and end up being 20 times+ richer than average citizen. i see nothing wrong with that.

In the Western societies it is the individual over the society.

In the Eastern societies, it is the society over the individual.

Is is not possible that the individual becomes rich not on his own skill and wit, there are other influence too, like who is related to who, who can influence who, who can cheat the society better and flourish and so on.

Enron and other US company CEOs did not become rich merely on their skill and wit. They duped the society and people who trusted them!

Did President Bush become rich on his own skill and wit or was it inherited? Further, if there was equality, then how come he went to Yale and others maybe more deserving could not? Influence was the magic key!

I agree no society can be perfect, but then should there not be some level playing field?

 

[p2prada]

Lots of misreading of Hukou system.

Besides income disparity (esp. btwn urban and rural residents) is a big problem for China. Nurtured in revolutions/Socialism Chinese are more of equalitarian than Indians, less tolerant of social gaps

Socialism being equal is a myth that has never been proven. Nobody in the world is equal. Even Russia has an internal passport system.

Both India and China have capitalist economies. The Indian Govt does not have a Hukou type system and the world is asking for it's removal in China. The last I heard China has started reforms due to international pressure as of 2001.

We have caste based system which gives quota to people who have been indentified to belong to a caste that has been at the receiving end of atrocities in the past. This is completely opposite from the Hukuo system which benefits the rich and urban folk, mainly Beijing, rather than the poor and downtrodden.

The Hukuo system is highly political in nature and does not provide economic benefits to the Rural folk. Hong Kong citizens have to get a "Home Return Permit" in order to work in Mainland China. Look at the word games here. There is to need for it to be called "Home Return." If I was the Mayor of HK dealing with a democratic China, I would have asked for the name to be changed.

The disparity between rich and poor exists in India too. The only difference is the poor has voice in the govt compared to the situation in China.

 

[JustForLaughs]

In the Western societies it is the individual over the society.

In the Eastern societies, it is the society over the individual.

Is is not possible that the individual becomes rich not on his own skill and wit, there are other influence too, like who is related to who, who can influence who, who can cheat the society better and flourish and so on.

Enron and other US company CEOs did not become rich merely on their skill and wit. They duped the society and people who trusted them!

Did President Bush become rich on his own skill and wit or was it inherited? Further, if there was equality, then how come he went to Yale and others maybe more deserving could not? Influence was the magic key!

I agree no society can be perfect, but then should there not be some level playing field?

Enron? didnt these companies get into A LOT of trouble? if you mean become rich by illegal means they should be punished by law.

well, for Bush, someone in his family ancestor earned it. i dont believe that all men are created equal. far from it, i think everyone is very different with varying degree in ability. you have strengths others dont, they have strengths you dont.

level playing field, well i think it is to hard to get everyone to have the same starting place. however i do agree with the idea of it. and in a level playing field, i have no grudge against those who shoot on ahead of the average person. in fact, i respect them for it.

i personally do not feel handouts and welfare is equality. i acknowledge there are cases when even talented individual need some help now and then. but from what i see, this kind of system do more in supporting lazy unproductive people than providing help for talented people in a temporary ditch.

nothing good can come out of giving unproductive people the means to get more than they deserve. i can only think about the americans when this issue comes up. such a large class of poor lazy people, propped up by welfare and bank loans that they DO NOT qualify for. allowing them to live beyond their means. its against nature in my opinion.

 

[amoy]

But rural workers, if they want to work in the city, have to go through a lot of bureaucratic hurdles for migration. This policy is not free for all. It's like a villager trying to get a Visa to work in Shanghai. Not all of them get lucky.

no it's not true. for industrialization one of prerequisites is fluidity of laborers. there's no really a Hukou/Visa hurdle as u mentioned. Of course there's protectionism somewhere . for example Shanghai used to grant taxi license to local residents (hukou) only. Besides Hukou is changeable i.e. if I buy a flat (up to a certain size/price) in BBB or prove to have a fulltime job in BBB for a certain period I may apply for relocating my Hukou to BBB. But certainly it all depends as the threshold is high for access to Hukou of some overcrowded Metropolis like Beijing.

The Indian Govt does not have a Hukou type system and the world is asking for it's removal in China. The last I heard China has started reforms due to international pressure as of 2001.

Let me try to de-mystify Hukou monster which is evolving and being reformed all the time (as China is so vast, and Hukou is so complicated it's beyond my knowledge or capacity to give a full view). Most of time Mainlanders don't feel the might of hukou at all. It bothers us when it come to below things

== Social Security Network: For example my Hukou is in AAA so I'm paying taxes / insurance at AAA although I'm working in BBB. AAA or BBB may have different levels/creteria of benefits applicable for local-Hukou residents only (medicare/minimum wage/pension/unemployment relief alike). But of course it's got to change and be unified. By the way in order to apply for a passport or visa I have to do it at AAA.

== Education: Most nationwide colleges/universities allocate recruitment quotas to provinces by Hukou. This creates discrimination across different Hukous since competition happens within a province (or equivalent) in favour of places where good school are concentrated. But there're "positive" discriminations too i.e. Students in underdeveloped Guizhou may get reserved quotas to AAA school disproportionate to its applicant size /academic performance. Even for primary school/Junior Middle School hukou is at work -- students with hukou in FFF district can only get admitted to FFF public schools unless they're willing to pay more for XXX private schools in XXX district.

The stereotype that rural Hukou is disadvantaged is not true nowadays in many developed areas since rural residents have lands and are often entitled to more benefits in the process of urbanization.

I don't like Hukou system, overall speaking. But hopefully u come to see Hukou as a coin with 2 sides incl. the upside and "necessity" though it's due to be changed constantly thanks to social progress. Other than "anchoring" people to a certain place (hukou) it's also to ensure distribution of resources in a 'fair' and 'efficient' manner in such a huge populace at uneven developing levels across the diversified country.

 

[p2prada]

no it's not true. for industrialization one of prerequisites is fluidity of laborers. there's no really a Hukou/Visa hurdle as u mentioned. Of course there's protectionism somewhere . for example Shanghai used to grant taxi license to local residents (hukou) only. Besides Hukou is changeable i.e. if I buy a flat (up to a certain size/price) in BBB or prove to have a fulltime job in BBB for a certain period I may apply for relocating my Hukou to BBB. But certainly it all depends as the threshold is high for access to Hukou of some overcrowded Metropolis like Beijing.

Perhaps Reforms initiated since 2001 has had it's eventual affect. But what is being done is not enough for the country as a whole.

Let me try to de-mystify Hukou monster which is evolving and being reformed all the time (as China is so vast, and Hukou is so complicated it's beyond my knowledge or capacity to give a full view). Most of time Mainlanders don't feel the might of hukou at all. It bothers us when it come to below things

I have to agree, it is very vast. The system being vast is primarily a bane and the economics reforms happening with regard to Hukou is not enough as we can see from the criticism in the article.

== Social Security Network: For example my Hukou is in AAA so I'm paying taxes / insurance at AAA although I'm working in BBB. AAA or BBB may have different levels/creteria of benefits applicable for local-Hukou residents only (medicare/minimum wage/pension/unemployment relief alike). But of course it's got to change and be unified. By the way in order to apply for a passport or visa I have to do it at AAA.

== Education: Most nationwide colleges/universities allocate recruitment quotas to provinces by Hukou. This creates discrimination across different Hukous since competition happens within a province (or equivalent) in favour of places where good school are concentrated. But there're "positive" discriminations too i.e. Students in underdeveloped Guizhou may get reserved quotas to AAA school disproportionate to its applicant size /academic performance. Even for primary school/Junior Middle School hukou is at work -- students with hukou in FFF district can only get admitted to FFF public schools unless they're willing to pay more for XXX private schools in XXX district.

You have only listed the disadvantages in an urban setting. An educated person such as yourself can find a way to navigate through the entire spectrum of the muck if given the right push. But, what about the uneducated rural folk? Can you give some more details about that.

The stereotype that rural Hukou is disadvantaged is not true nowadays in many developed areas since rural residents have lands and are often entitled to more benefits in the process of urbanization.

Again this is primarily more in tune with developed areas, as even you used the word "developed areas." The article and my post particularly single out the situation in the undeveloped parts of China, like Tibet and Xinjiang.

I don't like Hukou system, overall speaking. But hopefully u come to see Hukou as a coin with 2 sides incl. the upside and "necessity" though it's due to be changed constantly thanks to social progress. Other than "anchoring" people to a certain place (hukou) it's also to ensure distribution of resources in a 'fair' and 'efficient' manner in such a huge populace at uneven developing levels across the diversified country.

If your country was poor and undeveloped, the Hukou system seems reasonable. Now, with a vast income divide between industrialized corridors and underdeveloped lands, the system needs to get a boot in the rear. However, this means Tibetans and Uyghurs would get easy access to the industrialized corridors. This has massive social and economic benefits. But the CCP's hold will weaken as a result of free exchange of information between the 2 divides. By becoming the second largest economy, there is no longer an upside to the Hukuo system.

This system has a more concrete hold over mass migrations that we can witness in the country rather than simple obstacles in Social Security and Education in the urban setting. If I was CCP, I would prefer Han Chinese going to Xinjiang and Tibet rather than have Tibetans and Xinjiangese coming to my centre of power. See, how it works. And this is what's happening today.

 

[badguy2000]

here some new phenomenion in CHina:

1. Hukou of rural area is appreciated while hukou of urban area is devalued.

Rural Chinese have the right to share freely one piece of land in their village while Urban Chinese can not.

because the price of land rockets now in CHina,hukou of rural area become quite attractive now. In fact ,lots of urban Chinese start to give up urban hukou

2.more and more young Chinese leave tier I cities such as Shanghai for tier II / III cities.

the lifecost of tier I cities rocket because of the rocketing price of house. at the same time, more and more jobs appear in cities in inland CHina ,because infrastructures there have been imporved much and more and more industries are shifted there.

so, more and more young CHinese give up moving to CHinese tier I cities and look for their fortune in smaller cities and countytowns.

 

[Ray]

Can individual give up hukou or is it for the State to decide?

if individual at will start deciding what hokou they are from, it will lead to chaos!

Greedy chaps. Come to urban area, make money and then abandon and go back to the rural areas to make more money.

This does not sound very constructive to stability!