China’s becoming unequal

At this crucial period of leadership transition in China, an investigative report titled “Billions in Hidden Riches for Family of Chinese Leader” hit the front page of New York Times on October 25th. According to the investigation, many relatives of prime minister Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have gained huge amount of wealth during his leadership, and the estimated assets controlled worth at least $2.7billion. Public discontent over growing gap between rich and poor has already been a potential element of unrest for communist party. To suppress tension aggravated by this revelation, China’s censors have blocked the sites in English and Chinese of the New York Times.

For more info: Billions in Hidden Riches for Family of Chinese Leader

For the past three decades, China has had most spectacular economic growth in the world. Data from IMF WEO shows that China’s GDP (measured under PPP) increased from $246,922 million in 1980 to $11,299,967 million in 2011. Accompanied such growth, however, is world’s biggest rise in inequality. Gini coefficient, a common measure of income inequality used worldwide, has not been published for eleven years in a row. Concealment of the data must be out of some reasons.

The last time Chinese officials released a Gini coefficient was in 2000 and the figure was 0.412. A 2005 report from the Chinese Academy of Social Sciences estimated that the Gini coefficient was nearly 0.47 in 2005. Generally, a Gini coefficient of 0.4 is regarded as the international warning level for dangerous levels of inequality and is used as a predictor for disturbances. The apparent widening income gap in China sows the seed of social instability and erodes the achievement of past economic growth.


Some can afford the most expensive brands, while others have to carry sewage waste for as long as they can stand. (picture from:

Part of rising income inequality is attributed to fundamental economic factors. China has been developing in the setting of globalization, which brings new technology and competition. As a result, the demand for skilled and educated work forces in job market is increasing, driving up their income. On the other hand, due to limited access to education, large amount of less skilled and educated are left behind.

Apart from economic forces are government policies that play a big role in distributing income. One major issue is household registration, named “Hukou”. Hukou system restricts people’s access to social resources based on their origin. Health insurance, government subsidies and even education are confined to local registered people and thus lead to inequality of opportunities. Prosperous cities like Beijing and Shanghai, of course, not only have better infrastructure but also more budgets to support social security and finance local education. Most top-tier universities are located in those developed cities and almost all universities allocate a disproportionate number of places to students with local Hukou. Though living in these developed cities and yearning for better education, migrants from other under-developed places must take college-entrance exam (called “Gaokao”) in their place of household registration, so their chances of getting into first-class tertiary education are much lower. It is a vicious circle in which education tend to intensify inequality instead of mitigating it.

Another major problem lies in political system. Right after Deng Xiaoping’s economic reforms, large amount of formerly state-owned assets were transferred to ruling elites. Many politicians become rich in a sudden through this process, creating crony capitalism in China. Since then, due to the lack of transparency and supervision, the nexus between political power and personal fortunes has never been broke and keeps reinforcing corruption and inequality. The word “Guanxi” is crucial for doing business in China. Basically, it means that if you have connections with someone politically important, you can be successful in business world and get wealthy easily. Therefore, it is not rare that the relatives of top officials forge business careers. Examples are numerous. Other than the case of Wen Jiabao mentioned at the begining, Xi jinping, who is in line to be China’s next president, also has a wealthy family. As was reported by Bloomberg in June this year, the extended family of Xi has investment in companies with total assets of $376 million; an 18 percent indirect stake in a rare-earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company.

It is never too late to make changes.One seemingly feasible solution to address the issue of unequal opportunity is to nullify Hukou system to eliminate privileges of minority. The realities, however, is that even without the opening-up of Hukou, citizens in Beijing have already shown rivalry towards migrants and blamed everything bad in the city on them, such as traffic jams and crime. It is probably because local people are unhappy with outsiders sharing limited resources with them. If migrants are allowed to take Gaokao where they actually live, major cities in China will be flooded with Gaokao migrants that can irritate locals because of much fiercer competition. To avoid such chaos, changes should be made in more fundamental and gradual ways. Specifically, central government needs to invest more money in those under-developed areas to set up social services, upgrade infrastructures, and even more importantly, build schools to produce better accessible education for local people. Through this way gaps between areas can be narrowed in the long run without social upheaval.

In terms of political system, supervision institutions independent of political interest group should be established to oversee both the behaviors of ruling group and business people, because bribes always involves both parties. The income and assets of officials should be disclosed so that pressure from public can keep them from wrong-doings. Moreover, to confront the fact that state-owned enterprises and monopoly power control a large part portion of national resources and have always been benefitting those close to the state power, free market is the ultimate choice. Policies can be lowering taxes for private investment to encourage entrepreneurship and freeing interest rate to create fair competition for access to credit. For the past three decade, market economy has shaped a much stronger China; this path is by no means wrong.


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