[China Briefing] China's Economic Inequality and Its Political Implications

The Shadow of Economic Growth

The remarkable achievements of China's 'socialist market economy' in terms of growth are already widely known. With optimistic predictions that China's GDP will soon surpass that of the United States, the terms 'China threat' and 'G2' have become commonplace. However, China's rapid economic growth has also brought side effects, one of the most serious being economic inequality. The marketization that China has successfully pursued, emphasizing growth and efficiency and advocating the principle of 'letting the rich get rich first,' has led to economic disparities across various dimensions. As market reforms gradually eroded socialist egalitarianism, China rapidly transformed from one of the most equal societies to one of the most unequal among developing countries. Currently, China suffers from severe urban-rural disparities, regional disparities, and income inequality within regions.

Urban-Rural and Regional Disparities

Economic disparities between urban and rural areas were already structured under the Mao Zedong regime based on the Hukou (household registration) system, but they have been further exacerbated by the marketization brought about by reform and opening up. According to China's National Bureau of Statistics, the ratio of per capita average income between urban and rural areas reached its peak at 3.3:1 in 2009. Although this ratio has slightly decreased due to the expansion of rural welfare and income growth by 2013, it still hovers around 3:1 (Unicef 2015).

Since the initiation of reform and opening up, China adopted policies that provided incentives for reform by imposing fiscal autonomy on local governments. Consequently, economic disparities between regions, particularly between coastal cities with geographical advantages and the arid inland western regions, have widened significantly. Between 1987 and 2004, the income of residents in coastal cities tripled (Wu 2014). In terms of GDP by province or city alone, China in 2010 was like having Finland (Shanghai) and Bolivia (Qinghai) existing within the same country (The Economist 2011). Examining per capita GDP by region, in 2015, China had cities like Beijing and Tianjin with per capita GDP exceeding $17,000, coexisting with provinces like Guizhou, Gansu, and Yunnan with per capita GDP below $5,000.

Increase in the Gini Coefficient

Since the 1980s, China's Gini coefficient (where 0 represents perfect equality and 1 represents maximum inequality) has steadily increased, surpassing 0.4 in the early 1990s, which is generally considered a serious level of inequality. In 2013, China's National Bureau of Statistics officially released the Gini coefficient for the first time in 12 years. According to the report, China's Gini coefficient peaked at 0.491 in 2008 and then decreased to 0.477 in 2011 and 0.474 in 2012. However, many predict that the actual Gini coefficient is higher than these figures. A joint survey conducted in 2013 by Texas A&M University and the Southwestern University of Finance and Economics in Chengdu (China Household Finance Survey) analyzed that the Gini coefficient reached 0.61 in 2010. As of 2013, China has 2.7 million millionaires and 251 billionaires, but according to a UN report, 13% of the population still lives on less than $1.25 per day (Reuters 2013). A 2012 report by The Economist indicated that the share of wealth controlled by the richest 10% of China's population increased from 30.8% in 1995 to 41.4% in 2002, and reached as high as 86.7% in 2011 (The Economist 2012).

Comparative Perspective

This level of economic inequality is severe even when compared to other countries. Based on the official figures released by the Chinese authorities, China's Gini coefficient in 2012 was higher than that of the United States, a prime example of neoliberal capitalism that champions free markets and competition. According to an analysis jointly conducted by scholars from the University of Michigan and Peking University and published in 2014, China's income inequality has increased much more sharply than that of the United States since the 1980s. They reported that China's Gini coefficient rose from 0.3 in 1980 to 0.55 in 2012. This not only significantly surpasses the United States, where inequality has gradually increased since the 1980s to a Gini coefficient of around 0.45, but also suggests that if current trends continue, the gap in inequality between the two countries will widen rapidly over time. Furthermore, the same study indicates that China's level of inequality far exceeds the average for countries at similar levels of development (Xie and Hou 2014). If the aforementioned Gini coefficients of 0.55 or 0.61 are accurate, China ranks among the most unequal countries on Earth.

Political Implications of Economic Inequality

Of course, deepening economic inequality is not a problem confined to China. However, the fact that severe economic inequality is occurring and rapidly worsening, despite China still professing socialism, poses a serious challenge to the legitimacy of the Chinese Communist Party. Particularly, the current level of inequality is difficult to rationalize politically and ideologically, given that it is severe not only compared to the United States, which represents neoliberal capitalism that socialist China critically views, but also compared to countries at similar levels of development. Furthermore, with the dismantling of socialist institutions like 'danwei' (work units) and the still weak institutional social security system, the logic of capitalist competition and survival has become pervasive, inevitably increasing the hardship and sense of deprivation for the economically and socially vulnerable. Behind China's dazzling economic success lies a deep shadow of inequality. While popular discontent, which might have been suppressed as long as the overall economic pie continued to grow and the majority believed their lives were at least better than before, could become more visible as economic growth slows and the pie shrinks. If we observe China with the assumption that a 'crisis of success,' where economic success breeds political crisis, could also occur in China, its future cannot be simply viewed with optimism. ■

Author

Jeong Ju-yeonProfessor of Political Science and International Relations at Korea University. She holds a Ph.D. in Political Science from Stanford University and has served as a Postdoctoral Fellow at Columbia University and an Assistant Professor in the Department of Political Science at the University of Alberta, Canada. Her research primarily focuses on the relationship between state and market, using China as a major case study in comparative politics.

China Briefing is a briefing series designed to provide insights into major Chinese issues through in-depth analysis by various experts. EAI is an independent research institute independent of any partisan interests. The claims and opinions expressed in reports, journals, and books published by EAI are not affiliated with EAI and solely represent the views of the author.