x Abu Dhabi, UAE Thursday 20 July 2017

China's wealth gap provoking alarm

China is the second largest luxury market in the world after Japan but has 204m people living on less than $1.25 a day.

Zhao Fendou, a security guard, migrated to Beijing to earn some extra money before becoming a taxi driver in his hometown.
Zhao Fendou, a security guard, migrated to Beijing to earn some extra money before becoming a taxi driver in his hometown.

BEIJING // The effect of the global economic slowdown on China can be viewed through sales of a certain little blue pill. By one estimate, the world's most populous country has a market potential for Viagra, the blockbuster drug for erectile dysfunction, that is close to 20 billion yuan (US$2.9 billion or Dh10.6bn), comparable to sales of Coca-Cola in China just a few years ago. "It is a quiet bestseller here," said an employee at a pharmacy in Beijing's central Qianmen Street, just south of the Tiananmen Square, that sells a five-pill Viagra packet at 495 yuan (Dh264).

That, however, is more than half of what Zhao Fendou, a security guard on the same street, earns in one month. Mr Zhao, 19, is one of 200 million migrant workers who in recent years have flocked from China's poor countryside to the booming cities in search of employment opportunities. Mr Zhao's dream is to save enough money to become a taxi driver in his hometown in central Henan province. But it is not certain whether he will be able to realise that dream. The security company he works for gives him 800 yuan a month, which is a tight budget to get by on in Beijing. Mr Zhao's case is part of a bigger story unfolding in modern China: the ever-widening gap between rich and poor. In fact, China is experiencing the largest income gap since it embarked on a policy of reform in 1978, according to China Daily, the Communist Party's official mouthpiece. For example, a 2007 government study found that the average urban resident earned 3.33 times more than his rural counterpart. China is also the world's second largest luxury market after Japan, according to the World Luxury Association, yet it had 204 million people living on less than $1.25 a day, according to the latest World Bank report in 2005. "Before the reform, everyone was equally poor. Your neighbour's income wasn't too different from yours," said a social studies researcher in Beijing. "But after the reform, things changed. Some documents I read even put the wealth gap widened by 14 times between the top group and the bottom group of social economic strata." Using the Gini coefficient, an internationally used measure of inequality of wealth distribution, China's wealth gap should ring alarm bells inside and outside the country. Its Gini coefficient before the reform period was 0.16, soaring to 0.40 in 1993 and to 0.47 in 2007, according to the World Bank data. A Gini coefficient of more than 0.4 is widely considered a sign of serious social inequality. The Gini coefficient is something Chinese authorities do not like to see in foreign media reports on China, said a former Reuters business reporter stationed in Beijing. "Because the Gini coefficient implies social instability, which the Chinese government fears the most." News of employee protests, sometimes over late wages or lost jobs, throughout China have made headlines in recent weeks. In fact, the Gini coefficient has become a favourite gauge for foreign observers to assess China's widening wealth gap, from which they usually move on to "uncomfortable" prognostication on the Communist Party's future. That is, China's greatest social challenge could lead to the party's greatest political challenge, if not its collapse. In a research paper, titled China Civil Society Report: Mass Incidents in China, Yu Jianrong and Yu Debao said: "In a time with so much social conflict, little contradiction can trigger mass unrest, affecting the whole society. If such incidents cannot be solved properly, both society and the whole country will pay a heavy price." China is quick to defend itself. For one, it points out that the US Gini coefficient is also above the 0.4 alert line. Secondly, it says, countries that have a Gini coefficient higher than 0.4 and who suffer from a sluggish economy with serious social problems are also the countries that have already finished the urbanisation and industrialisation process. China, on the other hand, has not completed its urbanisation and industrialisation. Essentially, China argues that it is different from other countries that fell to the victims of the "Gini coefficient curse" because it has not fully utilised its economic potential. Li Shi, a lead author of the 2005 UN Human Development Report on China and an expert on China's income inequality, put the current situation this way: "For the last five years, the rural income growth rate was five per cent, while that of the urban area was 10 per cent. But I don't see any direct link between the increasing wealth gap and the increasing social unrest and rural protests." He said some foreign media are "misunderstanding" the Chinese situation. "Although the rural income growth rate is lower than that of the urban area, as long as the rural poor have the expectation that their income will continue to grow, they won't be unhappy," he said. "It's complicated." Indeed, with China's income disparity increasingly pronounced, different economists tried to tackle the "complicated problem" with different economic advice that requires the introduction of new rules and laws. But for Daniel Bell, an Oxford-educated Canadian and professor of political philosophy at China's elite Tsinghua University in Beijing, the whole issue fundamentally boils down to whether China's ruling class can put their hearts out for the benefit of the rural poor and socially disadvantaged. "China has many beautiful laws, but the problem is that they are not usually implemented in ways that benefit the disadvantaged," he said. "The real task is how to motivate the powerful so that they begin to care more for the interests of the disadvantaged." * The National