October 19, 2005

WE KNOW HOW THIS ENDS:

Is China headed for a Gini 'red alert'? (Francesco Sisci, 10/20/05, Asia Times)

Economic inequality and social protests in China have become a frequent topic in the Western press. The startling figure of 74,000 protests across China in 2004, up from 58,000 the previous year, has popped up in many newspapers, as has China's most recent Gini coefficient of 0.45, suggesting that economic inequality in China has in fact surpassed that of the US and UK with their allegedly cold-blooded "Anglo-Saxon" model of capitalism. (The Gini coefficient, a measure of inequality developed by the Italian statistician Corrado Gini, is a measure of income inequality ranging between 0 and 1, where 0 corresponds to a society where everyone has exactly the same income, and 1 corresponds to a society where one person has all the income and everyone else has none.)

Eyeing such statistics, one might be tempted to think that Chinese society is falling apart, and indeed, various books and articles have appeared suggesting exactly that. However, as with many things in China, first impressions can be misleading. The 0.45 figure was published by the official People's Daily, which described it as a "yellow alert", and asserted that if things go on like this China will reach the "red alert" level in five years. [1] Using similar logic, one might extrapolate the protest figures to suggest that if social protests grow as rapidly as the Gini coefficient has, there could be over 80,000 this year, more than 100,000 in a year or two, and so on, endangering the social fabric of China within the next five years, when the Gini coefficient will have reached and passed the "red alert" level.

The aforementioned figures seem to find confirmation in other numbers more readily available: 66% of all total bank deposits belong to 10% of the population, with 20% of the population holding 80% of total deposits. Peasants, the majority of China's population, make under US$300 a year, while people in Shanghai, the richest city in China, earn over $4,000 a year. China's coastal region, home to some 300 million people, produces about 70% of China's GDP. If we compare these numbers, it becomes clear that we are talking about the same group: 20% of the population amounts to about 260 million people, roughly the population of the coastal region, and the ten percent holding 66% of total deposits are the 130 million affluent people living in eastern coastal cities. The rest of the country has been left behind. [...]

It is important to note that the Chinese leadership is indeed concerned by these facts - we know them because official Chinese media, toeing the party line, published them; otherwise we would never have known. So the question we should be asking is: why does the regime want people to know about the inequality problem? It is not that the figures would have been available anyway, or that social instability has grown so much that it can no longer be hidden: in the universe of China, much occurs that goes unnoticed by the rest of the world.

Even the best foreign intelligence might manage to gather a burst of sporadic events, but it could never authoritatively draw a vast picture of tens of thousands of protests all over the country, let alone then authoritatively feed it to the international press and make them believe it. If the Chinese didn't tell us we would never know of so many protests. But the publication of the data is hardly an indication that Chinese leaders have grown more transparent overnight. The actual message is different. The Chinese regime is telling us there are more protests and a higher wealth gap because it is confident it has the situation under control, and it believes that these events cannot rock the boat, either now or in the coming five years.


When Gorbachev "opened up" and admitted that the USSR was struggling it was because he too thought he could maintain Communism, despite the fact things were much worse than he let on.

MORE:
China tackles its growing pains (The Japan Times, Oct. 21, 2005)

The title is dry -- the "Communist Party of China Central Committee Proposal Regarding the Formulation of the 11th Five-Year Program for National Economic and Social Development" -- but its contents are very important. The document is an outline of how China can tackle the pressing problems created by its breakneck growth. It is no exaggeration to say that the fate of the government may depend on its contents: The strains within Chinese society are growing and may be approaching a breaking point. [...]

[C]hinese have much more to complain about than just wage disparities (although they are severe). In addition, there is the psychological dislocation and actual financial harm done by the loss of pensions, job security and the "iron rice bowl." There is fear that banks are insolvent. Environmental degradation is widespread and getting worse. Courts and administrative procedures are arbitrary, and corruption is a blight on the party and society.

There is no room for protest: There is little talk of political reform and the government has been cracking down on the Internet and the media, leaving little opportunity for ordinary Chinese to vent their frustrations. Little wonder, then, that the government recorded nearly 75,000 major protests nationwide last year, up from 58,000 the year before and 10,000 in 1994.

Posted by Orrin Judd at October 19, 2005 9:13 AM
Comments

OJ,

I've been thinking about this a fair amount lately, isn't the difference between China now and the USSR then the presence of growth? Seems historically to be able to implement reform and keep the lid on when the pie is growing.

Posted by: Dan at October 19, 2005 11:02 AM

Why should we concede, even implicitly, that income inequality as measured by the Gini coefficient is a relevant number? What difference does it make?

Posted by: David Cohen at October 19, 2005 11:10 AM

Dan:

The USSR grew for a long while, didn't mean it had a future

Posted by: oj at October 19, 2005 11:27 AM

You can never get the Gini back in the bottle....

Posted by: oj at October 19, 2005 11:30 AM

Revolutions often happen when expectations rise faster than reality; and the expectations rise fastest just as things are getting better. People who were previously content with nothing start demanding full equality immediately. The more repression or injustice you have, the worse the pot will boil over once you take off the lid.

Posted by: Chris Durnell at October 19, 2005 3:22 PM

OJ:

Russia grew by command and control, forced albor, etc. Did you see the article a few weeks agon in the New Yorker about the new auto factory in China? Stalin never would have allowed 1% of what they do tostart a new company.

Posted by: Dan at October 19, 2005 4:35 PM

They grew because they industrialized. Anyone can do it.

Posted by: oj at October 19, 2005 4:41 PM

Chris, exactly.

The increasing Gini coefficient's a good measure of potential discontent in China precisely because a minority there is correctly perceived as becoming much wealthier much more quickly than the great majority, while that same majority perceives, again correctly, that the game has been unfairly rigged by the minority against the majority.

When looking at China today, it's best to avoid becoming too fixated by absolutes. The absolute number of people who've risen out of poverty is important, but it is nowhere near as important as the fact that universal corruption and skyrocketing inequality have become inseparable in the process.

Note that this marriage of economic development and class conflict is not always inevitable in growing economies. Taiwan, South Korea, Hong Kong, Singapore, and Japan all became wealthy while enjoying low Gini coefficients. The United States has always had a higher Gini coefficient than other advanced industrialized countries in the West, but it is also known as the land of opportunity where hard work is rewarded. China isn't on the same path as any of these countries.

Posted by: X at October 19, 2005 5:36 PM
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