The Economy - Income Disparities in China

Life in the cities: The Zhangs (South) and the Wangs (North)

Zhang came from Shanghai. He is thirty-four years old, and has lived in the Southern metropolis of Shenzhen for almost eight years now. His father, a robust, jovial man aged sixty-seven, worked as a salesman for a state-owned company, back in Shanghai until a year ago, when he retired. Zhang´s mother still works there as a translator. Her English is fluent. That of the old man is simple, but has always been good enough to talk with foreign customers. Zhang followed his older sister, who had moved to Shenzhen eleven years ago. They both work as sales people, too. But they don´t work for state-owned companies. Their bosses are from Hong Kong, and the investment comes from abroad. Their incomes are several times as big as those of their parents (who can count themselves to China´s still small middle class, as well).

Shenzhen isn´t for everyone. You don´t move to another place in China, the way you would in a Western country. Your ID card tells where you live, and to move somewhere else, you need it changed. To get it changed, you have to get permission to leave your old place, and to move to the new place. Even if you, as a non-resident, find a job in Shenzhen, it is to some or much extent at the discretion of the authorities to decide if they let you move to the place. And of course, you only get a job there if you have much-needed qualifications to offer.

Shenzhen has become some kind of Hong Kong for many mainlanders. There are people from all provinces. It is not easy to get there, and you will have to stay for years, before your temporary residence right may become a permanent one. Shenzhen is one of the world´s biggest container ports now. It is a place where they develop software. It is full of foreign-invested companies. For those who can afford the tickets, it is full of cultural events, too. And of course, the place is close to Hong Kong. You can watch free-speech television in Shenzhen, every night.

Zhang bought a flat two years ago. One year ago, he bought a Japanese car. Half a year ago, he got married to Yun, a lady from Hunan province. His decision surprised his parents, but they didn´t oppose his choice, even though they thought he should have married a girl from his native Shanghai, or Jiangsu Province. But then, there are many more people from Hunan in Shenzhen, than people from other distant provinces. And Yun isn´t just another girl. She earns about as much as Zhang does. They aren´t even sure if they want to become parents, or just continue to work – and enjoy life after hours. By Chinese standards, this is a revolutionary attitude.

* * *

Wang is thirty-nine years old, and lives in a city in Northeastern China. Twenty years ago, his home town was much bigger than Shenzhen – both in terms of inhabitants, and industrial performance. Wang´s father had been a worker for a state-owned heavy-industrial company, until retirement. Wang worked for the same company, and so did his older brother, until five years ago. The trouble didn´t come overnight. About ten years ago, the company started cutting the wages of its workers. About eight years ago, it would only pay for the medical needs of its employees. Five years ago, it went bankrupt under a new national law that made bankruptcy of state-owned companies legally possible.

Wang became a cab driver, once the company had reduced its payments to medical help. Then he and his brother started a restaurant, and now take turns in working there, and in driving their cab. When both of them are busy with the restaurant – especially on weekends -, they pay someone else to drive the cab.
Their business pays the bills, but there is no money left for investing into the future. Customers do no longer spend their money as easily as they did some years ago. There is no time left either, for other things than work. Wang sometimes thinks of attending evening school and acquire further qualifications. He also looked for a woman for marriage on the internet until a year ago, but then gave up on both projects – at least for the time being.
" I wish I had a sister who could marry up, and provide for a rich brother in law," he says with a grin. "There are more men than women here. Women can choose. I can´t compete with most other men that I know. Just look at what I earn. I have nothing to offer but hard work in a small restaurant. No flat of my own, no great car of my own, just an old, small domestically made cab banger that I co-own with my brother, and my father. Maybe I will try to get a poor woman from Russia, in a year or two, who isn´t afraid of long, hard working days. A girl with common sense, but nothing to her name. That could work."

Maybe five years ago, his saying was still a joke. More or less so, anyway. But gradually, Wang is falling in love with the idea. Russia isn´t too far away from his town. And Siberia is no economic miracle at all.

* * *

There are a lot of differences between Zhang and Wang. But as odd as it may sound, they have something in common: they belong to China´s middle class – by their own definition, and probably by international ones, too. Compared to migration workers, day-to-day workforce, or most of China´s still 900 m farmers, even Wang´s worries are only small. But there are differences, and from within, the lower middle class looks less glitzy than what you would expect after having read articles from the international press, about the Chinese economic miracle. These articles´ focus on people like Zhang in Shenzhen – and on the upper class.

Both Zhang and Wang drew on capital stocks that were accumulated by their parents, at a time when China was more egalitarian than now, as far as income distribution is concerned. Old Zhang, as a salesman, and his wife as a translator, did already achieve the official Chinese dream of xiao kang, which means something like "modest wealth". Their two children had the opportunity to study, and then move to Shenzhen, and they earn very good money.
Old Wang was a worker. His work allowed for some modest savings. His sons, aged 39 and 41 respectively, accumulated some capital too, before their employer went broke. That, and some entrepreneurial spirit, makes the Wang´s middle class, as well. But if they can ever build capital for future children of their own, for basic and further education, and for life as members of a Chinese middle class again, is an open question. To date, it doesn´t look too good (unless they get ready to take much bigger risks), and that illustrates the widening social gap within China.
Needless to say, Old Wang´s and his wife´s greatest remaining wish for their lifetime is to see grandchildren of their own. Being a grandparent means final fulfillment for most older Chinese people. But adding to questions of education and fostering, one child – as just any member of the family - falling ill might break the family´s neck, economically.

The Wangs want children. The Zhangs probably won´t have any. Does that mean that the Zhangs´ taxes will pay for the Wang childrens´ education? Hardly so. Much of the taxes that people pay can be negotiated individually. Besides, their taxes will mostly stay in Shenzhen, or within surrounding Guangdong province. The Northeasterners will see little, or nothing of it. Peking has been trying to redistribute money from wealthy provinces to poorer ones for many years, but when it comes to money, China isn´t really one country, but rather a conglomerate of many "kingdoms".

Life in the countryside

Even when China was undoubtedly still a third-world country in the 1970s and 1980s, the country could pride itself on an impressive literacy rate. Both a reform that simplified characters, and public schooling, even in very remote areas, had helped to achieve this. The literacy rate in 2002 was 95.1% among men, and 86.5% among women, according to the world factbook. But the sad story of growing social inequality starts right here. In a book titled Chinas Wirklichkeiten, Henrik Bork, a German correspondent, tells the story of a thirteen-year old child whose father – a farmer in Hebei Province - had been unable to pay the school fee of 35 Yuan RMB. That doesn´t sound like an impressive fee for half a year – but on average, people within the district described by Bork don´t earn more than 100 Yuan a year.

The farming side of China (which is still more than two-thirds of the population) has not had a big share in the country´s development. On more recent sessions of the National People´s Congress, China´s new premier Wen Jiabao addressed these problems and promised tax breaks and other ways to relieve the farmers´ burden. But in a country like China, it isn´t always easy to tell which political and administrative level will be affected by a drop in taxes first. Chances are that local administrations will be expected to do with less funding than before. Chances are, too, that there are local authorities which will simply ignore the national law, or invent new local taxes. All that, and poor incomes in general, don´t mean free schooling for all children in rural areas, either. Education would be the most basic capital stock to develop upon, and only something to begin with. But even this can´t be taken for granted, in the Chinese hinterland.

To let some people get rich first, as Deng Xiaoping put it decades ago, isn´t wrong, according to many economic scholars. There can be such a thing as a trickle-down effect from the rich to the poor, certainly in smaller countries. But you can´t expect that to happen without regulation. None of the "East Asian Economic Miracles" of the 1980s shied away from massive administrative regulation. After almost thirty years of reform and opening in China, it is time to let some more people get rich – or rather, offer them some more opportunities to escape poverty, than before. All through Chinese history, revolutions were peasants´ revolutions.

Little is reported about the situation outside the big cities, except for some often unconfirmed rumours about peasant revolts, particularly in Sichuan, Hunan, and recently Guangdong Province. The place of foreign correspondents is usually in the big cities. But it could be in the countryside where the future of China will be decided.

Foreign investment

Protocol matters on every national border, but especially in China. When entering the country, there aren´t just the usual immigration gates such as Chinese citizens, foreigners/tourists, VIP, and so on. For people who are foreign citizens (but ethnic Chinese), there is an extra channel, for not-quite Chinese people. Some time ago, an Overseas Chinese paper quoted French citizens of Chinese origin who complained about that extra immigration channel. They felt discriminated against. They wanted to be part of the great Chinese success story – at least while staying there.
It is hard to tell if the article was mere propaganda, or if this was real life, and real quotes. But it could be a real story, and it shows how strong China´s image as a successful nation has become.

"Why do foreign multi-nationals run into walls in China?", asked Ouzhou Shibao (European times), a European Overseas Chinese publication, on September 28. They didn´t ask Western investors who had hurt their heads on a Chinese wall. That is understandable. An investor who has negative experience to share, won´t usually talk to the press.

There would be many stories to tell, indeed. But that´s not Ouzhou Shibaos side of them. Theirs was about yet another bad Japanese (who else?) company that hadn´t respected the rights of Chinese consumers. After a short description of the wrongdoings of the Japanese thugs, the paper points out a more general problem: that foreign companies invest too little into Resarch & Development centres within China itself. If you go by virtually all big overseas Chinese papers, not to mention domestic mainland Chinese papers, multinational companies have every reason to do just that. And until recently, most Western papers would have easily agreed.

But the times, they are a´changin´ Not dramatically, but enough so to make some Chinese and foreign people a bit more skeptical about the country´s opportunities in the globalizing world. For many potential German investors – of which the majority is small and medium-sized companies who shun big risks – the story about the Maglev train that was sold to Shanghai early in 2001 – and allegedly copied by 2006 – was just another, this time striking, confirmation for their reluctance to get too deeply engaged in Chinese business, anyway. The Chinese version of that same train (but "all developed by Chinese technicians themselves", say the officials), left even the most pro free-trade papers in Germany with little to say for the defence of China´s real-life protection of intellectual property. If global players can be that grossly cheated upon, how could smaller foreign companies possibly protect their legal interests in China?

The September 23 edition of the Economist gives an additional answer to as to why there may be foreign investors who "run into a wall" in China. It reprints a list of 130 countries and territories (published as the "Economic Freedom of the World Index" by the Fraser Institute, Canada). The index, it says, measures how far a country´s policies and institutions support property rights, competition, and personal choice. Among these 130 countries listed, China ranks 95th, which would be behind Vietnam, Indonesia, and even Iran. India, China´s emerging global competitor (or strategic partner), ranks 53rd.

Statistics have to be taken with a pinch of salt, but China can´t afford a complacent attitude in the long run, when it comes to attracting foreign investment. It isn´t viewed as much as a developing country by donour countries and development funds as it used to be. And the richer Chinese provinces aren´t going to pay a big share to help the poorer ones to develop, either. Projects like the "Go-West" campaign" which wants to help poorer hinterland provinces to develop infrastructure and win foreign investment won´t be substantially financed by provinces like Guangdong, Fujian, or Jiangsu, who prefer to do without competitors. Money will have to come from foreign investment, rather than from the government or domestic tax-payers.

First warnings were given as early as five years ago, as by the Chinese government mouthpiece China Daily. Since new generation of political leaders (Hu Jintao, Wen Jiabao et al) has succeeded the generation of Jiang Zemin and Zhu Rongji, problems of income disparity have been addressed more frequently, and officially, from the highest national level. But much remains to be done, if China is to become the sustainable economical success story that many people – especially outside China – are already taking for granted.

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2006-10-06
compiled 2004 – 2006

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