“The relationship between rich and poor in China is different. China’s stellar growth has lifted some 500m people out of poverty. Much of the credit belongs to Chinese entrepreneurs. Since Mao’s boot was lifted from their necks, they have built marvels, from the skyscrapers of Shanghai to the factories of Guangdong. Yet mainland Chinese business leaders operate in the shadow of a secretive and unaccountable ruling party. To get on, many join it. Some do so reluctantly, to avoid being crushed. Others do so gladly, hoping to use the power of the state to enrich themselves.” ‘Asia’s new aristocrats’ The Economist, January 22, 2011
China is governed not by the rule of law, but by the rule of men. Although individual members of the Communist Party are not completely above the law, there is little to prevent the Party Bosses from abusing their power. The children of many of China’s leaders have amassed large fortunes in murky ways. Banks typically lend to the well-connected instead of to the credit-worthy. Local leaders levy taxes that have no basis in law.
The fact that commercial success often depends on political ties makes the growing inequality in China especially galling to those with socialist inclinations. During the mid-1980s, Chinese incomes were more evenly distributed than India’s – no doubt because China was at least nominally Communist, whereas India still operated under a caste system. But now, China is less equal than India, with a Gini coefficient of 0.4 to India’s 0.37. China now boasts of 800,000 dollar millionaires, while 500m people live on less than $2 a day.
The disparity between rural and urban incomes is the largest of any big country – city-dwellers on average make two-and-a-half times as much as rural Chinese. This disparity is protected by the implementation of a system of residence permits, called hukou, that resembles the pass system utilized in South Africa under apartheid.
Individuals who possess a city hukou can live and work freely in that city. Those with a rural hukou can come to a city only as guest workers. In consequence, some 150m rural Chinese work in cities without any right to live there. Typically, they cannot use public schools and clinics, and they are barred from public housing. If they protest, they are deported back to the countryside. A rule in Shanghai allows a local man to obtain a hukou for his wife from outside only after 15 years of marriage.
The hukou system is designed to help the Communist Party to control the people. As in South Africa, it is building up internal tensions that eventually may topple the regime.
If the hukou system were to be removed, some 250m peasants would move to the cities, clogging up the public schools and building slums on the doorsteps of their more affluent neighbors, while simultaneously competing for their jobs. Income inequalities would erode in response to such migration pressures. But that is a form of equality that high-income members of the Party apparently do not welcome.
Peasants of China unite! You have nothing to lose except your poverty!