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Rich China, Poor Peasants

  • JULY 21, 2009, 1:42 P.M. ET
Rich China, Poor Peasants 

China recently announced its GDP grew by more than 7.1% in the first half of this year, putting the country on course to displace Japan as the world’s second-largest economy by year’s end. But it’s not time to break out the maotai just yet. Peasants and migrant workers, who compose more than 65% of China’s 1.3 billion people, aren’t benefiting much from this growth.

Much of it is hoarded by the central government. Last year, Beijing collected taxation and other levies of more than six trillion yuan ($878 billion), an eye-popping four trillion yuan more than five years ago. Since the turn of this century, funds flowing into the Beijing treasury have increased by around 22% a year, more than double the average 10% GDP growth for the past two decades.

This wouldn’t be a problem if worker incomes were growing in tandem with tax revenues. But according to official statistics, salaries and other income of workers and peasants as a percent of GDP declined to just 41.4% in 2006—the last year when data was available—from 53% in 1998; salaries typically are 50% to 60% of GDP in developed countries like the United States or Japan.

A lion’s share of national wealth is being snapped up by about 140 state-held business groups such as the three oil-and-gas giants, four major state-owned banks and similar government monopolies in lucrative sectors such as insurance, energy, mines, telecommunications and transportation. Under the largely nominal control of the State-owned Assets Supervision and Administration Commission of the central government, the assets and sales of these behemoths grew each year by an average of respectively 1.5 trillion yuan and 1.3 trillion yuan for the five years ending 2008.

These firms are heavily supported by the government. State-owned banks issued loans worth $1.08 trillion the first half of this year, a figure which exceeds the full year of loans last year. Barely 5% of these loans went to small- and medium-sized companies, most of which are privately owned. The central government bars private firms from about a dozen of the most profitable sectors.

The top executives of these state-owned firms are mostly retired ministers as well as offspring of party elders. Li Xiaolin, the daughter of former premier Li Peng, is chairman of China Power International Development Ltd., an electricity monopoly. Her brother Li Xiaopeng used to head Huaneng Power, another energy heavyweight. President Hu Jintao’ son Hu Haifeng is chief of Tsinghua Holdings, which oversees state-held high-tech firms spun out of the prestigious Tsinghua University.

Today China boasts around 300,000 super-rich Chinese with assets of more than 10 million yuan. This wealth hasn’t trickled down. Official statistics show Chinese peasants make about one-third of what their urban counterparts earn. Tsinghua University sociologist Sun Liping estimates the standard-of-living discrepancy between cities and the countryside was actually closer to six times. He says the average global urban-rural differential in living standards is around 1.5 times.

Poor Chinese face other adversities, too. Rural residents are not allowed to permanently settle in cities and cannot enjoy the health, education and pension payouts taken for granted by urbanites. A 2008 Ministry of Health report said up to 200 million workers and peasants suffer from occupational ailments.

President Hu’s mantras include “upholding social justice” and “creating a harmonious society.” Yet social inequality is yawning ever wider in China.

Mr. Lam is a professor of China studies at Akita International University, Japan, an adjunct professor of history at Chinese University of Hong Kong and author of “Chinese Politics in the Hu Jintao Era” (M.E. Sharpe, 2006).