 | Is China headed for a social 'red alert'?
By Francesco Sisci
BEIJING
- 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. [2] 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.
The Asian Wall Street Journal, in a recent
editorial, warned against curtailing economic reforms based on these
numbers. [3] "It is almost axiomatic that during periods of high
growth, some will improve their lots at a higher rate than others,"
said the Journal, which underscored that China's reform process has
already achieved the greatest sustained poverty reduction in the
recorded history of the world. By World Bank estimates, China had 29
million absolute poor in 2001, compared to 80 million in 1993 and 250
million in 1979, when the economic reforms started. This feat dwarfed
the growth of the Gini coefficient in the same period. In 1980, after
one year of reforms, it was 0.33; in 1992, when the late Communist
Party leader Deng Xiaoping again promoted reforms 
after his famed "southern trip" in the wake of the Tiananmen crackdown,
it was 0.37, and in 2003, when further reform measures were introduced
according to China's WTO commitments, it was 0.4.
Therefore,
it would be misguided to say that protests and the income gap are
simply going to push China over the edge, that the days of the Chinese
boom are numbered and will be followed by a 1920s-China sequel -
renewed civil war and warlordism, with the next dynasty struggling to
establish itself from the wreckage of the old regime.
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.
There are
several reasons to interpret the protest figures cautiously. For one,
the 74,000 figure is only for demonstrations involving over 100 people;
the innumerable small gatherings of a handful of people outside the
local government office are not included. If the government, at any
level, had to confront and repress violently these protests, there
would not be enough police in China to rein in the riots, which would
spawn other, bigger riots.
In reality, protesters are usually
bought off easily: money is spread around, requests are granted, and
people are appeased. These tactics create a virtuous circle (or a
vicious one according to the viewpoint): protests yield money and thus
yield more protests. Of course a peaceful result is not guaranteed; in
some cases, police are called in, they break some heads, and organizers
are spotted and arrested. In early October, the state-run media noted
that so far this year some 1,826 police had been harmed, and 23 killed,
trying to handle riots. By official accounting, then, the total number
of police casualties was about 1 for every 35 protests. If this
reasoning is valid, we can infer that a violent outcome, with a fierce
confrontation, is not the rule. In other words China has learned that
protests can be handled peacefully - this might be one major reason why
the government feels confident in handing out the figures.
The
other reason for telling China and the world these stories is to create
the consensus needed to promote the idea of a "harmonious society", a
new political slogan of the new leadership. "Harmonious society" is not
a simple political slogan dusted off from Confucian times; it in fact
underlies the economic effort to spread wealth to the interior and
boost domestic consumption, two crucial challenges for China in the
next few years. Mr Wang Jian, from the State Development and Reform
Commission (SDRC), China's main economic planning body, points out that
the eastern regions of China are in a conundrum: they need more land to
build houses and factories, yet this is prime fertile land, used to
produce grain. [4] Less land for agriculture in China will create, in
the long run, pressure on the world grain market.
The same was
true also in Japan at the time of rapid industrialization, explains
Wang Jian, yet the size of the Chinese population is much bigger than
that of Japan. "There is not enough grain in the world market to feed
the Chinese population," concludes Wang. This may actually not be true
- important grain exporters like the US, Canada, Australia and
Argentina have plenty of slack capacity at the moment, in fact, the US
and EU are literally paying farmers to underproduce - but Wang's
comment does reveal a deep sense that China should handle grain
differently from the way it has handled, say, oil, where it has a
growing dependency on imports.
Incidentally, the issue of land
requisition for industrial purposes and disagreements about
compensation are the most important reasons for the recent protests.
The issue is very complicated because if industry pays too much, it
would reduce the incentive for industrial development, and local
governments have no money to make up the difference to the peasants
whose land has been taken. "Local governments have few sources of
revenue to finance physical infrastructure and social expenditure,"
writes World Bank economist David Dollar, explaining some of the
reasons why Chinese peasants have low compensation for their land
requisition. [5]
Opening the west as a solution
The
problem of limited fertile land has been made more acute by
fast-growing pollution, which wastes both water and land. Wang Jian,
who in the mid-1980s was the first advocate of economic development
along the coasts, now urges a more careful use of land. It is also
important to try to open up the western and central areas, where there
is plenty of land and almost 1 billion people. Unfortunately, the idea
of developing the west has been around for almost a decade but so far
has produced little. But the effort goes on. China is said to be
considering the creation of new cities along the Yangtze river, and
possibly even along the canals that will soon criss-cross the country
bringing water from southern to northern China for the gigantic
South-North water diversion project. This process could go further
west; for example, the government might attempt to move population and
industries to Qinghai,
a province as large as Western Europe with a population of just 5
million. However, there are many problems associated with this kind of
large-scale shift, and political sensitivities are not last on the
list. The government is worried about how the international community
would regard what could be viewed as a massive invasion of Qinghai -
once part of historic Tibet - by Han Chinese.
Unquestionably,
bringing wealth, development, production, and cities to the western
regions is one of China's biggest long-term challenges. Success could
create a kind of 'west coast' of China, a shore for trade and
development with Central Asian states that could help bring stability
and welfare to that region, where Islamic fundamentalism could
otherwise become dominant. To achieve this goal, China must learn to
cope better with the international community, suspicious of the Han
invasion of areas inhabited by ethnic minorities; the ethnic minorities
themselves, resentful of the Han settlers; and Muslims and local
central Asian people, fearful of Chinese domination of Central Asia.
These
are large, long-term issues that any government of China, democratic or
not, will have to confront. But if the Chinese government were
democratic - one head one vote - it could well be more difficult than
it is today to hold the hundreds of millions of peasants crowded in Henan, Hebei, Hunan and Hubei
from storming the deserted west, just as American pioneers swarmed
through the thinly populated prairies of the American West in the 19th
century.
In a time of fast growth with many poor people
fighting for their chance to wealth and climbing up the ladder of
success, it would seem axiomatic to lend a hand to signor Gini and his
coefficient of economic equality and social stability by quickly
opening up the west to fast "colonization" from the east. This move
could immediately relieve social pressure by providing a chance and a
"go west" dream for millions of peasants.
Notes
[1] People's Daily, English edition, September 21, 2005, Party school journal warns against China's widening income gap .
[2]
So defined not necessarily by their trade but by their living quarters,
thus they should be considered people living in the countryside.
[3] AWSJ, September 23, 2005, "Letting the Gini Out of the Bottle".
[4]
Wang Jian "Guanyu jianshe jieyuexing shehuide san dian sikao" ,
internal document of the China Study Society for Macroeconomics, 6th
issue, 2005.
[5] David Dollar "China's Economic Problems (and Ours)", The Milken Institute Review, third quarter 2005.
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