Bridging the Income Gap in China

RAY SUAREZ:

Some of the issues raised in Paul's report were on the agenda of the Chinese Communist Party's Central Committee. The party ended a four-day meeting today, announcing it would shift economic policy away from growth for growth's sake, and toward reducing social inequities.

For more we get two views. David Lampton is director of the China studies program at John Hopkins School of Advanced International Studies and Ming Wong is associate professor of public and international affairs at George Mason University. He was born in Beijing but is now a U.S. citizen.

Well, Professor Lampton, Paul has given us another way to look at the so-called "Chinese economic miracle" — China for all its growth rates as an underperformer. What do you think?

DAVID LAMPTON:

Well, first of all, I think there are two sides. And you ended your package with the conclusion that it cannot yet not fully be trusted to be on a sustainable course. I think that's true. But I think there's been some superb performance in China's economy recently that we also have to take account of.

China according to the IMF, much of its growth now isn't coming from savings, it's coming from productivity increases. Higher education levels, and so forth. China's foreign trade and foreign investment has been increasing productivity. China's foreign trade has been growing eight times as fast as world trade.

So I think there are a great many positive factors that are at work in China. But when all is said and done, China's leaders are trying to move essentially from the 19th to the 21st century, 22 percent of the world's people. Nobody's ever done it. And I think at the same time we recognize these problems that were alluded to.

It's been a remarkable achievement to have over two decades of 9 percent growth.

RAY SUAREZ:

Two decades of 9 percent growth; Professor Ming, if you look just at that statistic, will it sort of take your eyes off the ways, and Paul showed us the financial sector where China really has not lived up to its billing?

MING WAN:

Well, you know, as Professor Lampton has pointed out, China has made some real progress. People's living standard has risen but at the same time there are also real problems embedded in the economic model. And if you talk to anyone in China now, they fully recognize all these problems.

One major problem is the growing income gap with related corruption have lead to a mounting social unrest, which destabilizes the country. The other problem is the rapid economic expansion has put tremendous strains on the environment. And the citizens have been complaining about it.

The other related problem is — has China's growth has depended too much on the exports which leads to trade tensions with the rest of the world. Neither of this is sustainable and clearly the party the conference that ended recognized these problems.

RAY SUAREZ:

Well, the Chinese Communist Party noted that while people in mostly on the east coast of China are doing very well, right — they are in a worldwide middle class — people in rural China are among the poorest people on earth.

Is the Communist Party equipped to do anything about that?

MING WAN:

Well, since this conference, right here, they are talking about shifting the focus from rapid economic growth for growth's sake to sustainable development. They have some progress — we don't know the details yet. We haven't seen the actual five-area plan yet. But I personally doubt whether the new policy will have the intended effect.

Part of the problem is that whatever policy the party central wants to introduce it still has to depend on the bureaucracy to implement the policy. But the problem is that the bureaucracy is part of the problem.

Particularly on a local level, these are the people who are exploiting resources from the citizens through discretionary fees or land grab as the previous piece has just shown. And more important, the central party — the central government can now push local government too much because these government officials are the power base of the party rule so in a sense you can ask do you want to cut off your limbs to feed to the poor. And that's not going to happen.

RAY SUAREZ:

Well, why do you think, Professor Lampton, they're even doing this, embarking on this attempt to make the rural poor richer? Do they fear that even their monopoly of power is threatened by inequalities this large?

DAVID LAMPTON:

Well, I think there are several factors. First of all these are technocrats that are leading China. They are paying attention to social science research elsewhere in the world that show as countries get to two and three thousand dollars per-capita income average, they become increasingly unstable, rising expectations and so on. So part of this is anticipation of problems.

Secondly, social unrest is demonstrably increasing. I met with China's premier not too long ago and he said the thing that keeps him awake at night is in a sense the increasing inequalities in China and the resulting unrest. Year before last there were 58,000 reported incidents, according to the government, this year 78,000. So we're moving up the sort of disturbance scale with some rapidity. So I think they're worried about that.

Also the leaders that are now in charge of China spent many of their formative years out in some of China's poorest province — provinces, Tibet, Gonzsu and the western part of China. So I think it is personal experience, social science research abroad, and the demonstrable increase in disturbances in China now.

RAY SUAREZ:

Well, you say you've been meeting with these men, and they are mostly men. Are you optimistic about their ability to handle these social tensions and close some of these gaps between the urban rich and the rural poor?

DAVID LAMPTON:

Well, I think if we talk about solving the problems these are not problems that can be solved in your lifetime, my lifetime or the lifetime of these leaders and the next leaders. The question is: Can they be managed? And I think the record of the last two plus decades of Chinese leadership is that they've been able to somehow overcome problems that each stage we wondered how they were going to be able to manage it and were they, in fact, manageable.

So I think you're not well advised to bet against the Chinese leadership. But if you look at the magnitude of the problems that they are facing, you have to, I think, end as your piece did, that the future is not for certain.

RAY SUAREZ:

But a tripling of social unrest — people like the gentleman we saw being evicted from his apartment and just sent away — is that managing?

MING WAN:

Well, people are concerned about it. Certainly the party itself very much concerned about the problem. I do not believe that the Chinese government can resolve those problems without genuine political reform and there are no signs that the government is going to do that. And what that means is that the local government officials essentially have unchecked power. And there is no independent press. There is no independent judiciary and there is nothing that can stop them from doing what they have been doing. And even the central government can now do that. So the central government may have the right policy. But since the reform began in the late 1970s, the central government has lost much of the power to the local governments. And people are really concerned about it.

RAY SUAREZ:

So it sounds like you are a little more pessimistic than Professor Lampton.

MING WAN:

I'm, you know, I'm hopeful that at least the government has recognized the problem. I'm not optimistic about the policy solution they have proposed.

RAY SUAREZ:

And what about some of these parts that don't fit with the other parts like the real underperformance of the financial sector, is that something that's just comes with experience? Or does it show a real problem in the Chinese economy?

DAVID LAMPTON:

I think there is a real problem with the regular financial sector. But the Chinese also have a saying — (speaking Chinese) — we will think of a way to deal with this. And there is an underground banking system. And one thing that the piece didn't mention is that the private sector or at least let us say the non-state sector in the Chinese economy is bigger than the state sector. So what you have is a very high performing, relatively speaking, private and quasi private sector that's making up for many of the deficiencies in the state-owned sector.

And it's really a race to see if the private and quasi private sector can absorb all the unemployment as it's being generated in the foundering state sector.

RAY SUAREZ:

Gentlemen, thank you both.