THE CHINA MARKET - Why China's income gap is no threat to social stability
In recent months alarm bells have started sounding about the rise of inequality in China. Breakneck economic growth has brought riches to a few, a comfortable life for an urban minority and not much to the rural majority.
If left unchecked, the thinking goes, rising inequality could turn into a tidal wave of social unrest that could even threaten the Communist Party's grip on power.
The party appears concerned enough about the widening gulf between rich cities and poor countryside that the incoming leadership has made raising rural incomes a top priority, at least in its rhetoric.
But inequality is not, in fact, a serious threat to social stability. To understand why, one must first recognise that inequality is a far more complex phenomenon that casual discussion usually suggests.
There are at least three different types of economic inequality in China; inequality in individual incomes, inequality between urban and rural incomes, and inequality between the richer (mostly coastal) and poorer (mostly inland) provinces. This week we will look at the first type; next week, at the other two.
It is beyond doubt that inequality in individual incomes has been growing faster in China than anywhere else in the world. The usual measure of this kind of inequality is the Gini coefficient, which ranges from 0 (all incomes are equal) to 1.0 (one person has all the income).
Between 1990 and 2000, China's Gini coefficient rose from 0.36 to 0.44. This level of inequality is about average for Asian developing countries and well below that of famously stratified societies such as Brazil and India. But China is the only significant economy in Asia where the Gini has risen steadily.
The trend is worrisome but not catastrophic. A poor country that suddenly starts getting richer will naturally see a rise in income inequality.
This inequality can become a social problem not when the Gini rises to a particular level, but when large groups of people are imprisoned in have-not status. This stratification can have social causes, such as ethnic, caste or apartheid barriers; or geographic or political obstacles may prevent people from moving from poor areas to regions with more opportunity.
But China has far fewer ethnic or caste barriers than most other developing countries. And as we showed last week, contrary to popular opinion, China's labouring masses are among the most mobile in the world.
This is not to say such work is always pleasant or safe. But the problem of sweatshop labour is not a problem of inequality, it is a problem of justice.
The solution lies not in equalising the wages of worker and boss, but in creating and enforcing suitable labour laws.
The pressure on the government to provide a modicum of justice for its poorer citizens is probably greater in China than elsewhere. Gross inequality in countries like India is sanctioned by well-entrenched social and religious systems, which encourage people to accept their lot.
China has smashed all such systems. The only guarantors of social stability are the state's police power and its promise that everyone has a chance to improve his or her lot. If the pace of economic growth starts to slow, the government must be able to show the have-nots that the game has not been rigged against them.
But again that is a problem of justice, not inequality.
Research by the China Economic Quarterly. (www.theceq.info)