How is China Reacting Towards Growing Inequalities?

China’s economic success story started after escaping from a collective, equalitarian and closed society under Mao Zedong’s leadership. The opening-up – policy that started in 1978 under the leadership of Deng Xiaoping – led to a breathtaking economic growth of more than 10 % during the next three decades. In parallel inequality in personal income and wealth and in the living conditions between rural and urban population increased sharply. More than 300 million Chinese came from the countryside into the cities making China a modern urban society where the majority of the population lives now in cities. China did not only become the second biggest economy in the world – and number one measured in purchasing power – it is also home to more than 200 billionaires. The step-by-step opening of China’s economy and society also increased regional disparities.

During the first years of China’s opening up policy, the growing inequalities in the society and in the country were widely accepted as the unavoidable price to pay for economic progress. But the Chinese model of an export-led economic development, based on cheap labor with migrant workers living in poor conditions, is changing. The share of export in Chinese GDP declines, wages are rising and internal demand is increasing. In the new Chinese discussions the export-led economic model, with high current account surpluses, with high household savings and weak social security is questioned, also the redistributive consequences are more and more in the focus.

ADDRESSING THE ROOTS OF INEQUALITY

Xi Jinping acknowledged this in one of his early speeches as President, when he stated that Chinese are more concerned about a fair distribution of the cake than increasing the size of the cake. With a far-reaching campaign against corruption, he is not only consolidating his power, but he is also answering the dissatisfaction and anger of a lot of Chinese citizens against a class of newly rich people. The new leadership is not only taking these highly visible and widely communicated anti-corruption measures; it is also addressing some of the roots of inequality in the Chinese society.

The last plenum of the National People’s Congress agreed to change the household registration system (Hukou). This will allow more people to benefit from social services like health care, education and housing in cities to which they moved to work. With this measure, the more generous and better public services provided in the urban centers, compared to the countryside, are extended to more and more families. The pension system is extended, providing a better coverage also for the rural population. The Silk Road initiative will finance big infrastructure projects at the benefit of some more backward Chinese regions and neighboring countries. This will rebalance the economic development and help to reduce regional differences.

China discovers the benefit of a European Model of social market economy with a redistributive social welfare system and with an ambitious regional policy in a moment when a lot of Europeans forget their own agreed priorities. The EU treaty, approved by all member states, obliges national governments and European Institutions to lead a policy that contributes to economic, social and territorial cohesion. Chinese new policy priorities for publicly-financed actions at the benefit of the poorer part of the country and society seems to be in contrast with the European Union’s policy orientation, where the dominance of austerity measures hits peripheral southern regions, reduces social welfare and leads to an increase in regional disparity.