China’s rise after the 1990s has created a lot of optimistic expectations of its future. A lot of people say China will surpass the United States as a dominant power in terms of economics and politics. The rising path was shining.
Yes, it looks like that. And I think it is very possible.
However, it is not that easy and simple.
Every system has its own flaws, including market economy. While the modern China was enjoying double-digit GDP growth, there were also growing problems – both inside and outside the country. Problems outside include China’s threat on the hegemonic power of the U.S., China’s growing trade deficits with many countries, and China’s persistence of exchange rate policy, and many more. However, today I want to talk about problems inside modern China. From all news, reports and articles I have studied, the following problems have been cultivated inside China after the 1990s.
Growing inequalities: While the urban areas along the coast and in the south are growing from all special economic zones, the rural-inner China (especially far west) have suffered from less welfare security and migration. Economists normally use Gini index to measure income distribution in a country. It helps define the gap between the rich and the poor. Zero value of index represents perfect equality and higher values represent more inequalities.
China’s Gini index increased from 27.69 in 1982 to 42.06 in 2010. This means the rich are getting richer and the poor are getting poorer in China. People on the eastern coast are enjoying their wealthy lives while the rural poor people are getting hurt.
Luxurious brands are growing in urban China.(Photo: http://fashionchinaagency.com/beware-of-the-chinese-growing-appetite-for-trendy-niche-fashion-brands/)
When China decided to move toward a market economy, the welfare system was weakened. Since the price is now determined by demand and supply, healthcare and education are not always free anymore. When there are more jobs in the cities, a lot of Chinese decided to leave from their farms to get higher paid jobs in the industrial or service sectors. Villages in rural China are left behind with elders and babies.
A woman and her children sit beside a collapsed yard wall in Lishixi village, Northwest China’s Ningxia Hui (Photo: http://www.chinadaily.com.cn/photo/2011-08/19/content_13152698.htm)
Underconsumption: Growing inequalities in China leads to the second problem, underconsumption. When the welfare is getting unsecured, Chinese people save more for the uncertainties in their lives. Urban parents are reported to pay introduction fees of as much as $10,000 to middlemen to win entry into the better schools. Poverty intensified in the rural inland area. Job created by export-oriented global capital could not catch up with the jobs disappearing from state-owned factories (Hung, 2009). Chinese’s consumption expenditure to GDP in 2014 is around 50% (World Bank, 2016) while the U.S. ‘s consumption to GDP was higher than 80%.
Consumption can be a good indicator of domestic economy. From the fact that China’s GDP growth is increasing and consumption is decreasing, it can be implied that China’s growth depends more and more on other parts of GDP; investment (government and private) and foreign trade. These two components of Chinese GDP are also having problems.
There are more problems of the modern China to explore! Next time I will investigate China’s environmental problems, growing labor unrest, and the “overinvestment” of Chinese government. See you next week!
Reference: Hung, Ho-fung (2009). China and the Transformation of Global Capitalism. Baltimore: The John Hopkins University Press.
Note: Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution (World Bank, 2016).