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Economic growth, but at what cost?

This article is over 12 years, 10 months old
In the first of three columns Charlie Hore looks at the inequality behind China’s boom
Issue 2265

China is the success story of 21st century capitalism. While much of the world seems set to enter the second half of a double-dip recession, the Chinese economy will grow by 8 percent this year.

This follows 30 years of almost 10 percent annual growth, which has left the economy seven times as big as it was in the early 1980s.

China is increasingly seen as the only power coming close to challenging the world’s largest economy, the US. Over the past weeks, it has felt confident to lecture the US on its crisis-ridden economy.

But this success story comes at a cost for the majority of people.

Large parts of China have been transformed out of all recognition. Small villages have been transformed into new industrial cities within a few years. China is the world’s biggest exporting power.

That growth has also seen a transformation in the lives of almost all the population. In 1978 the Chinese Communist Party (CCP) admitted that 10 percent of the population were still as poor as they had been in 1949.

Within a few years average rural incomes doubled, with several hundred million people being lifted out of poverty.

As the World Bank put it at the time, “The speed and scale of the improvement is probably unprecedented in world history.”

That growth has continued into more recent times—one in eight households now owns a car, seven in ten own a computer, and there are on average almost two mobile phones in each household.

And yet the benefits of growth have not been shared equally.

The gap between rich and poor is now even greater than in the US.

This is because the growing complexity of the Chinese economy allows for a greater rate of exploitation. It is also because the ruling class and lower officials have profited far more from growth than workers and peasants.

Profits have risen far faster than wages. In 1990 half of China’s annual production went to consumption—by 2005 that dropped to 37 percent.

This is largely because while “market relations” have been introduced into the Chinese economy, it has not undergone the wholesale privatisation that afflicted the Russian and east European economies after 1989.


The state, at various levels, still owns or controls most key sectors of the economy.

That state control has increased over the past few years. The effects of the world economic crisis have closed down many private and foreign-owned businesses.

Large-scale state investment has kept economic growth high since the 2008 crash.

But that spending has mostly been on projects that benefit business and the rich, rather than improvements to social welfare or affordable housing.

At all levels of government, it is officials and CCP members who have benefited most from the boom.

The economic reforms of the 1980s devolved economic power from the central government in Beijing to local officials and managers. This was to make the economy more dynamic and responsive to local opportunities.

That has worked economically, but at the cost of making the lower levels of the bureaucracy institutionally corrupt.

That corruption can often take the forms of tax evasion or outright theft. At one extreme it is estimated that, over the past 15 years, some 18,000 officials have fled abroad taking the equivalent of 120 billion US dollars with them.

In 2007 the income of the richest 10 percent of Chinese was 23 times that of the bottom 10 percent.

In 1998, the gap was just over seven times. Twelve percent of all luxury goods sold worldwide go to China.

The growth of the new rich can be seen in the upscale shopping malls in many Chinese cities.

There is now an urban middle and upper class of some 50 million people enjoying lifestyles similar to those of their Western counterparts.

But there are many workers, and many more peasants, still living in deep poverty. Factory worker wages start from around £100 a month.

In the countryside living standards stagnated in the late 1980s, and actually fell for many in the 1990s.

Rural incomes have risen since then, but almost entirely because of money sent home from migrant workers.

As China continues its ascent as a global economic power, those who have produced the “economic miracle” are increasingly excluded from its benefits.


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