Party deserves small applause for its economic management

The country has produced some spectacular numbers but a closer look shows the rewards of 20 years of growth haven't been shared around

PUBLISHED : Thursday, 08 November, 2012, 12:00am
UPDATED : Thursday, 08 November, 2012, 7:15am

On the surface it looks as if the Communist Party has good reason to be pleased with itself.

As the 2,270 delegates attending the party's five-yearly jamboree shuffle into the Great Hall of the People today, they will no doubt be congratulating themselves on an excellent job of economic management.

Over the last 20 years, China's output has expanded sevenfold in real terms, transforming the country from a third-world also-ran into a powerhouse, second only to the United States.

In that time, China's growth has lifted some 500 million its citizens out of extreme poverty, which according to the World Bank, means living on a household income of less than US$1.25 a day.

A joke 20 years ago, goods made in China's factories are now sold in every country in the world, and are renowned for their high quality and superb value for money.

China today boasts some of the most up-to-date infrastructure in the world, with the planet's busiest ports, newest airports, an extensive high-speed rail network, gleaming urban metros and 85,000 kilometres of new highways.

What's more, thanks to the party's grip over policy at all levels of the economy, China managed deftly to sidestep the international financial crisis of 2008 and 2009, maintaining its rapid pace of growth even as activity in the world's richest countries sputtered to an ignominious stop.

As a result, some of the world's most respected forecasters now expect China to overtake the US as the world's largest economy before the end of the current decade, and commentators in the West speak in glowing terms of China's winning economic model.

So it will be no wonder if a few of the delegates at the party congress allow themselves a smirk of self-satisfaction.

But dig deeper and China's economic achievements begin to look a little less glittering.

Headline growth has certainly been spectacular, but the Communist Party has singularly failed to share the economic rewards with China's ordinary people.

The wealth generated by that growth has remained concentrated in the hands of the government and China's legions of protected state-owned corporations.

As the first chart shows, household income has declined as a proportion of gross domestic product from almost 57 per cent in the late 1980s to less than 45 per cent last year.

And not only has the household sector's share in the overall economy been falling. The way that shrinking slice of the pie has been sliced up has been getting increasingly unfair.

The second chart below shows how the income of the top segment of urban households has deviated from that of the bottom segment.

Two decades ago, on average China's richest urban households earned three times as much as the poorest. Today they earn 11 times as much (and 30 times as much as the poorest rural households).

In other words, while absolute poverty may have declined, income inequality and hence levels of relative poverty - the number of households living on incomes that are a fraction of the average - have soared.

This increasing inequality has two obvious consequences. First, it means that far more people are trapped in absolute poverty than would be there if the fruits of China's growth had been shared equitably - 110 million of them, according to the Asian Development Bank.

Second, widening inequality fuels heightened political and social tensions.

At their last meeting in 2007, China's party bigwigs promised to tackle the problem. Since then, while they have grown hugely richer, the problem has got vastly bigger.

No doubt we will hear similar promises at the congress opening today. Let's hope they mean something this time around.