Poverty in China

In China’s richest province, a yawning gap exists between the haves and the have-nots

The coexistence of great wealth and abject poverty in Guangdong shows why narrowing the income gap is a priority of China’s leadership

PUBLISHED : Tuesday, 05 September, 2017, 8:54am
UPDATED : Tuesday, 05 September, 2017, 9:47pm

Steve Guo and his wife, who own a new, four-bedroom flat in Shenzhen that cost 12 million yuan (HK$14.2 million), are expecting their second baby early next year.

They prepaid 60,000 yuan last month for a month of post-partum care, adding it to a pile of bills for services and goods ranging from an Italian recliner to German milk powder.

Their average monthly expenses in the hi-tech Guangdong province boomtown, including their mortgage payments, are about 60,000 yuan, financed by Steve’s salary and debt.

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Their lifestyle, like that of millions of other members of China’s urban middle class, could not be more different from the way of life of the residents of Hongli village, less than 200km away in the mountains of northern Guangdong.

In the village home of 67-year-old farmer Jiang Shuian, the most modern and valuable item is a television set. The walls are discoloured, the wooden tables and chairs are drab, the wooden doors creak, and the only cooling device, a noisy electric fan, looks like something that belongs in a museum.

Jiang said he and his sons dreamed of saving the 100,000 yuan they needed to properly fix their mud and brick house, but that goal seemed elusive at their current income levels.

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“It’s very hard [to make money)]” Jiang, sitting on a plastic stool, told the South China Morning Post. “We can earn about 3,600 yuan from the farmland each year. My sons work for nearby ceramics factories and can each earn between 1,700 and 2,000 yuan a month.”

Jiang’s home is just one of dozens of mud and brick houses in the village, one of 2,277 villages – with a total population of 1.76 million – in Guangdong below the provincial poverty line, which is a per capita annual income of 4,000 yuan.

The stark contrast between the lifestyles of the two families is an illustration of China’s gaping wealth gap after nearly four decades of an uninterrupted economic boom. Narrowing that gap is now a top priority for the Chinese leadership headed by Xi Jinping.

Unlike Mao Zedong, who stripped assets from the country’s rich to create a poor and egalitarian society, or Deng Xiaoping, who encouraged a small group of people to get rich first, Xi has emphasised the need to lift the 70 million Chinese still living in poverty out of that condition. To do that, he’s trying to make China’s growth more inclusive, instead of just benefiting a few.

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Guangdong, China’s richest province, is known as the country’s economic powerhouse for its advanced manufacturing businesses in the Pearl River Delta and vibrant cities like Shenzhen. Its gross domestic product last year was roughly the size of Russia’s, but its rural-urban divide is wide.

Shenzhen’s per capita GDP is now on par with Portugal’s, but the per capita GDP in Qingyuan, the city which oversees Hongli, was less than a quarter of Shenzhen’s last year, and lower than the national average. Eleven other cities in Guangdong – Meizhou, Maoming, Jieyang, Yangjiang, Shanwei, Shaoguan, Zhanjiang, Chaozhou, Shantou, Yunfu and Heyuan – were also below the national average last year, and in Meizhou, Heyuan, Shanwei and Yunfu per capita GDP was even lower than in Guizhou, China’s most impoverished province.

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Guangdong’s wealth gap has grown in the past couple of years, according to Zheng Zizhen, a sociologist and economist with the Guangdong Academy of Social Sciences, a government think-tank in Guangzhou.

“The wealth of families in [major] cities is soaring, driven by the rapid growth in residential property prices,” he said. “But the poorer areas of Guangdong lack the ability to attract enough capital and talent to bring an industrial boom.”

By the numbers, the Pearl River Delta, which includes some of China’s most developed cities, including Guangzhou, Shenzhen, Dongguan and Foshan, covers only 23 per cent of the province but last year it accounted for 79.3 per cent of Guangdong’s economic output, according to official data, up from 79.1 in 2015. The province’s 12 impoverished cities reported average GDP growth of 7.4 per cent last year, according to the provincial development and reform commission, while the Pearl River Delta’s grew by 8.3 per cent.

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Figures from the National Bureau of Statistics show the wealth gap continued to widen across the country last year. China’s Gini coefficient, a gauge ranging between zero and one that measures income inequality, increased slightly to 0.465 last year, from 0.462 in 2015. It was the first time the wealth gap had expanded in five years.

A gaping wealth gap does not align with Xi’s development blueprint for a society that is “innovative, coordinated, green, open and inclusive”. Xi has said he wants to focus on growth quality, the environment, sustainability and fairness – a different approach from the old days when the headline economic expansion rate seemed to mean everything.

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In addition, a big part of China’s prosperity is financed by debt, a situation that has raised alarms in Beijing because it could lead to a financial bust.

In Shenzhen, young graduates have rushed to start up their own companies, while the middle-class has speculated on property financed through credit from banks and “shadow banking” institutions.

Many Shenzhen residents believe housing prices will only go up, and that has pushed residential property prices – already among the highest in the world – even higher, quickly narrowing the gap with neighbouring Hong Kong, which is infamous for its high property prices.

Guo bought his four-bedroom flat in Shenzhen through mortgage loans at the end of 2015. He sold two smaller flats for about seven million yuan and borrowed another five million yuan to buy the new bigger one.The couple still live in a rented home and won’t move into the new flat until the end of this year, just before the new baby is due.

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The family lives on debt. Their monthly income of about 30,000 yuan is insufficient to cover a monthly mortgage of 40,000 yuan. But they see no problem with their lifestyle because they say their assets, mainly the flat, are appreciating.

“I strongly believe Shenzhen will continue to boom and become the best metropolis in Asia,” Guo said. “The city’s average property price will get to be the same as Hong Kong’s ... as China’s economic future is emerging in Shenzhen.”

Shenzhen, a fishing village a little over a generation ago, now has an economy driven by a hi-tech boom in areas such as biotechnology, new energy and new materials such as modified polymers. Its economy expanded by 10.6 per cent last year, with two-fifths of that growth from hi-tech industry.

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Li Wei, a 28-year-old public relations manager for a Shenzhen-based start-up focused on online drama production, said she had travelled to Europe, South Korea and Hong Kong many times and found Shenzhen matched them.

“Every building is new and big here,” she said. Li bought her first one-bedroom flat in Shenzhen in 2015 and invested earlier this year in a second flat in Zhongshan, another delta city, anticipating that prices would rise there too.

The Guangdong authorities are striving to tackle the wealth gap. The province has poured money into backwater areas, building roads, industrial zones and new towns.

But while Guangdong led China’s transformation from a mainly rural society into an industrial powerhouse in the early 1980s with funds from investors in Hong Kong and Taiwan, it is struggling to shine again as an example in building a fairer, greener society.

In April, Xi ordered the province to be at the vanguard of building of a “comprehensive, well-off society” – with absolute poverty largely eliminated – by 2020.

However, the jury is still out on whether Guangdong, and China as a whole, can achieve that goal.

“A large amount of farmland in Qingyuan has disappeared in the past couple years to make way for new roads, new commercial properties and new urban centres,” said Li An, a salesman with a ceramics factory in the town of Yuantan. “But new immigrants and new high-end factories are not coming as quickly as expected.

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“Logistics costs are very high here for manufacturing industries. Labour and living costs are also soaring. A number of local ceramics and scrap metal recycling factories have moved to Southeast Asian countries.”

That’s not good news for the Jiangs of Hongli village, who are working hard to earn the money needed to fix their house but seeing nearby job opportunities vanish.