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Poverty in China

From Teslas to rust belts: China’s yawning wealth gap

China’s rich-poor divide has narrowed by about half by some measures but there’s still a big difference between life in a top-tier city and the hinterland

PUBLISHED : Monday, 21 May, 2018, 4:53pm
UPDATED : Monday, 21 May, 2018, 10:26pm

China is no monolith. While residents in Shanghai and Beijing are almost as well off as those in Switzerland by some income measures, parts of the country live more like they were in Guatemala.

The economic might of the mainland’s 31 provincial-level territories ranges from rust-belt areas in the northeast to farming areas in the central plains to Silicon Valley wannabes sprouting up in support of companies such as Alibaba, Tencent and Huawei. Alibaba owns the South China Morning Post.

The wide disparity puts some residents at the cutting edge of the developed world, stepping into battery-powered cars that silently ease down city streets, or as consumers facing advertising choices generated by image-recognition technology. Across China, close to 1 billion consumers shop or pay for purchases using apps on their smartphones.

At the other extreme are rural towns where water still needs to be carried by hand from a well.

“Development in some of the major cities can now match anywhere in the world, but that’s not the whole story,” said Qian Wan, analyst for Bloomberg Economics, who specialises in provincial research. “In part of the inland areas, even some places along the coast, urbanisation – and therefore incomes – lags far behind.” As of early this year, cumulative lending by the World Bank to help development in China surpassed US$60 billion for 416 projects.

Shanghai tops list of China’s highest earners, but national wealth gap continues to grow

At the high end are the municipalities of Shanghai and Beijing. Gross domestic product per-capita adjusted for purchasing power – one measure of average incomes – was slightly more than US$53,000 last year. That’s similar levels to Switzerland and the United States. At that level, in fact, those districts would rank among the top 10 of all countries with populations of at least 3 million people, according to Bloomberg analysis of data sourced from the International Monetary Fund and China’s National Bureau of Statistics.

Shanghai, the mainland’s biggest financial centre, and Beijing, the nation’s capital, lead the list in large part because they are more compact and benefit from supportive government policies. They have the best universities, the highest-paying jobs and until recently, unmatched infrastructure.

For at least two decades, general labourers and highly skilled workers have been lured to help the headline cities grow, though most have second-class status. Most lack the difficult-to-acquire household registrations, or hukou, meaning they don’t have access to legal residents’ rights to social services and education resources.

“There are places farmers can move, now, and transfer to being fully urban, but there is a point system for elite cities like Beijing and Shanghai,” John Giles, a World Bank economist, said at a conference on China’s anti-poverty campaign in Washington. “You have urban residents who don’t want those migrant kids in school with their children.”

China’s dirty little secret: its growing wealth gap

China’s yawning economic disparities aren’t just of academic interest – they form the basis for one of President Xi Jinping’s three “critical battles”, namely poverty alleviation. And as the economy slows, policies that bring the incomes of those in Gansu closer of those in Shanghai will help ensure that the whole pie grows in a sustainable way.

“While early waves of migrants flocked to more affluent coastal and higher-tier cities, more migrants are now choosing to stay within their home provinces,” Hyde Chen, an equity analyst for UBS in Hong Kong, wrote in a report that compared urban development trends.

“Historical experiences from mature economies suggest that household incomes of wealthy and poor areas in China will likely converge over time.

“In China, the income convergence is taking place at a fast pace, with the household per-capita income gap between lower-tier cities and tier-1 cities narrowing from 56 per cent in 2005 to 46 per cent in 2017.”

China vows to modernise massive farm sector, amid growing wealth gap with cities

Just 10 years ago, it would have taken a dozen workers in Guizhou province to earn what one Shanghainese made. By 2017, that wealth gap had narrowed by half.

Still, the gap remains wide.

Guizhou and Yunnan provinces in the south and Gansu in the north each had per-capita GDP income below US$10,000 last year, ranking them among Ukraine, El Salvador and Guatemala. But with a combined population of 110 million – nearing that of Japan, with average income of US$39,000 – those three provinces have tremendous potential.

Starbucks chief financial officer Scott Maw said investing in coffee-growing areas of Yunnan had been a boon to both his company and the region. “I’m sure we benefit from that, but the vast majority of the coffee that is produced under those improved practices goes to others,” he said at a UBS conference on consumers and retail in March. “In a couple of years, you’ll have 600 million middle-class customers in China.”

China is changing from a land of villages and farming plots to one dominated by megacities and rapidly growing towns. Overall urbanisation stands at 59 per cent, according to the National Bureau of Statistics, with Guangdong – the most-populous province – the most citified: it’s urban ratio is 70 per cent. By comparison, the US is at 82 per cent, Thailand 50 per cent and India 33 per cent, according to the United Nations.

“The drivers behind this shift likely include improved infrastructure and transport networks, better economic integration, and policymakers’ initiatives to rebalance regional development,” Chen said.