In a conference on China in New York City, when asked what one thinks of when the word “China” comes to mind, an American lady in the audience answered, “the wealthiest country in the world.”
As a Chinese-American, I keep running into people who ask me if they should invest in China because the economy there looks so miraculously wonderful.
Several factors may have contributed to the American public holding this perception. For example, during China’s rapid economic development over the last 30 years, the communist regime allowed some people to become rich, giving an overall impression of a society becoming rich.
China holds over US$1.2 trillion in U.S. debt, a vast sum in foreign reserves. And media and Wall Street have portrayed China as an emerging gold mine for investment.
The Poor
In comparison with the Mao era, many Chinese people’s standard of living may have improved significantly. But the reality is that, in spite of the dynamism of the past 30 years, Chinese society remains very poor.
In the book The Next Decade, George Friedman points out that according to the People’s Bank of China, 60 million Chinese (less than 5 percent of the Chinese population) live in middle-class households (defined as those earning more than US$20,000 a year).
Six hundred million Chinese live in households earning less than US$1,000 a year, or less than US$3 a day for a family. Another 440 million Chinese live in households earning between US$1,000 and US$2,000 a year, or US$3 to US$6 a day.
Friedman concludes that 80 percent of Chinese live in conditions that compare with the poverty of sub-Saharan Africa. These numbers may cause disbelief in many Americans. They may wonder how it is possible for a nation so impoverished to own so much U.S. debt.
US Debt
China, despite economic reforms, is still a centralized economy controlled by the state. The communist regime looks to economic development to legitimize its power and stabilize the nation.
By manipulating the value of the yuan, taxing heavily the manufacturing industries that export goods to foreign markets, utilizing its rich resources for raw materials, including a commanding market position in rare earths, and keeping the costs of human capital cheap, the Chinese regime has accumulated large reserves of foreign currency.
Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, recently stated that China has the highest income tax in the world.
In order to maintain the low currency rate that gives an advantage to Chinese exports, the Chinese regime chose to buy U.S. debt and manipulate the currency.
Buying U.S. debt also serves to generate economic dependency of the United States on China and create political leverage in dealing with the U.S. government. For example, the United States over the last two decades has for the most part ignored human rights violations by the Chinese regime and shied away from anything and anyone that the Chinese Communist Party regards as an enemy.
Next ... ... Inequality of Income
Inequality of Income
China’s economic development was designed by Deng Xiaoping, the architect of China’s economic reform, to allow a few to become rich first. In fact, the reform has generated nothing but that result: A few who have become rich.
China, the world’s fastest-growing major economy, had 502,000 millionaires last year, according to a study by Julius Baer Group and CLSA Asia Pacific Markets. The number of millionaires in China grew to 534,500 this year, according to a report in June by Capgemini SA and Merrill Lynch Global Wealth Management. China ranks fourth in terms of the number of rich individuals in the population, trailing the United States, Japan, and Germany.
A recent article by Zhang Monan in China Daily states these wealthy families in China only account for 0.2 percent of the country’s total number of households, a proportion that is far lower than that in other countries.
For instance, the proportion is 4.1 percent of households in the United States and 8.4 percent in Switzerland. Zhang urges the state to increase the property tax so it can help reduce the big gap in wealth distribution.
The renowned sociologist Zhou Xiaozheng, who heads the Institute of Law and Sociology at Renmin University of China pointed out in an interview with The China Post: “Don’t forget, China’s current success is built on 300 million people taking advantage of 1 billion cheap laborers. And the unfair judicial system and the unfair distribution of wealth are making the challenges even greater.”
China’s Gini Coefficient—a measure of overall income disparity—surged to an alarming 0.47 last year (the internationally accepted warning line is 0.4) and is feared to top 0.5 this year, which would be an historic high.
Even within cities, the income gap is huge, reaching a Gini Coefficient of 0.36. Zhou blames the huge income inequality on social unrest, such as the suicides at the Foxconn assembly plants, repeated incidents of children being stabbed to death in Shenzhen and Shanghai, and local residents immolating themselves out of protest against their lands or homes being expropriated by the state and their being relocated.
Wealthy Are Fleeing
The Hurun Report, along with private Chinese banks, released a white paper on Oct. 29 discussing wealth management among China’s high-net-worth individuals in 2011.
The paper is based on a survey conducted in 18 major cities and among people whose average wealth came to about 60 million yuan (US$9.4 million), according to the Nanjing-based Yangtze Evening Post.
This report has aroused serious concerns in the Chinese regime. Huanqiu, an online publication under the People’s Daily, published an article condemning the rich moving out of China, saying such emigration may cause economic disaster and should be limited.
Most people who have decided to leave China state that they do not have any sense of security staying in China. Their concerns include a lack of an independent judiciary system, an unpredictable economic policy, and high taxation.
For the Chinese regime, stability is its top priority. It has to depend on the People’s Liberation Army and armed police forces to control increasing numbers of violent protests. Some type of wealth redistribution has to happen eventually.
Bankrupt
Larry Lang is one of few Chinese scholars who have spoken their minds about China’s current economic situation.
A speech he gave recently in Shenyang has gone viral on the Internet despite his oral contract with his audience for absolute confidentiality. In his speech, he said that all of the official numbers on China’s economy published either on paper or online by the Chinese state are all made up.
The truth, according to Lang, is that the Chinese state is bankrupt already. He said that beginning in July, China’s manufacturing sector was already in recession, and in 2013, China’s economic tsunami will start.
Nobody knows what will happen when China’s economy collapses and what excuse the Chinese communist regime will find to stay in power. The rest of world would be better off preparing for this cataclysm, rather than relaxing and enjoying the rosy picture presented by the Chinese regime.
Michael Young is a Chinese-American writer based in Washington, D.C., who writes on China and the Sino-U.S. relationship.
