On one hand China is one of the fastest growing economies, while on the other hand it has different social issues to deal with. Income inequality is one of the biggest challenges for China. The Gini coefficient is similar to that of America, however it is not a good representation of the inequality that prevails in China.
Government is coming up with policies to build a social safety net as a solution to the problem. But given the size of the population of China, is it really a good idea to approach the problem by building a social safety net? Public programs are expensive and due to size of population of China, there are high chances of emergence of numerous loopholes in such programs.
Furthermore, the government is asking for the nation's powerful corporation to share the cost for building the social safety net? Will this have a big impact on the country's economy? (LINK)
Government is coming up with policies to build a social safety net as a solution to the problem. But given the size of the population of China, is it really a good idea to approach the problem by building a social safety net? Public programs are expensive and due to size of population of China, there are high chances of emergence of numerous loopholes in such programs.
Furthermore, the government is asking for the nation's powerful corporation to share the cost for building the social safety net? Will this have a big impact on the country's economy? (LINK)
Certainly, I think it's time for China to start developing a safety net. But, I think it's worth not letting this overshadow two larger issues in China.
ReplyDeleteA. China is still a poor country. According to a World Bank 2011 estimate, China's GDP per capita is about 8400 dollars. That's definitely moving into middle income territory, but it's far from rich. At this point, the greatest gains for China's people will come from reaching a level of prosperity where their basic needs can be met, not spreading around what little wealth there is.
B. The root of China's inequality seems to be abuse of state power. Consider these passages from the article,
"Official corruption has gained widespread attention in the domestic media. A number of government officials have been stripped of their posts for corruption and abuse of power, most notably former party high-flier Bo Xilai. Despite the Bo case, most of the efforts have targeted relatively low-level officials and it remains unclear whether any of the efforts would target the upper echelons of the party leadership."
and
"Disputes over expropriated farm land have become a serious threat to social stability. Local officials, often working hand in glove with property companies, frequently seize farm land for development projects but with little or no compensation for farmers."
Sure the State Sponsored Enterprises are going to have to fork over 5% more money to pay for a welfare net, but remember that they're being shielded from competition by the government to pad their profits and hurt consumers while being subsidized through Chinese tax dollars. Seems to me China is a case where cracking down on government cronyism would go a long way towards mitigating inequality.
Anyways, here's a good article I saw in the Economist awhile ago about the developing welfare nets in Asian economies.
As Philip pointed out the Chinese economy is mostly state owned. Hence most of the big pay-checks are being enjoyed by the officials.
ReplyDeleteAssessing the cost of a social security net we can safely assume that it will be cheaper for China to do. I do not see it going out of hand as what happened in the USA. Problems will arise when the state decides to make this a private run program.
"Economists have long been urging Beijing to compel state companies to hand over more of their profits to the central government as a way to help pay for increased spending on pensions, health care, low-income housing and education. A stronger social safety net is seen as crucial to China's economic rebalancing, freeing up household income for consumption."
At some point there is going to be a breaking point. As is stated, these public safety nets are expensive. Either the business district continues to pony up and the gap will close (unlikely) or at some point they will stop fitting the bill. That large proportion of underprivileged citizens will take matters into their own hands and we then could see some major changes/instability in China.
ReplyDeleteI agree with Utsav’s concerns that building a social safety net might do more harm than good for China. Also, making corporations “shoulder” the extra cost will only mean economic slowdown. If China is trying to increase their middle class, it doesn't make sense to make corporations (that are ultimately providing jobs) pay for the cost of the social safety net. Right now China needs to focus on building a middle class. Increasing costs to corporations that are providing middle class jobs is not the answer. Perhaps giving businesses incentives to hire those who are of low income could be a good start.
ReplyDeleteConsidering there is a high wealth distribution in China, I do agree that the very wealth should be taxed. With that said, the tax money should go to creating jobs for those who are very poor. I believe the key to building up the middle class is through increasing the amount of well paying, quality jobs.
My takes from this article are similar to those of Philip. Corruption is seen as a problem in "third world" countries (which we generally do not see China to be anymore); however, in reality, it's both corrupt and poor in many ways. With such huge profits possible, it's an inevitable inequality. Nonetheless, these profits should be better used (taxed) for the rest of the population. And--when push comes to shove--we have to hope and cross our fingers these leaders are ethical in their decision-making, wealth-accumulation, and social policy making.
ReplyDelete