Wednesday, June 23, 2021

Communist Party of China @ 100 - High inequality and high poverty

China has moved from being a moderately unequal country in 1990 to being one of the most unequal countries according to the International Monetary Fund (IMF). At the same time, while great strides have been made in eliminating extreme poverty, claims that it has been vanquished have been disputed. Chinese premier Li Keqiang at the end of the National People’s Congress in May 2020 released data on household incomes. It showed that the bottom 40% of households ranked by annual income and accounting for about 600m people from a population of 1.4bn, had an average annual per capita disposable income of CN¥11,485 yuan (US$1,621) — an average of CN¥957 yuan (US$135) per month — according to an annual household survey produced by the National Bureau of Statistics (NBS).

As the Communist Party of China celebrates its centenary in July it should recognise Deng Xiaoping (1904-1997) as its greatest leader who was instrumental in putting China on a capitalist road that would create an economic miracle. Deng liked an old proverb from his native Sichuan: ''It doesn't matter whether a cat is black or white, as long as it catches mice.''

Having been purged as a ''capitalist roader'' in 1967 during the Cultural Revolution and again after the death of Mao in 1976, he was back in 1978 at the age of 74 and in December of that year after a month-long conference on a new path forward he said "Our socialist construction failed to progress satisfactorily and we experienced grave setbacks politically. Now that our task is to achieve modernization, our lack of the necessary knowledge is even more obvious. So the whole party must start learning again."

In addition to Deng's economic reforms, he put forward rules for succession in 1982. Deng banned personality cults and introduced collective leadership, with term limits of 10 years for senior party officials.

However, in 2018 China's rubber-stamp parliament amended the country's constitution to end term limits for the presidency, thus allowing President Xi Jinping to stay in power for an indefinite period.

The Communist Party of China was founded at a congress of 10 delegates who met in the French Concession of Shanghai from July 23, 1921. It was formed under the supervision of two members of Russia’s Communist International (Comintern) including Dutch-born communist, Henk Sneevliet.

Mao Zedong (1893-1976), a primary school principal, represented Hunan Province. Later he was mistaken that the congress had begun on July 1.

China’s ruling Communist Party had only 53 members when it was founded in 1921 by Chen Duxiu (1879-1942) and Li Dazhao (1889-1927). Both Chen and Li studied Marxism in Japan. Chen was ousted from his position as the first secretary in 1927 and he was expelled in 1929. Li was executed in Shanghai in 1927.

The CPC's 1921 constitution states that the party is “the vanguard of the Chinese working class” and the constitution of the People’s Republic declares that China is a “socialist state ...led by the working class and based on an alliance of workers and peasants.”

There are currently about 92m members and according to the South China Morning Post (Hong Kong) from 2007 to 2019, the share of blue-collar and rural workers in the party fell from 41.5% to 34.8%, while the proportion of managers and professionals increased from 22.4% to 26.7%.

Membership is important for career advancement in business and public organisations.

The newspaper reported that "An education ministry survey conducted at 140 universities in 15 provinces in 2011 found that 80% of 250,000 students polled wanted to join the party. Part of this was ideological alignment with the party’s values: the poll found more than 90% of students agreed with the concept of a socialist core-value system that consisted of Marxism, socialism with Chinese characteristics, patriotism and the spirit of reform and innovation."

Deng said in a speech in 1984 "One of our shortcomings after the founding of the People's Republic was that we didn't pay enough attention to developing the productive forces. Socialism means eliminating poverty. Pauperism is not socialism, still less communism."

"Socialism with Chinese characteristics" dates from Deng's leadership when market reforms were embraced, and today it's a cloak for state and private capitalism in the authoritarian state.

Inequality and poverty

The poorest 20% of Chinese households earn 6.5% of total income according to the Organisation for Economic Cooperation and Development (OECD). The group of mainly advanced economies has an average Gini of 31 — Corrado Gini (1884–1965) was an Italian statistician.

In 2019, China reported a Gini Index score of 46.5 (0.465) points. In 2020 the OECD estimated that the 2017 Gini based on disposable income (after taxes and public transfers) was 31 in the OECD area; 51 in China; 49 in India and 39 in the United States.

IMF 2018

The Gini Index is a statistical measure that is used to represent unequal distributions, e.g. income distribution. The coefficient is an inequality measure ranging from 0 to 100, where 0 suggests that everyone has the same income (very equal distribution) and 100 implies that the richest person or household has all the income (very unequal distribution).

While much has been achieved in reducing poverty, the equivalent of income of US$135 per month is at the subsistence level.

Li Jinlong, a professor at Hunan University and an expert in poverty relief, said Li Keqiang, the premier, had understated the problem (see the top of page). The bulk of China’s 550m rural population and a significant proportion of urban residents, he said, were barely making ends meet.

“There is no way rural residents could get out of poverty when they cannot find a profitable industry to work in,” Prof Li told the Financial Times.

This month Bill Bikales, a former senior economist for the UN in China, produced a report, 'Reflections on Poverty Reduction in China,' that was published by the Swiss Agency for Development and Cooperation.

Bill Bikales writes:

"China has defined poverty as an exclusively rural phenomenon, which was reasonable in 1978 but grew increasingly incorrect over the ensuing decades. Although some urban households receive social assistance — the dibao — they are not listed anywhere as poor people, nor are the other city dwellers who may be eligible according to their income but do not receive assistance because of the still often opaque rules governing the selection of beneficiaries.

China has not eradicated poverty — even extreme poverty. And, it will not until it has viable systems in place to identify poor people everywhere, until poverty is seen as both a rural and an urban phenomenon, until special attention is paid to the still large number of “floating population” — the rural-urban migrants — and until the country provides a safety net for all its people. This includes those who are hit by a death, serious illness, loss of work or other shock."

Bikales also notes that "the frequent use of 1978 as a baseline to measure poverty reduction in China – and, specifically, reference to the 800+ million people lifted out of poverty — can be problematic. The implication is that this poverty reduction was entirely the result of post-78 government policy, whereas it was directly linked to the policies of the previous years in two ways. First, many conditions for poverty reduction were in place despite artificially low income, as just highlighted. Second, much of the poverty reduction in the first years after 1978 was simply a result of reversing bad Maoist policies.

A great boost to rural incomes resulted from allowing peasants who worked harder to keep more of what they produced. Gradually increasing peasants’ freedom to grow what they wanted — and sell it for the best price they could get — and allowing them to move from rural areas where income-earning prospects were limited to new jobs in nearby or faraway urban areas exacerbated this boost. One recent estimate is that two-thirds of the poverty reduction in the first decades after Mao was simply catching up to where China should have been if better economic policies had been followed before 1978. In addition, there are methodological questions that arise in attempting to apply one line — in this case, the current official Chinese poverty line — across a period of 42 years during which China grew and changed so dramatically. China’s official poverty lines were increased twice over this period as the country developed; the alternative approach of measuring poverty incidence over these years according to the lines that were used at the time gives quite different results."

About 40% of the 400m people working in cities are migrant workers. However, the hukou household registration system had banned rural residents from migrating to cities, which had been introduced in 1958. It was the first year of the Great Leap Forward project and in modern times rural migrant workers in cities have not been allowed to use some social services or education in schools with city dwellers.

Last March China said is preparing to overhaul the household registration system to allow people from rural areas to become permanent residents in cities. To speed up the “full integration” of rural residents into cities, China plans to loosen residency restrictions in most urban areas and launch a points system to replace the household registration system or hukou, according to a draft of the government’s 14th five-year plan. It aims for 65% of the country’s population to be living in cities by 2025.

Unemployment

The average urban unemployment rate was 3.6% in 2019 and for 2020, China’s surveyed jobless rate was 4.7%.

The South China Morning Post newspaper that is published in Hong Kong reports that no government data set offers a clear picture of the job market, and most economists believe official figures underestimate joblessness.

"Among the groups not adequately counted are China’s 149m self-employed business owners and nearly 300m migrant workers, who regularly travel from their rural hometowns to find employment in urban areas.

Unlike developed economies, which typically offer a broad range of employment indicators, China has historically relied on only two figures for unemployment data – both of which have shortcomings."

Medical staff under siege

Up to 36% of spending on healthcare in China comes from patients, compared with 14% in the OECD area and an insurance system provides a basic service. China's ratio of doctors per 1,000 people is 2, compared with 3.5 on average across the OECD.

Medical doctors are badly paid and overprescribing drugs to compensate has made hospitals centres of violence.

An opinion piece in the 'China Daily' last April called for better pay. "Township hospitals are in dire need of good and qualified doctors. Surveys show that of the 3.86m doctors in the country, more than 40% don't have even a bachelor's degree in medicine. Unfortunately, most of these doctors work in township hospitals and village clinics. And although not as well-educated as their counterparts in cities, these doctors are the stabilizing factors for healthcare system in rural areas."

The Economist reported this year "Patients in China keep attacking their doctors. On January 27th Hu Shuyun, a physician in the southern province of Jiangxi, died after being assaulted on a ward. A few days earlier three medical workers at a hospital in Hangzhou, an eastern city, were injured when a patient set off a homemade bomb. Every month brings more shocking stories. Chinese even has a word for it: yinao, meaning “medical disturbance.” Between 2004 and 2016, the number of such disputes that ended up in court rose from 8,854 to 21,480. But only a fraction of cases get that far. In 2016 the National Health and Family Planning Commission acknowledged that it had mediated more than 60,000 disputes."

In 2015 600,000 physicians signed a petition calling for an end to such assaults and a 2019 survey found that 85% of doctors had encountered violence at work.

Medical scams are common and last February 70 people were arrested for making fake Covid-19 vaccines. The Economist reports that since new laws were introduced in Beijing more than 180,000 prohibited items such as knives have been seized at hospital entrances!!

The long run

According to Chinese public statistics the real (inflation-adjusted) GDP grew at an average annual rate of 6.7% in 1953-1978 in spite of the disasters of the Great Leap Forward ('Mao's Great Famine: The History of China's Most Devastating Catastrophe, 1958-1962' by Frank Dik├Âtter suggested 45m deaths based on state records) and the Cultural Revolution. Angus Maddison (1926-2010), the renowned British economics historian, suggested an annual average of 4.4% in his book 'Chinese Economic Performance in the Long Run, 960-2030,' (2007), which was published by the OECD.

From 1950 to 1978, China’s per capita GDP doubled based on purchasing power parities (PPP). In 1980-2020 the GDP per capita in what are called international dollars grew from 349 to 17,172 — 49 times!

In current dollars, in 2020 the GDP per capita was $10,500 in China; $10,300 in Malaysia; $32,000 in South Korea and Taiwan; $62,200 in Denmark and $42,500 in Ireland (adjusted for tax avoidance distortions).

Since joining the world trading economy and opening up to foreign trade and investment together with embracing free-market reforms from 1978, China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) average annual growth of about 9.3% through 2020.

The World Bank has called it “the fastest sustained expansion by a major economy in history.”

The IMF said in a report in the 1990s "Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only one in two did. Reforms expanded property rights in the countryside and touched off a race to form small nonagricultural businesses in rural areas. Decollectivization and higher prices for agricultural products also led to more productive (family) farms and more efficient use of labour. Together these forces induced many workers to move out of agriculture.

The resulting rapid growth of village enterprises has drawn tens of millions of people from traditional agriculture into higher-value-added manufacturing...By welcoming foreign investment, China's open-door policy has added power to the economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly US$100bn in 1994; annual inflows increased from less than 1% of total fixed investment in 1979 to 18% in 1994. This foreign money has built factories, created jobs, linked China to international markets, and led to important transfers of technology."

According to Angus Maddison, about three-fifths of the world’s commerce and production took place in and around China and India. So did much of the world’s scientific and technological progress, including the Chinese invention of paper, explosives, and printing, and medieval India’s launch of modern mathematics. In the early 1830s, when President Andrew Jackson sent the first US envoy across the Pacific to Siam (Thailand), Asia still accounted for over half of global GDP (gross domestic product).

Chinese president Xi Jinping ended a three-day tour of the northwestern province of Qinghai in early June 2021 by stressing its importance for maintaining order in neighbouring Xinjiang (home of Muslim Uighurs) and Tibet (Buddhism and reverence for the 14th Dalai Lama who turns 86 in July 2021). He said the province, where around a quarter of the population are ethnic Tibetans, was a “model of national unity”, according to state news agency Xinhua. Xi also told local officials to adhere to Beijing’s ethnic policies and continue the sinicization of religion. He described the province as “a strategic key place in maintaining stability in Xinjiang and Tibet”, adding: “It must comprehensively implement the party’s policy on how to govern Tibetan areas and shoulder responsibility.” Photo: Xinhua

Maddison in his book 'Chinese Economic Performance in the Long Run, 960-2030' wrote that China was the world's largest economy in 1820, accounting for an estimated 32.9% of global GDP. However, foreign and civil wars, internal strife, weak and ineffective governments, natural disasters (some of which were man-made), and distortive economic policies caused China's share of global GDP on a PPP basis to shrink significantly. By 1952, China's share of global GDP had fallen to 5.2%, and by 1978, it slid to 4.9%.

It's important to understand that the current post-Mao Zedong modernisation of China, is not a simple story of a backward country achieving an economic miracle. A vast unified country over a span of two thousand years, overwhelmingly dominated by one ethnic group, the Han, was a pioneer in bureaucratic modes of governance. Maddison said that in the tenth century, it was already recruiting professionally trained public servants on a meritocratic basis. The economic impact of the bureaucracy was very positive for agriculture.

They nurtured it with hydraulic works; printing enabled the distribution of illustrated agricultural handbooks; farmers settled in promising new regions; a public granary system to mitigate famines was established. They fostered innovation by introducing early ripening seeds which permitted double or triple cropping. New crops were introduced — tea in the T’ang dynasty, cotton in the Sung, sorghum in the Yuan, and new world crops such as maize, potatoes, sweet potatoes, peanuts and tobacco in the Ming.

History of China in 8 Minutes: Territorial Changes of Every Dynasty

From the nineteenth century, internal rebellions and colonial intrusions resulted in China's share of world output falling from one third in 1820 to one-twentieth by 1952. Real per capita income fell from 90% to less than a quarter of the world average. Nineteen foreign powers established colonial enclaves; three wars were fought with Japan and two with France and the UK, the Boxer rebellion in 1900 involved action with an international force including Americans from their new colony of the Philippine Islands; Russia seized 10% of Chinese territory in the 1850s in what is now Eastern Siberia and in the first years of the Chinese republic from 1912, it helped detach Outer Mongolia. After all these foreign wars, the victorious powers exacted large financial indemnities.

The global economy is shifting away from the US and Europe towards Asia. The FT's global China editor James Kynge and FT economics commentator Martin Sandbu discuss whether China will dominate global commerce or whether the world economy could split along regional lines.

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