China’s Wealth Gap Problem

Traditionally China has been one of the red states. This means that China traditionally adopted the policy of communism. Hence, one would expect the income and wealth disparity in China to be limited. However, surprisingly, that is not the case. China has one of the biggest wealth disparities in the world.

For instance, the top 100 richest people in China have more wealth than the bottom 40% of the population combined! The combined wealth of the top 100 people adds up to around $650 billion, whereas the bottom 40% of the population has a net worth of only $630 billion. This is catastrophic because China is a highly populous country.

40% of China’s population adds up to 420 million people! Hence, 100 people have more wealth than 420 people suggesting a huge wealth gap. This is the reason that one the one hand, some Chinese have disposable incomes which can match that of developed countries like America whereas on the other hand many Chinese live in third world conditions which are prevalent in countries like Guatemala.

The Reasons behind the Wealth Gap

China needs to address and solve its wealth gap problem urgently. In order to be able to do that, it needs to understand the factors which are causing this wealth gap. Some important factors have been listed below.

Disparate Growth

The Chinese growth miracle is a widely known and studied phenomenon all across the world.

It is a known fact that China was the world’s fastest growing economy at that time. As a result, China was able to raise the income of poor people.

The income of the bottom 40% increased five times during that period. This seems impressive until one considers the fact that the income of the top 1% has increased forty times during the same period. This unequal spread of growth and income has further accentuated the income gap within China.

Education System

The Chinese education system is one of the main reasons behind this huge wealth gap. The system is well developed in urban areas. However, it is not well developed in rural areas. With the advent of globalization and technology, all jobs in China now require high tech skills.

Even jobs which used to be performed by labourers are now performed by high tech machines. Therefore, workers must be able to operate such machines in order to secure these jobs. The urban Chinese workforce is able to perform such tasks. However, the same cannot be said about rural Chinese workers.

Measures that Need to be Taken

The Chinese wealth gap is a serious problem. Now since China is a global economy, their problems not only affect their own economy but also the economy of the rest of the world. Hence, it has become very important that China take measures to reduce this wealth gap. Some of the basic measures have been listed below:

Subsidies to the Rural Population: The Chinese government has already announced its plans to help its rural population. Since the rural population of China is largely agrarian, one of the first steps that China wants to undertake is the abolition of agricultural taxes. The agricultural taxes are not a significant source of income for the government. Hence, foregoing them will not have a significant impact on the government. However, it will have a huge impact on the rural population.

Social Security Benefits: Up until now, Chinese workers have been operating with very little social security. By increasing these social security benefits, China can raise the standard of living of its citizens. This is the reason why the Chinese government is contemplating creating rules such as the minimum wage laws as well as medical care systems. It is surprising that China does not already have such systems in place, given the fact that it was a communist country for a very long time.

Educational Benefits: China’s neighbour India is one of its biggest competitors. Up until now, China has been focusing on building infrastructure, and it is comprehensively ahead of India in that regard. However, India has focused more on its education system and hence leads in the service economy.

China now wants to compete in the service economy as well. This is the reason that they need to focus on their rural workforce as well.

The Chinese government has now decided to provide 12 years of free education to every Chinese citizen! This move is aimed at developing a workforce which can compete in the knowledge economy. However, this is only the first step. China needs to set up several scholarships so that individuals with a high IQ are provided higher opportunities regardless of which social class they belong to.

The bottom line is that wealth disparity is a real problem in China, and it needs to be worked upon. Americans think that their wealth gap is alarming. The reality is that the Chinese wealth gap is even larger. The average urban household in China earns 330% more as compared to an average rural household.

Even though China has been a communist country for the better part of the last century, its wealth inequality situation is worse than some of the poorest nations in the world such as Malawi and South Sudan.