By Richard Brubaker
The Wall Street Journal reports in In China, Growth at Whose Cost? that in China the rich are getting richer and the poorer are getting poorer. The article is based on a World Bank report that has yet to be released, but has been recently presented to Chinese government officials.

For those who are not subscribers, the following important points are being made:

• From 2001 to 2003, as China's economy expanded nearly 10% a year, average income for the poorest 10% of the country's households fell 2.5%. City dwellers average annual income gains are 8% to 9%, compared with less than 5% for rural households
• Roughly 130 million Chinese earn $1 a day or less Only about 20% to 30% of the poorest appear to be long-term poor, and even they have some savings

Bert Hofman, the World Bank's chief economist in China, says that the above findings are very important because "If true, it sheds doubt on the argument that a rising tide lifts all boats."

The article finishes up by paying homage to the fact that China has brought 400 million out of poverty in the last 25 years, and that the government has recognized the income gap as an area of concern.

Where I am a bit lost in this article is how anyone could think that 1.3 billion boats could all rise at the same time equally? When in history has this occurred? The only time in history that income levels in China were in parity was the during the Cultural Revolution, and I am pretty sure that if I were to ask any cab driver they would tell me that they prefer these days to those.

The study, and the articles to follow, are sure to have some very interesting points and may offer some clues as to how to close the gap…but my guess is that the leaders in Beijing are already well ahead of the World Bank, ADB, and the news outlets on this. Policies like "Revitalize the Northeast" and "Go West" are perfect examples of this.

In the last 2 years, the leadership under Hu Jintao has been more open and vocal than previous leaders about the income gap. The government is working to bring investment and create jobs into the inner provinces, and second tier cities and provinces are coming up.

Anyone who traveled to the cities of Chengdu, Xian, Wuhan, Kunming, or Nanchang five years ago will tell you how much things have changed in time as these cities have literally been rebuilt and industries have begun to take hold. As the process continues, and the second and third tier cities continue to expand, the residents of these cities will only benefit… and their percentage rise in income will most definitely come into line with the gateway cities.

The problem is clear, and the worst case scenario is scary. Last year there were 85,000 "riots" (still waiting for a clarification on what a riot is), and in most cases these were in reaction to an issue related to this imbalance (access to health care, environmental pollution, land grabs, unemployment, etc.).

As is most often the case, little effort is used to show the moves the Chinese government has made to remove corrupt government officials within their own ranks and increase economic opportunities within the various regions. Instead, a slice of time has been analyzed and used to create a blanket analysis (WB only used 2005 data to create this report) and a standard that China is not living up to the obligations of their "one country, two systems" approach.

With a population of 1.3 billion people living in 31 provinces that span nearly every geographic terrain imaginable, some areas are going to naturally develop faster that other areas. Germany and Italy did not have growth that was in parity any more than New York and Missouri did, and to expect the situations in Fujian and Ningxia is a bit much.

About the author:
Rich Brubaker, as the managing Director of China Strategic Development Partners, assists foreign companies develop and implement their China based market entry and sourcing strategies, including CSR strategies. In addition to his responsibilities at China SDP, Rich founded the charitable organization Hands on Shanghai to promote volunteerism among young professionals in the Shanghai community. Rich has a Masters in International Management from Thunderbird, The Garvin School of International Management and is the Vice Chairman of the American Chamber of Commerce Shanghai's Corporate Responsibility committee. He can be reached via email at rbrubaker@chinasdp.com or his blog here.

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