Building a harmonious society in China: Narrowing the income between the haves and haves not

Building a harmonious society in China: Narrowing the income between the haves and haves not

Sam Choon Yin (April 2005)

            Three issues dominated the discussion in the recently completed CPC and NPPCC sessions in China. The first issue concerns building of a harmonious Chinese society. This is essentially an internal issue, one that aims to build a more well off Chinese society and create a new socialist situation. The second issue concerns the Taiwan question particularly on measures to mitigate secessionist activities in the Taiwan Straits. To curb the advancement of pro-independence group, the anti-Secession Law came into force on 14 March 2005. The third issue, which dominated the sessions, pertains to international relations between China and her neighbouring countries, the United States and European Union. This article concentrates on the first issue, the building of a harmonious society in China.

            As Xiao (2005) points out, the Chinese economy still faces some of the drawbacks of the planned economy such as excessive concentration of state-owned enterprises and corruption. The problems are compounded as the market economy system that is increasingly followed in China poses additional challenges to the economy such as widening income gap between the haves and haves not, increasingly serious problems facing the rural areas, pressure in the workplace and incomplete social security system.[1] It was against these backdrops that the government raised the goal of building a harmonious society. This article pays particular attention to the urgency of narrowing the income gap.

            Let us start with some statistics. According to the Social Blue Book 2005 compiled by the Chinese Academy of Social Sciences, average per-capita disposable income of the top 10 percent on the rich list is more than eight times that of the bottom 10 percent. It was also reported that the total wealth of the top 10 percent accounted for half of the total wealth owned by urban and rural residents while that of the poorest 10 percent accounted for only one percent. While the government was proud of the fact that the number of people living in poverty had fallen from 250 million in 1978 to 26 million, one should not be too optimistic about it. It was reported that the Chinese government was actually using a product of the 1980s as a measurement of poverty in deriving at those figures. That is, according to the government, a household with annual income of more than 680 yuan (or US$82) per capita is no longer in poverty. In today’s higher costs of living, the benchmark is clearly understated such that should inflation be taken into consideration, a higher benchmark can be derived.

            It should be reminded though that unequal income distribution is inevitable in China or any other part of the world. In fact, prior to the opening up of the Chinese economy, communist leader Mao Zedong recognised that the urban residents were better off than those living in the rural areas, and that scientists, corrupt government administrators, factory managers and educationists were better off than farmers. The upper class residents turned out to be more vocal and influential, thus threatening the authoritative power of Mao. This had to some extent contributed to the outbreak of the Cultural Revolution which lasted from 1966 to 1976, the year that Mao died.

            As Chine progressed through the open market economy (post 1979), the situation became worse. This may not be surprising since the Chinese main economic architect Deng Xiaopeng had actually called for the South Eastern part of China to open-up and get rich first as he hoped that this would bring about a trickle down effect. With such a policy directive, the problem of income inequality in China is sure to deteriorate.

            China, being such a large country, might be better off with this approach of economic development rather than the adoption of the balanced growth approach. One reason being that as the economies in the South Eastern part of the country grew, more money could be contributed to the Central government in building the necessary infrastructure in other parts of the country. Concerns arise of course when the income division becomes too wide.

            The Chinese government is aware of the problem. In 1999 for example, the government launched the western development strategy to help the lagging Western area which comprises 12 provinces to catch up with East and South China. The effort paid off. The Western part of China enjoyed an average annual gross domestic product growth rate of 10 percent during 2000-2004, 2.8 percent higher than that in 1999 (Fu, 2005a). In 2003, the Central government turned to North Eastern part of China while in December 2004, the Central government proposed to promote the Central region, which consists of six provinces (Shanxi, Henan, Hubei, Anhui, Hunan and Jiangxi). The key to promote the regions is to identify each region’s comparative advantage. The respective governors or mayors know this. The Central region for example is being nurtured as a logistics hub to link Western China and Eastern China (Qin and Jiang, 2005). Liaoning, a province in the North East, is developing the machine-building, port and equipment industries. Jilin and Heilongjiang, two other provinces in the North East, are to develop the automotive and energy and power industries due to the availability of natural resources there (Liu, 2005).

            The Central government is generally determined to narrow the income between the haves and haves not. In March 2005, Premier Wen Jiabao outlines the government’s plan to promote the growth of the rural income. Two phases would be adopted. The first phase concerns the introduction of basic economic system of a family contract responsibility system to give greater autonomy to the farmers in production and management (representing an extension of rights to the farmers). The second phase involves the more developed regions and industries to nurture the agricultural sector and countryside, which are less developed economically. To do so, Wen believes that four tasks need to be done. First, to promote rural reforms with rural tax and administrative fees reform as the central task. Second, to raise productivity in the countryside by building water conservancy projects and promoting wider applications of agriculture-related science and technology. Third, to develop education, science, technology, culture and other social undertakings in the countryside and fourth, to promote primary-level democracy by way of self governance among villagers, direct elections at the village level and greater transparency in government affairs at the county and township level.[2]

            Corruption is recognised as a source of the widening income gap problem in China. Corrupt public officers get rich fast at the expense of the masses. In addition, the people they help could get things done faster, avoid normal government procedures and win government contracts unfairly thus further widening the income gap between those who offer the bribes and the rest. The Central government, being aware of the negative consequences, is determined to crack down on corruption. In a recent State Council meeting, Premier Wen was quoted in saying, ‘Corruption damages the interests of the people and the close links between the Party and the people, weakens the governance base and capability for the Party, affects social stability and disturbs the general situation of reform, development and stability’ (quoted in ‘Getting tough on corrupt officials’, China Daily, 13 March 2005).

Some progress in curbing corruption in China had been reported. During the third annual session of the 10th NPC in 2005, Jia Chunwang, procurator-general of China’s Supreme People’s Procuratorate, disclosed that 11 officials at the provincial or ministerial level were investigated in 2004. They were among the 2,960 officials at or above the county level probed on charged of corruption, taking bribes and misused of public funds. The country’s court jailed a total of six provincial or ministerial officers in 2004, according to another report presented by Xiao Yang, the Chief Justice and President of the Supreme People’s Court. Some of prominent public officers found guilty include Tian Fengshan (former Minister of Land and Resources), Liu Fangren (former secretary of the CPC Guizhou Provincial Committee) and Zhang Guoguang (former secretary of the CPC Hubei Provincial Committee and Governor of the province).[3] These were significant achievements although the government recognised that more can be done to reduce the intensity of corruption in the country. The government is currently thinking of enacting an anti-corruption law and setting up an independent anti-corruption agency, among other things.

Essentially, the government must recognise that the adoption of the market system comes with problems, what economists like to call externalities. Thus, measures to internalise the problems like provision of adequate education and healthcare system of reasonable standards must be initiated. The notion of building a harmonious society is an essential and timely step to do just that.


Fu, Jing, 2005a, Western Strategy beings to pay off, China Daily, 14 March 2005.

Fu, Jing, 2005b, More capital to tackle pension deficit, China Daily, 28 March 2005.

Liu, Weiling, 2005, Northeast plans to move at much faster speed, China Daily, 14 March 2005.

Qin, Jize and Jiang Zhuqing, 2005, Central China: Emerging Strength, China Daily, 17 March 2005.

Yu, Zhong, 2005, Farmers to choose villagers’ committees, China Daily, 21 March 2005.

Xiao, Zhuoji, 2005, Deciphering ‘harmonious society’, China Daily, 21 March 2005.


[1] It has been reported that the pension crisis in China caused by the 4-2-1 phenomenon (one child supporting two parents and four grandparents) will be more severe. The Ministry of Labour and Social Security forecasted that the number of retired pensions living in the urban areas would reach 100 million by 2020 from 70 million in 2010, up from 48 million today. But only 44.9 percent of urban employees and 85.4 percent of retired persons are covered by pension plans. Moreover, most farmers are outside the pension system. Pension shortfalls totalled 2,500 billion yuan (US$30 billion). To mitigate the problem, the government plans to transfer more capital from the financial coffers of the central and local governments to support retired people. For example, at the end of 2004, National Council of Social Security Fund President Xiang Huaicheng announced that nearly one-tenth of China’s state assets worth more than 12,000 billion yuan (US$1,400 billion) will be transferred within the next five years (Fu, 2005b). There have also been talks to raise the retirement age from the current 55 years old for women and 60 years old for men to 65 years by 2030 for all although doing so may worsen the unemployment problem in the country.

[2] For almost two decades, villages in China are able to elect their own village committees. A villager’s committee is a mass organisation of self-management consisting of local villages, usually five members that manage village affairs. The Ministry of Civil Affairs reported that most of the 680,000 villages in China have adopted the election system. But there are loopholes in the system. The most serious is bribery. There is essentially a lack of clear and lawful definition of bribery and no specifics about how to rectify such illegal deeds in the Organic Law of Villagers’ Committee (enacted in 1988, the law sets out the basic principles to ensure democracy at a local level and hat any villager above 18 years old has the right to vote or stand as a candidate). In the underdeveloped rural areas, being elected provides ample incentives to get rich quicker. They could manoeuvre local businesses for personal gains and has the power to distribute land and allocate projects (Yu, 2005). 

[3] It was also reported that (1) a total of 772 corrupt public officers and 24, 184 cases of graft, bribe-taking and other corrupt activities were successfully prosecuted in 2004, and (2) 614 leading officials-turned-suspects, who had absconded abroad, were arrested in 2004.