As the world’s second-largest economy, China has seen some high growth in recent past. With this growth, however, has come a widening gap between the rich and the poor. China’s income distribution statistics show that the country is facing a large income gap between the rich and the poor. China’s Gini coefficient has grown sharply to 0.466 points in 2021, which is above the warning level set by the United Nations of 0.4. By comparison, countries such as Germany, Canada, and Japan all have estimated Gini coefficients that hover at just over 0.3. There is also a significant income gap between urban and rural households, as well as between different provinces in China. Beijing and Shanghai had a 2021 per capita income which was 227% of the average national per capita income of $12,551. At the other extreme, China’s poorest province, Gansu, had a per capita income of just 51% of the national average. This indicates a growing inequality in China, which can have serious social, economic, and political implications.
Continued inequality in access to education and healthcare has left workers without capabilities needed to excel in the high-skilled, high-wage jobs that are appearing as China’s economy seeks to reach high-income status. China’s Hukou household registration system has left migrant workers without full access to healthcare, education, pension and unemployment benefits. The consequence is that a large segment of the population is living in relatively precarious conditions. Only an estimated 16% of rural migrants working in cities were covered by pension benefits, only 18% had urban health insurance, and only 10% had unemployment insurance.
Economic inequality appears to have been made even worse by the handling of the pandemic. In one of the world’s most unequal economies, China’s centralised healthcare system drives money and resources towards urban hospitals at the expense of rural ones, a disparity that has become all the more intense as cases surged. Urban areas have nearly twice as many beds in medical institutions per capita than rural areas. The lack of doctors is more profound. For every 1,000 people, there are only 2 licensed doctors in rural areas compared to 4.25 in urban areas – Beijing has 7. Some 1 billion of China’s 1.4 billion people live away from the rich coastal provinces.
Another factor that is unequivocally critical is education. To China’s detriment, average educational attainment in the country is low by international standards. The quality of education in rural China remains especially low. A 2015 survey of 23,143 students in rural counties of 3 provinces, Shaanxi, Guizhou, and Jiangxi, found that they had the lowest achievement of any of the other 50+ economies participating in the ‘Progress in International Reading Literacy Study’. The increase in informal employment in China means not only that a large proportion of workers lacks access to welfare support but also that their children enrolled in rural schools are less likely to acquire the cognitive skills that are needed to succeed in high-skilled jobs.
High inequality, especially when it takes the form of unequal access to education and health services, will hamper overall economic growth, but it will also undermine efforts to achieve technological upgrading and raise productivity. Uneven educational levels and inadequate skills could hold back the growth of the most innovative parts of the economy. Advanced tech companies may be constrained to operating near regional innovation hubs rich in talent and be unable to tap into the growing number of underemployed, undereducated workers. Additionally, persistently high inequality in a period of lower economic growth may have broader implications for social cohesion and political stability. The rising informality of the economy and stagnating wages for unskilled workers may cause large swaths of the population to lose this confidence, introducing new fragility in the social system. Higher rates of crime and other problems, including protests, could follow, sowing the seeds of political instability.
China is also no longer a low-wage, low-cost manufacturing country. As the economy boomed in the mid-2000s, wages increased, curbing demand for workers in manufacturing. As a result, labor-intensive, low-end manufacturing (e.g., textiles and electronics) has been relocating to Bangladesh, Vietnam, and elsewhere. The construction industry, a reliable driver of employment for decades, has also slowed significantly in recent years. Increased automation may also be hurting job opportunities for workers in lower-skilled occupations. Central and local leaders will have to operate in a challenging socioeconomic environment, with lower growth, fewer stable jobs in the formal economy, especially for the unskilled segment of the manufacturing and construction sectors, and increased demand for an educated workforce. Some factors could significantly accelerate current trends. One is the economic impact of Covid-19, including the extensive use of lockdowns and other restrictions imposed in 2022. How significantly it will impact long-term employment trends is unclear, but it will depend on government policies, global supply chains, and the speed of global and Chinese economic recovery. The economy has suffered and unemployment has grown. As a result, the government’s goal of 5% GDP growth for 2023 will be challenging to achieve.