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    China Business
     Apr 9, 2009
And the poor get poorer
By Wu Zhong, China Editor

HONG KONG - China's wealth gap, which has been expanding tremendously in the 30 years since the country turned towards a capitalist-style economy, is showing little signs of diminishing even as growth slows.

The number of people worth more than 10 million yuan (US$1.4 million) is expected to jump to 320,000 this year from an estimated 300,000 as of the end of 2008, according to a survey by China Merchants Bank and multinational consultancy Bain & Company.

At the other end of the wealth scale, more than 40 million farmers survived on 1,196 yuan or less last year, government figures


show. Officials now admit that if the internationally used poverty threshold of US$1, or 6.83 yuan, per person per day is adopted, the size of China's poor population could exceed 100 million - that is, at least one out of 13 Chinese still live in poverty.

The wealth survey, which polled 700 respondents through face-to-face interviews or questionnaires from late December, found that the country's estimated 300,000 multi-millionaires at the end of last year possessed a total wealth of 8.8 trillion yuan, equal to 29% of China's gross domestic product of about 30 trillion yuan in 2008. The sum was also equivalent to 39.7% of the country's total household bank savings of 22.15 trillion yuan.

By contrast, the 40 million officially acknowledged poor people had only some 48 billion yuan to live on for the year.

Considering that just three decades ago all Chinese were practically equal in regard to personal wealth (or equally poor), the change is remarkable evidence of the tremendous success of late Chinese leader Deng Xiaoping's policy of "allowing some people to become rich first".

However, many Chinese who lived through Mao Zedong's egalitarian rule are increasingly unhappy with the fast expanding wealth gap and particularly with the social injustice behind the wealth disparity. Since the Chinese Communist Party still stubbornly upholds the banner of "socialism" albeit with "Chinese characteristics", it has to make efforts to narrow the gap to calm public discontent.

Even Deng said "Poverty is not socialism", and his policy to let some people become rich first was to serve the ultimate goal for "common prosperity for all people".

The Merchants Bank/Bain survey, released early last week, found that each of the interviewees had assets of at least 10 million yuan including cash, stocks, funds, securities and real estate investments. Of the 300,000 multimillionaires, some 10,000 are estimated to have had assets of more than 100 million yuan each.
Despite the assaults of the global financial crisis, these rich Chinese are confident that their wealth will continue to grow this year to surpass 9 trillion yuan, up 7% from 2008.

Southern Guangdong province had the largest number of multi-millionaires, with 46,000, or 15% of the country's total, followed by Shanghai, Beijing, Jiangsu and Zhejiang.

The survey found that 80% of the rich Chinese preferred investment with medium or low risk, contrary to previous assumptions that the rich prefer risky ventures. "The current [financial] crisis has had no impact on them because most of them are conservative investors," said Ma Hua, deputy director of CCTV.com's research and development center. "Since they create wealth, and have not inherited it, they tend to be conservative in how to use it," Ma told China Daily.

The survey, not surprisingly, caused quite a stir after its release. Some commentaries questioned whether all these rich people made their fortunes legally. Such suspicion is not ungrounded. Many of those who have been included in various lists of the richest Chinese have been convicted of all sorts of economic crimes, so much so that rich people now see it a "bad omen" or "curse" to be included in such lists.

There are business people who have become rich through collusion with corrupt officials, while the public has been angered about executives of state owned enterprises (SOEs) taking advantages of the restructuring of the state sector to enrich themselves first. These SOE executives get their jobs not through fair competition but through assignment by government. While an SOE is invested with taxpayers' money, executives can get shares when the company is listed and also become highly paid. In this way, many SOE executives have become multi-millionaires.

With the survey refreshing public concern over social injustice in the distribution of wealth, attention has been also thus been drawn to the poorest in the country. The poor rural population has also "increased" tremendously, thanks in part to the Chinese government this year adopting a new, higher poverty threshold, by which the rural population considered to be poor would be more than doubled.

The government has in the past regularly hailed one of its great achievements to be that it has drastically reduced the number of rural poor, to 14.79 million by end of 2007 from 250 million in 1978.

These figures have been affected by China adopting until this year two poverty lines for farmers. One, the "absolute poverty line"; the other, the "relative poverty or low-income line". The government's poverty alleviation program of the past 20 years and more has mainly targeted those living under the "absolute poverty line". So the "great achievement in poverty alleviation" in the past 30 years was made possible in no small part by twisting figures.

China started a government poverty alleviation program in 1985 and set the absolute poverty line at 206 yuan per farmer. The low-income line was between 206 yuan and 399 yuan.

Then, while the country's economy grew at an average of more than 10% annually, the government raised the absolute poverty threshold at a snail's pace: to 213 yuan in 1986, 227 yuan in 1987 to 785 yuan in 2007. Likewise, the upper limit of the low-income line was raised to 1,067 yuan in 2007 and 1,196 yuan in 2008. By comparison, the average net per capita income was 4,761 yuan for farmers in 2008 and 15,781 yuan for urban residents, according to the National Bureau of Statistics (NBS).

Aware of the irrationality, Beijing has decided to scrap the "absolute poverty line" and use the "low-income line" as the mark for farmers, according to a report by Caijing magazine. Under the new threshold, the rural poverty population immediately "jumped" to more than 40 million people who now can benefit from the government poverty alleviation program.

By the new standard, the poverty threshold was 1,196 yuan per head in 2008. However, this is still far below the World Bank's new poverty line of US$1.25 a day for 2008.

"With the adoption of the new standard, China's poverty threshold is still a bit too low," said Liu Fuhe, as spokesman for the State Council's Office of Poverty Alleviation and Development. He told Caijing that if the World Bank standard is adopted China's poverty population could well exceed 100 million.

With at least 8% of the whole population still living well under the international poverty line, China has a long way to go to become a truly well-off society, despite the sharp increase in the number of multi-millionaires, despite the prosperous outlooks in coastal cities, and despite inflating nationalistic pride in the country's growing economic muscle.

(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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