2. 2 3
CONTENTS
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18
Poverty Reduction Methods -
Prof. Jane Duckett, Director of The Scottish Centre
for China Research at the University of Glasgow
China’s Widening Wealth Gap -
Professor Francis T. Lui, Director of the Centre for Economic Development
at Hong Kong University of Science & Technology
The Global Wealth Gap -
Prof. Branko Milanovic, former World Bank lead economist
and affiliated senior scholar at the Luxembourg Income Study Centre
Income Distribution in OECD Nations -
Michael F. Forster, Senior Policy Analyst
Organisation for Economic Cooperation and Development
Special Report
China’s New
Professional Farmers
Rural Land Reform and Poverty Identification -
John Donaldson, Associate Professor and Associate Dean
at the School of Social Sciences, Singapore Management University
Poverty and Urbanization -
Judy Baker, lead economist at the World Bank
China’s Gini Coefficient -
Professor Zhao Xijun,
School of Finance at Renmin University
3. 4 5
D
espite all the talk of China’s
breakneck developmental
speed and the new cohorts
of rich Chinese flaunting their
cash and boosting the economies
of the countries they visit, China
itself is very much still part of the
developing world with millions
living close to or below the pover-
ty line. That is not to say that the
government has not helped pull
people out of poverty with vary-
ing degrees of success depending
upon which interpretation of the
poverty line one adheres to.
The poverty line as dictated by
the Chinese government refers to
those living on less that 6.3 yuan
per day, or about 1 US dollar. The
World Bank’s interpretation of the
poverty line is 1.25 dollars per
day. If one were to consider the
success of the Chinese govern-
ment in relation to their domes-
tic reading of the poverty line,
then around 660 million people
in China have been lifted out of
poverty after more than 35 years
of Reform and Opening-up.
But the latest data from the State
Council, China’s cabinet, shows
that there are still more than 80
million people living in absolute
poverty, earning less than 6.3 yuan
a day. Around 128 thousand villag-
es across the country were identi-
fied as being in absolute poverty
by the central authority in 2014.
And while poverty is mostly a rural
problem in China, it is by no means
non-existent in urban areas.
By the first half of 2014, more than
170 million rural residents had mi-
grated to urban areas with higher
standards of living. The influx of
migrant workers as part of China’s
urbanisation drive ultimately leads
to the risk of increasing relative
poverty in Chinese cities.
Furthermore, China not only has
the problem of poverty to address;
that problem is being exacerbated
by an uneven distribution of wealth.
China’s Gini coefficient, an index
reflecting the gap between rich and
poor, stood at 0.469 in 2014, down
from 0.473 in 2013.
This figure marked the sixth year
of consecutive decline for China’s
Gini coefficient, but it is still higher
than the warning level of 0.4 set by
the United Nations.
Meanwhile, China’s issues relating
to poverty and wealth inequality
exist within a general overall theme
of a global wealth gap; a concept
that is slowly being recognised,
as evidenced by mention of how
widening income inequality affects
the world economy during the
G20 Finance Ministers’ meeting in
Turkey.
This issue of MESSENGER pres-
ents a series of interviews with 7
experts and scholars on the topic
of poverty and income inequality
with regard to each aspect out-
lined above in order to provide a
comprehensive analysis of Chi-
na’s progress and challenges, in
both a domestic and international
context.
Editor-in-chief - Stuart Wiggin
Photo: Stuart Wiggin
5
Editor’s Message :
4. 6 7
Professor Jane Duckett, Director of
The Scottish Centre for China Re-
search at the University of Glasgow in
Scotland talks about poverty reduc-
tion standards, poverty reduction
methods and inequality in China.
China’s poverty line is 6.3 yuan per
day, or about 1 US dollar. The World
Bank’s standard is 1.25 dollars per day.
Why is it necessary for China to have a
standard that is seemingly lower than
the international standard?
Obviously, the result of having this
lower line is to reduce the figures of
the total number of people in pov-
erty in China, and that might be one
motivation. But of course, whichever
line we choose when we’re trying to
measure poverty globally, if we choose
an absolute way of measuring it in
terms of dollars or whatever, then the
problem is that that doesn’t really take
into account the relative cost of living
in different countries in the world.
They are all very arbitrary whichever
one you use. And the problem with
using the dollar per day (standard) is
the US dollar buys a different amount
of healthcare in different places, or dif-
ferent canned goods in different places;
and food and basic things may be less
expensive in China. So that might be
one of the reasons why China is using
this lower level.
By China’s own standards, more than 82
million rural people were living under
thepovertylinebytheendof2013. When
it comes to the international stan-
dard,thenumberisaround200million.
Whatdothenumberstellusabout wealth
distribution and inequality in China?
Both figures tell us that there are still
very many people in China that live
in poverty. On all those measures,
whether it’s the Chinese poverty line or
the World Bank poverty line, those are
still very low standards. And probably
all those different standards understate
the actual experience of poverty that
exists in China. Probably, many more
people are in poverty if we looked at
other more conventional ways of
measuring poverty.
Poverty can be measured in many
ways; it’s a very complex subject.
Many of the approaches to measur-
ing poverty, rather than drawing an
absolute line using something like a
dollar-a-day as has been used in the
past, which is useful for trying to
give a broad sense of poverty interna-
tionally comparatively, what we tend
to do in societies, which can be much
more meaningful, is to look at the
relative poverty of the poorest com-
pared with the average in the popu-
lation, or some other kind of general
measure of wealth in the population.
Using these absolute measures gives
you a sense of the very poorest in
China. People, who are experiencing
difficulties of some kind, living on the
margins of poverty, are likely to be
much, much greater in fact.
People forget I think, because they look
at the average level of wealth in China
and they look at the rate of growth,
they don’t realise that there are still
very many people in poverty; even
though China has actually reduced
the numbers of people living in ab-
solute poverty very significantly over
the last 30 years.
It’s kind of, is the glass half full or is
the glass half empty? On the one hand,
China has lifted many millions of
people out of absolute poverty. On the
other hand, many people still live in
poverty; so the job isn’t finished yet.
If we judge China from the perspective
of relative poverty, how is the
country performing?
This takes us into the issue of
inequality. Actually, inequality has
been growing (in China) in the last
30 to 40 years. There are no abso-
lute figures; it depends how you
choose to measure the relationship or
the differences between the poorest
and the richest, or the poorest and
the people on middle incomes.
But in China, what people have
shown, is that while most people’s
living standards have been rising and
wealth and the benefits of economic
growth have reached most people,
still the richer have benefited more
than the poorer and the gap between
the richest and the poorest has in-
creased. Now, although that has been
a trend since the 1980s and especially
since the 1990s in China, there seems
to be some indication that inequality
has either levelled off, or it has maybe
even begun to fall slightly.
That may be for lots of reasons. It is
not unusual for rapidly developing
poorer countries, in the early stages
of rapid growth, to see inequality
increase. But that would be expected
to level off eventually. It is thought
that many of the reasons why it
might level off are due to government
policies - trying to reduce inequali-
ties; trying to provide more services;
provide support and safety nets for
the poorest; provide incentives and
progressive tax systems to prevent
too great a polarisation of wealth.
Do you think poverty reduction meth-
ods adapted over last 30 years are still
applicable going forward?
I think that we can see the Chinese
government’s approach to dealing
with poverty has evolved over the last
30 years, from an approach which in
the 1980s focused almost exclusively
on targeting poverty regions, either
counties or townships even, where the
average level of wealth was low.
That was criticised subsequently be-
cause it was found that there were still
many people, individuals or families
in poverty, in areas that are not seen as
overall very poor. There has been an
ongoing process of dialogue, research,
interaction with external organisa-
tions, and research by people in China,
trying to understand the processes of
change in the distribution of wealth
and how to deal with it.
P
China has kept changing; it has moved
from just focusing on these poverty
counties and areas that are deemed
poor and focusing on building their
economic development, to trying to
target families that live in poverty.
First they did that in the cities in the
1990s when they introduced a subsidy
for the most poor, and those schemes
have been extended since the turn of
the Twenty-First Century into rural ar-
eas as well. So now you get means-test-
ed benefits or support; it is very low
level, but it is aimed at providing some
assistance to the people who are the
very poorest in the rural areas as well.
So they are the kind of very obvious
programs that are variously targeted
to reduce poverty in a different way
from the 1980s programs, but of course
many of the policies that the Chinese
government has introduced since the
late 1990s, early 2000s, although not
directly policy targeted at anti-pover-
ty, have nevertheless been indirectly
aimed at helping reduce poverty.
One of the most obvious examples is
the rural cooperative medical schemes
which have been introduced again in
the 2000s and extended. That was in-
troduced in part because it was felt that
poor health and the inability to afford
healthcare, or the costs of healthcare,
were pushing families into poverty.
So those schemes have been intro-
duced in China to try and help people
pay for the cost of healthcare; so that
indirectly is a poverty reduction type
policy, and a new one.
You can see there have been many
different changes and learning about
what the causes of poverty are and dif-
ferent ways of tackling it, and there is
still much to be done and the learning
is still ongoing but I think as China’s
poverty profile and economic profile
changes, there is a constant process of
evaluating the situation; so ideas have
changed and policies have changed.
Access to affordable healthcare also
remains a problem for people in urban
areas and even the middle classes.
With regards to high medical costs,
how can the government prevent
people from slipping back into pover-
ty if they become ill or are in need of
costly medical assistance?
It’s really around having both the safety
nets in place for people who do slip
into poverty - people who are maybe
just above the poverty line but vul-
nerable to poverty should something
happen, should someone become ill,
their wages are suspended for a period
and they don’t have income.
You do need policies to support those
kinds of people to prevent them slip-
ping into poverty. Similarly with health
and the costs of healthcare, even rela-
tively wealthy people in China might be
very hard hit by high medical costs if
they have a very serious illness and that
could push them into poverty as well.
And so, again in urban areas, there is a
problem with the high costs of health-
care and the government has intro-
duced new policies of health insurance.
There is relatively generous health
insurance for people in employment,
but since around the middle of the
2000s there has been the introduction
of another scheme which is for people
who are not in employment, to help
them with healthcare costs.
Research seems to show that with
that scheme, as with the rural coop-
erative medical schemes, one prob-
lem is that the provision and level of
support is still not enough to really
help people and prevent people from
being hit by very high costs and be-
ing impoverished by very high costs
and so the level of support and the
level of provision for those schemes
needs to be increased.
Basically, there needs to be more
money put into those schemes to
help people more. The schemes are
basically in place, so it is a question
of getting the political support to in-
crease that investment, and especially
of course investment from local gov-
ernments as well as central govern-
ment. Much more needs to be done,
but the framework is in place now.Photo: Stuart Wiggin
6. 10 11
JohnDonaldson,AssociateProfessorand
AssociateDeanattheSchoolofSocial
Sciences,SingaporeManagementUni-
versitytalksaboutrurallandreformand
accuratepovertyidentificationmethods.
How has China’s poverty situation devel-
oped since 1978?
I think China should be applauded for
the rapid reduction in rural pover-
ty that has been seen basically since
Deng Xiaoping took over and started
his reform in 1978. Especially in the
early years, poverty went down really
quite rapidly and that was because a
lot of the rural poverty at the time was
caused by many of the factors that were
basically fixed by Deng Xiaoping’s era.
As a result, hundreds of millions of rural
farmers were pulled out of poverty. More
recently, it has been a little bit more of a
struggle because a lot of the places that
have poverty are in relatively isolated
areas and poverty is also a very complex
issue where different areas are facing
different kinds of things. So, China is
basically moving into, and hasbeeninfor
thepastfewyears,anew era in terms of
poverty reduction; much more complex
and a much more difficult era.
Whataresomeofthenewchallengesthat
Chinafacesintacklingpovertyreduction?
Whenyou’retalkingaboutable-bodied
farmerswhoarerelativelyyoungwithalot
ofexperience,butlivinginpovertybecause
theydon’thaveaccesstoinputsorother
kindsofthingslikethat,thatwasthesitua-
tionthatChinawasfacinginthelate1970s
andtheearly1980s.Andso,byincreasing
theaccesstoinputs,byallowingfarmersto
selltheirproduceatahigherpricebygiving
themlandusagerightsthattheycould
personallyuse,thatwaswhatliftedalotof
farmersoutofpoverty.
Manytownandvillageenterprises
emergedandthatwasveryhelpful.Today,
thesituationismuchmorecomplicated
becausewe’retalkingaboutelderlypeople;
disabledpeople;regionsofChinathatare
quiteisolatedandverydifficulttoaccess;
peoplewhomaynothaveagooddeal
offormaleducation.Andso,education,
healthcare,ageing;thosekindsofissuesarevery
difficultissuestosolvebutthosearethe
thingsthatChinamustaddressinorderto
reducepovertyatthisnewstage.
China’spoorregionsoftentendtobeadja-
centtooneanother.Isthissituationunique
toChinaandifsowhatistheanswer?
Ifyoulookatothercountrieswhererural
poverty is also an issue, there tends to
be rather large pockets of poverty.That
couldbeanissueof terrain, it could be
an issue of infrastructure, and it could
be an issue of things such as por-
table water or other things like that.
It’s not really unique but it is really
quite a challenge.
Partofthechallengeisthatthereare so
many different prescriptions out there
onhowtodealwithpovertythat you
could almost be pulled in different
directions. China has been very in-
novative and has tried to figure out its
own path in order to reduce poverty.
How does the issue of poverty relate to
rural land reform?
Theissueoflandandagriculturehas
longbeenlinkedwithruralpoverty.
Muchofthedeclineinpovertyinthe
late1970sandtheearly1980shasbeen
becauseofthechangesinthelandown-
ershipstructureandthingslikethat.
More recently, we’ve been researching
the issue of the commercialisation
of agriculture. In other words, are
farmers able to shift from subsistence
farming to cash crops and what is the
role of agribusiness in that? One of the
challenges that China faces is that with
the household responsibility system,
it basically allocated land usage rights
to farmers; small plots of land. But
what agribusiness needs is large-scale
production; it needs quality control
and other things like that.
So, as China scales up in terms of its cash
crops, how do they interface with so
many small-scale, formerly subsistence
farmers? And how do they convince
those farmers to take the risk of shifting
from grain which they can consume to
things that they cannot survive on but
could sell in the market. Onethingthat
wediscovered,there’salotofpeoplewho
arecallingforthescalingupofland,which
wouldmeanfundamentallychangingthe
householdresponsibilitysystem.
But our conclusions show that agri-
business has been able to basically
scale up from the small-scale, and that
the household responsibility system is
not really an impediment for agribusi-
ness to help subsistence farmers to shift
from grain to commercial crops.
Andifthatistrue,thatmightbeanother
way that farmers could be pulled out of
poverty;iftheycanbenefitfrominterna-
tional markets, from demand for cash
crops that could increase their income
very rapidly but at the same time protect
their rights in terms of land use.
The Chinese government often talks
about accurate poverty identification,
so how can the authorities prevent the
misidentification of poor areas?
That is actually a challenge that is not
unique to China and it cuts both ways.
There are people who have access to pov-
erty reduction funds who shouldn’t, and
thentherearepeoplewhoshouldhave access
topovertyreductionfundsthat don’t. That
is not a problem that is unique to China,
it is a very big challenge in terms of how
do you cost-effectively identify who’s
who. In the mid-1980s, China adopted
a policy of designating counties as being
poor or not poor.
The problem was that counties them-
selves can be quite large and quite
diverse, and so there may be poor
people in non-poor counties as well as
non-poor people in poor counties. I
think as China zooms in on the town-
ship level, and even the village level,
that will help in terms of accuracy.
That is one strategy, to look at lower
levels of government and try to target
poverty reduction there. I think there is
another layer as well. One of the innova-
tive programs that China has been doing
in some sense has been self-selecting.
For instance, they have a policy where
Chinese farmers can work and help to
develop infrastructure, irrigation, rural
roadways,inexchangeforcompensation
fromthegovernment;butthatkindof policy
only attracts people who are poor.
Ifyouarenotpoor,youwouldnotwantto
takeadvantageofthatkindofthing.Sothe
greatthingaboutthatisit’sself-selecting;
youdon’thavetospendalotoftimeand
effort,andenergy,andfinancialresources
totrytoidentifywhoispoorandwhois
notpoor;thepoorwillidentifythemselves
inthatkindofaprogram.
Andthirdly,asChinafocusesmoreon
developingnon-governmentorganisations
thatcantargetpeople,they’llhaveanother
partnerintermsoftryingto ensure that
the poverty reduction funds are getting
to the places that they are supposed to.
TheChineseStateCouncilleadspoverty
reduction, but are their efforts well-co-
ordinated when it comes to working
alongside other departments?
Every modern country has bureaucra-
cies, and the bureaucracies are effi-
cient because they can have a division
of labour. But when you are talking
about poverty, you are talking about
a multi-faceted issue, a complex issue
that involves education, healthcare,
pensions and other things like that.
I think as long as the State Council keeps
its eye on the macro side of things, they
can do a good job on coordinating. But
I think part of the challenge is how you
coordinate as it gets closer and closer to
the people. China is a vast country and
has several layers of government.
The State Council can set the macro level
vision and policy, but as you get lower
down how do you ensure coordination
across different kinds of policies; and that
is part of the challenge.
Photo: Wu Tong
O
10 11
7. 12 13
Professor Francis T. Lui, Director
of the Centre for Economic Devel-
opment at Hong Kong University of
Science & Technology talks about
the widening wealth gap within
Chinese society.
China’s statistical authorities put the
country’s Gini coefficient in 2014 at
0.469. What does the figure relate to?
The Gini coefficient is a simple and
commonly used measurement for
income or wealth inequality in differ-
ent societies; if everybody had exact-
ly the same level of income, then the
Gini coefficient would be equal to
zero. However, if one person got the
income of everybody or all income
was concentrated in the hands of
one person, then the Gini coefficient
would be equal to 1.
So, it has become a very convenient
way to measure inequality. The Gini
coefficient ranges between 0 and 1.
The higher it is the more unequal is
income and wealth distribution. So, it
is a commonly accepted way for such
measurements. We only need to know
that the higher the Gini coefficient, the
worse is income distribution.
Can you put China’s Gini coefficient
figure for 2014 (0.469) into perspective?
0.469 is a relatively high Gini coefficient
according to international standards.
There are of course countries that may
even have higher Gini coefficients, but
relatively speaking, 0.469 is quite high.
However, we have to recognise the
following – it is not always true
that when the Gini coefficient goes
up that income inequality will
worsen. Usually, that is the case.
If you assume that in the begin-
ning everybody is equally poor, so
everybody gets a low level income.
But then, some people become
rich while the other people remain
poor; so the Gini coefficient will go
up. But in the process of economic
development, it is quite unlikely
that the growth rate of incomes for
everybody will be the same.
Some people will have incomes
going up faster than others, and the
late-comers will try to catch up. So,
after more and more people become
rich, the Gini coefficient will go up,
but after a while, when the majority
of people become rich enough, the
Gini coefficient will fall down again.
It seems to me that China is in exactly
this kind of process. I expect that in the
future the Gini coefficient in China will
likely fall somewhat.
Deng Xiaoping said that the country
should allow some people to become
rich first and then the rich people will
enable the others to catch up. So, at
this stage of China’s development, with
so many rich people created thanks to
the country’s progress, are high Gini
coefficient figures acceptable?
What Deng Xiaoping said is exactly
correct. It is not possible to have
everybody’s income going up by the
same proportion simultaneously.
You need to have some people who
become richer sooner than the other
people. But eventually, if the system
works well enough, more and more
people will become rich.
But during that kind of process, at least
temporarily, the Gini coefficient will go
up possibly to some high level. But I am
quite optimistic that in the case of China
that kind of trend seems to have already
begun to reverse itself. That means the
Gini coefficient during the last few years
has been falling. But we also have to
know that the speed of the decline is very
slow. Of course, we would like to speed
up that kind of process.
Do you believe that a downwards
Gini coefficient is part of a natural
trend or will it be the result of gov-
ernment policies?
I think that both factors are important.
First of all, it is likely that it is a natural
tendency. I’m not saying that the Gini
coefficient will naturally fall always.
What I’m saying is that in the begin-
ning phase of economic development,
it is very likely for the Gini coefficient
to go up. But after some time, when
there are enough rich people and the
late-comers are beginning to catch up,
then the Gini coefficient will have a
natural tendency to decline, although
the speed of decline may be very slow.
There could also be some policies be-
hind (a Gini coefficient decrease). I
can easily identify two approaches or
two strategies that may have helped
to reduce the Gini coefficient. If you
look at the speed of the increase in
per capita income in the rural areas,
last year there was a 9.2 percent
growth rate after deducting inflation.
If we do not deduct inflation, then it
would be 11.2 percent.
However, if we look at the urban
people, last year the growth rate for
per capita disposable income was
only 6.8 percent. That means that
traditionally we know that people
living in the countryside would be
poorer, but we have seen for quite a
number of years that people in the
countryside have had their income
go up faster than the people living in
the cities; so that is a good sign.
But that was not the case a decade
ago. It is only in more recent years
that that has happened, that people
living in the countryside have been
catching up. Another policy ap-
proach is investment in education.
China’s state investment in education
is still limited compared to the size
of its GDP. However, in recent years,
that has improved somewhat.
The numbers of graduates in
higher education have gone up
very quickly. In 1997 or so, less
than 1 million people could
enter into higher education each
year, but now we are talking
about a number close to 7 mil-
lion; so this has increased more
than 7 times and this will help to
reduce the Gini coefficient very
significantly in the future.
Photo: Stuart Wiggin
V
12
8. 14 15
Judy Baker, lead economist at the World
Bank in Washington, and team leader
for the ‘Report on East Asia’s Changing
Urban Landscape: Measuring a Decade
of Spatial Growth’, talks about China’s
poverty issues in the context of its un-
precedented urbanisation drive.
The‘ReportonEastAsia’sChangingUrban
Landscape:MeasuringaDecadeofSpatial
Growth’,assessed869urbanareas,600of
whichwerelocatedinChina.
According to the ‘Report on East Asia’s
Changing Urban Landscape: Measuring
a Decade of Spatial Growth’, almost 200
million people have moved to urban ar-
eas within the East Asian region between
2000 to 2010.
Up until the year 2010, about 36 percent
of the population lived in urban areas
which continue to expand. What do you
think are the major factors for the fast
urbanisation expansion in East Asia over
the past decade and specifically China?
We know that urban areas concentrate
economic activity and generate much
growth; therefore they attract people
from rural areas for the opportunities
that they bring for better jobs, better
income, and better services.
And in some cases, they present the
opportunity of an escape from rural life
for some people, which may be socially
repressive; or for young people they
simply lack future opportunities in rural
areas and want to come to cities.
Of course, in the midst of the region
of countries is China which is really
unique in many ways; both, of course,
in terms of the sheer size but also in
terms of the country’s explicit poli-
cies which have encouraged urbani-
sation as part of its economic growth
strategy. The growth in China’s
urban population alone was 131
million people during the period
of our study from 2000 to 2010. So
that was actually twice of the rest of
the region combined.
How would you assess China’s policy for
supporting urbanisation?
It’suniqueinthesensethattheyhave
explicitlygoneaheadandencouraged
urbanisationaspartoftheeconomic
growthstrategy.Weknowthatoneofthe
goodthingsthat’shappenedofcourseisthe
pro-activeplanningforpeopletocometo
cities;puttingininfrastructure,affordable
housing,linkstoaffordabletransit.Those
areallthingsthatareveryimportant.
What are the challenges of rapid
urbanisation?
We know from the literature across the
world that no country has made it to
middle income status without urban-
ising. So, urbanisation is very good for
economic growth. Urban areas can be
hubs of innovation, of economic activity,
culture and opportunity, but if the ur-
banisation process is not well managed,
it can be challenged by congestion,
pollution, crime, falling slums and vast
inequalities which we see all over the
developing world today.
So, the rapid urbanisation really
requires a major focus by governments
to ensure that it takes place in an eco-
nomically efficient way, a sustainable
way and inclusive way.
Two-thirds of cities from the report
cited above are located in China. Out
of the 8 mega cities/city classes with
populations of over 10 million in-
cluded in the report, 3 are located in
China, namely the Pearl River Delta,
Shanghai and Beijing. What similar-
ities and differences does China share
with other countries in the region in
terms of urbanisation?
China’s patterns stand out in the
report in just about every way.
The scale of urbanisation in China
in the early 21st Century is really
unprecedented. China dominates
the urbanisation trends, with more
than two-thirds of the region’s total
urban land as well as more than 80
percent of new urban land added is
located in China.
The population is also much larger
than East Asian countries. While this
is actually a 3.3 percent annual average
growth rate, while it’s not particularly
large by East Asian standards, the ab-
solute number is huge. I’ve (noted) that
the findings on density for the region
stood out, but actually in China it was
a slightly different pattern.
More than 60 percent of urban areas
dropped in overall population between
2000 and 2010; so that really stood out
differently than the rest of East Asia,
where mostly it was increasing. The drop
was mostly in small urban areas of fewer
than 500,000 people.
The Pearl River Delta (Guangzhou,
Shenzhen, Foshan and Dongguan) has
surpassed Tokyo to become the world’s
largest urban area both in terms of
size and population. How would you
comment on China’s urbanisation drive
that creates large city clusters instead of
mega cities and do you think medium
or small-scale urbanisation would be a
more sustainable path?
We didn’t get specifically into city cluster
patterns. We were really trying to docu-
ment what was happening in the study.
But what I can say is that a portfolio of
cities is needed in any country. There is a
role for primary cities in a given country,
which provide the gateway to the global
economy and they tend to be the centres
of innovation and where a lot of the
creativity is happening.
In China, the obvious ones are the Pearl
River Delta and then you have your large
mega cities. Then there is a role for sec-
ondary and tertiary cities in any country
where you would tend to see more
industry and manufacturing, where land
and labour prices are cheaper and so
those things are more affordable and
sustainable. For that to happen, it doesn’t
always happen naturally.
There’s a role for government to play
in ensuring that the investments in
some of the smaller towns are made
in infrastructure and in attracting
E
Photo: China Foto Press
14
9. 16 17
people, and you then end up with
this somewhat economically efficient
portfolio of cities. I think the cluster-
ing represents that.
With regards to the link between ur-
banisation and income growth, can you
explain the explicit connection between
urbanisation ending extreme poverty
and boosting prosperity?
The economic growth in cities has
obvious economic benefits for those
in the cities that are benefitting from
the jobs and increased incomes, but
there are also benefits for those in
rural areas, through remittances,
there’s benefits from more national
level GDP to go around which can be
invested in infrastructure, in educa-
tion, in health; and there’s also more
demand for agricultural output as
cities increase and economies grow.
But these benefits do not happen
automatically and often will require
appropriate government policies.
And within urban areas, some of the
policies that can directly help to boost
prosperity and reduce poverty and also
avoid strong inequality, which we see
in some places, relate to spatial policies
that would ensure a match between
where people can afford to live and ac-
cess to whatever their job may be; also
having access to public transport and
to health and education services.
Governments can also be proactive
in acquiring land for affordable hous-
ing, again emphasising that this land
should be linked to affordable public
transport so that low income people
coming to cities will have options
other than squatting on illegal lands,
which they tend to do only because
they have no other option.
Typically, those lands are those that
are at the highest risk to the impacts
of natural hazards, such as flooding,
which as you know is a major prob-
lem in East Asia, and of course is
being exacerbated by climate change.
And of course, it is typically the
urban poor - those that are with the
fewest resources that are hit hardest.
On the issue of ensuring inclusion
in the context of urbanisation, what
proactive policies are needed from
the government at both central and
local levels to ensure an economically
efficient, sustainable and inclusive
urbanisation process to benefit more
people, especially for poor people and
new city migrants?
With regards to economic efficiency,
I earlier mentioned this notion of
a portfolio of cities. The idea is not
that you would only have large mega
cities or that you would only have
small and medium cities, but that
you would have a range of city sizes
that can maximise efficiency for
different kinds of economic activities
that happen in the urban space.
On sustainability, there’s good news in
East Asia in that the cities are generally
already quite dense, so this gives them
a comparative advantage relative to
many other parts of the world.
This can be beneficial to reducing or mi-
nimising carbon emissions and can allow
for more walkable and liveable cities. But
when we talk about density, we sort of
unbundled this in the study, to recognise
that there are different kinds of density;
we could call it good and bad density.
Good density means making sure
that there’s not only the high popu-
lation density but you also have the
access to public transport, public
spaces, schools and clinics all with-
in reasonable walking distance.
When we talk about bad density,
this can be large apartment blocks
that are somewhat isolated from
access to these other kinds of
things; so while the density might
be there, it’s not a very liveable and
accessible environment.
What are the possible environmental
impacts of rapid urbanisation?
It really goes back to planning and mak-
ing sure that urbanisation is happening
in a well-planned and managed way.
It’s critical to keep development out of
high risk zones, particularly flood plains,
seismic risk areas; and for sustainability
reasons, developing in a compact way.
That includes investing in affordable
public transport so that people don’t
become reliant on automobiles for
transport and so that low income
populations have a way to access jobs.
Those are really the key things to ad-
dress environmental risk.
A migrant worker searches job advertisement
boards in Qingdao, Shandong Province.
(Photo: China Foto Press)
17
10. 18 19
Professor Branko Milanovic, former
lead economist at the World Bank
and an affiliated senior scholar at the
Luxembourg Income Study Cen-
tre, talks about the issue of a global
wealth gap and China’s future role in
decreasing that gap.
Countries track domestic income
inequality closely. But is it equally
important to track global income
inequality?
I definitely agree that of course the
countries themselves have to track
their own inequality and the most
developed countries, and China and
India and others, still track it annual-
ly. So, you do have large house-
hold surveys that are done annually
and they are tracking inequality be-
cause it is an important issue, socially
and economically.
Global inequality of course is not as
important for individual countries
as their own national inequality.
Global inequality is entirely the re-
sult of changes in individual coun-
try’s growth rates and distributions
within individual countries.
So in that sense, global inequality is
an important topic but it may not be
as important for China, for India, or
for the United States, as inequality
within their own countries simply
because in the world today we have
countries with their own governments;
we don’t have a global government.
Obviously China has a very big role
in global inequality because it is a big
country in terms of population and
GDP. Individual countries are not
directly affected by global inequality;
however, indirectly they are.
If you look at the migrations which are
the results of large income differenc-
es between the countries, and this
is something which explains or feeds
into global inequality, clearly these
migrations are the result of income
gaps between the countries. So in
that sense, income gaps between the
countries leads to migration and that
of course affects people in any indi-
vidual country.
Whilst working at the World Bank,
you indicated in a report that global
income inequality fell unprecedentedly
during the period of 1988 and 2008.
What is the situation today?
We now have unpublished results,
and to some extent they may still
be preliminary, but we have global
inequality numbers for 2011; so we
have (data) for three years after the
beginning of the crisis.
What has happened is that the
tendency for the decline of global in-
equality has become even stronger. It
may seem paradoxical at first but this
is the result of the fact that emerging
economies, I don’t mean only China
and India but also Brazil, South
Africa, so forth, have had a period
of continued high growth; certainly
much higher growth that western Eu-
rope and the United States and Japan.
So that meant that the gaps between
the countries, and thereby also the
gaps between individuals have been
reduced; so that tendency of decline
has continued.
However, I have to add a small caveat
to that by saying that we are really
having trouble accounting fully for
the incomes of the richest people, of
the top 1 percent. So it could be that
if we were to account better for that,
that decline would not be as large as
we currently believe it is.
Why is it so hard to pinpoint the
levels of income for the world’s
richest people?
Rich people in any country, firstly
they are not that many in terms of
numbers. When you have household
surveys, these are surveys that actu-
ally poll or survey the entire popula-
tion. If you are a really tiny group of
one-tenth, or one-hundredth or one
percent, you are not likely to be se-
lected; so this is a problem. But there
is a second problem.
Even when they are selected, we have
seen, and this is not something new
but maybe it has become a more
serious problem that very rich people
either refuse to participate in surveys
or they severely or strongly underesti-
mate their income.
As the Chinese economy slows down,
as well as that of India, China is
edging towards middle income status.
With a lower rate of wealth growth
expected for the coming future, will
China’s impact on easing global in-
equality decrease?
There is absolutely no doubt, partic-
ularly since the early 1980s when the
Chinese growth rate went up signifi-
cantly, that China has been a huge
contributor to the reduction of global
inequality, even if inequality within
China as we know went up.
These are two elements that happened
at the same time, but the element of
growth for the world as a whole was
more significant than the element of
rising inequality within China.
Clearly, the effect of Chinese growth is
not going to be as dramatic as it was in
the past for two reasons. First of all, it
was very dramatic in the past because
China was a fairly poor country, so
you had a large increase in incomes of
regular poor people.
China is now of course a middle
income country, so it is closer to
the mean of the world, or it is to a
large extent the mean of the world;
so by that very fact it is not going to
contribute as much to the reduction
as in the past.
Secondly of course, we do expect that
the Chinese growth rate will decline
somewhat, and we already see that it
is projected to decline next year and
the year after. In that sense, it would
also have less of a positive impact in
reducing global inequality.Photo: Wu Tong
R
18
11. 20 21
But nevertheless, that impact would
remain because I expect the gap
between Chinese growth and for
example US growth to remain, and as
long as it does remain China would
continue to contribute towards the
reduction of global inequality.
With increasing income inequality
a problem in developed countries, is
the widening wealth gap the result
of a free market as advocated by
western nations, and so far as a
solution is concerned, does the US
government have a greater role to
play in terms of easing inequality
going forward?
I think income inequality is a sig-
nificant problem in rich countries.
Just on a purely factual level, if you
look at the Gini coefficient that is
calculated for China and the Gini
coefficient that is calculated for the
United States, they are pretty simi-
lar, they are both about 0.4, which is
considered to represent a level of fairly
high inequality.
US inequality is indeed quite high
and in comparison to other rich
countries it is unusually high be-
cause west European countries have
lower inequality.
When it comes to the role of the
government, we do know that the
role of the government through re-
distribution, which means through
social transfers and taxation, is
very significant.
That is most clearly seen if you com-
pare for example Germany and the
United States where if you look at
inequality before government trans-
fers and direct taxes, they are about
the same. But because government
transfers and taxes in Germany are
much higher than in the US, then the
reduction of inequality is larger.
That leads us to a fundamental issue
that is being debated a lot these
days, whether the reduction of
inequality is good for growth or bad
for growth. In the past, many people
believed that that type of redistribu-
tion is bad for growth because it
reduced incentives for investment
and hard work and so on.
But it is also true that if you have
a very high level of inequality, that
high level of inequality by itself
might be very bad for growth because
it actually discourages poor people
and makes it impossible for them to
actually do jobs that they would be
able to do otherwise. So in that sense,
maybe a high level of inequality is
detrimental for growth.
Photo: Wu Tong
In 2014, the Chinese government lifted 10 million people out of poverty.
For 2015, the Chinese authorities aim to pull another 10 million citizens out of poverty.
21
12. 22 23
T
Professor Zhao Xijun, Deputy
Dean of the school of finance at
Renmin University of China looks
at China’s Gini coefficient, the
concept of capital rewarding and
the reforms required to address
income inequality.
How has China’s Gini coefficient
fared over the years?
Before the Reform and Opening up
policy, the Gini coefficient was at
a low level. For example, the Gini
coefficient was 0.3 in 1978 but the
coefficient increased slowly, then it
jumped to the warning number of
0.4 in 2000. It kept growing. Up until
the year of 2008, the Gini coefficient
reached a record high of 0.491.
Then it decreased year by year, that is
to say 0.49 for 2009, 0.481 for 2010,
0.477 for the year 2011, 0.474 for the
year 2012, (0.473 for 2013) and then
0.469 for 2014. So from 2009 to 2014,
this coefficient has experienced a
6 years decrease, which means that
income distribution inequality has
been improved over the past 6 years.
0.4 is the international warning
standard for dangerously high
levels of income inequality. With
this in mind, is China facing a
serious problem?
Of course, from the number 0.491
to 0.469, it’s not a big decrease. But I
would say we have followed the right
direction. Still, for the year 2014,
the number of the Gini coefficient is
above the warning level; that means
we have a serious situation in terms
of fighting against the income in-
equality problem. But as I have said,
we have followed the right direction.
The Chinese people and the Chinese
government have already consid-
ered the importance of the income
inequality problem and the severe
results caused by income inequality,
that is, not economically but socially
and politically. Measures have been
taken to reduce these negative effects
caused by the inequality problem. Of
course, we are confident in solving
this problem.
More measures should be taken,
and more acts should be intro-
duced, for example further reform
of the income distribution system
to increase the weight of labour
rewarding, rather than capital re-
warding. Also, increasing the (level
of) government transfer to the poor
people and establishing and im-
proving our social security system.
Capital rewarding is a global phe-
nomenon but what does labour re-
warding mean and how can China
achieve that?
As we know from economic the-
ory, (several) factors were intro-
duced into the value creation.
These factors are labour, capital,
land and management. For exam-
ple, in Wall Street, the bankers get
a very high reward or salary, but
still this is labour rewarding rath-
er than capital (rewarding).
For China’s example, let me share
with you some historical numbers.
During the early 1990s, labour re-
warding as a part of GDP was 53.4
percent. In fact, later on, labour
rewarding as part of total GDP de-
creased to only 39.4 percent in the
year of 2008. So, labour rewarding
decreased quickly for the people.
Labour rewarding is directly related
to income distribution.
There has been a series of reforms
on salary and pension distribu-
tion for civil servants but what is
your take on the latest controver-
sy prompted by a raise in salaries
or pensions for people working as
civil servants?
I would say that recent reform of
the social security system for the
government officials and so-called
civil servants is part of a total
social security system construction.
Earlier this century, we started the
reform of the social security system
for the labourers who work for the
manufacturing sector and for other
primary and secondary industries.
But this reform did not cover gov-
ernment officials or civil servants.
Reform starting from this year will
cover the government officials and
the civil services. We merge the two
systems together into one system so
we can minimise the gap between
the workers’ social security system
and the officials’ social security
system so we can have one system
for the whole nation.
China faces a rapidly ageing society
in the context of rapid urbanisa-
tion. How can the government con-
tinue to reduce the level of income
inequality as the population ages?
That is the fundamental problem
for China and most developed
nations. The ageing population
problem is an important issue
for the whole world I believe. Of
course, because China is such a
huge country, the importance and
the severity of the problem could
be unprecedented.
First I would say we may in-
crease the importance of the
problem; everybody no matter
the government or the people,
must put more and more atten-
tion onto the ageing problem.
Secondly, we (must maintain)
the growth of the economy.
As soon as the economy grows,
then we can have more value, we
can have more income distrib-
uted to everybody. So, make a
big share and we can have more
resources. Thirdly, we may still
put forward income distribution
reform so that the people can
have more chance to share eco-
nomic growth results. Lastly,
this is being discussed now by
a lot of people, we can delay the
retirement age.Photo: Stuart Wiggin
22
13. 24 25
Y
Michael F. Forster, Senior Policy
Analyst at the “Income Distribution
and Poverty” branch of the Organisa-
tion for Economic Cooperation and
Development (OECD), based in Paris
continues with the broader theme of
global inequality in relation to OECD
countries and the importance of in-
vestment in human capital.
The OECD has been tracking income
inequality for years. A recent report
by the OECD said that the gap
between the rich and poor is at its
highest for three decades in most
OECD members. Why is this issue
becoming a growing concern for the
international community today?
We have been working on this issue
and ringing an alarm bell before the
crisis started in the 2000s. Why has it
become a growing concern? I see three
issues for that. One is a political issue,
because if you live in a society which
has an increase in the gap between the
rich and poor, you will gradually lose
the trust of the voters. If the middle or
lower middle classes cannot benefit or
participate during growth periods, you
will lose trust in political institutions.
Secondly, there is a social issue. There
have been studies that show that there
is a great correlation between social
problems and an increase in the gap
between the rich and the poor. So you
have bigger health problems, bigger
social problems in societies which have
a higher gap between the rich and the
poor.
And finally, and not least important-
ly, there are economic reasons to be
concerned about with increases in
inequality. Namely, looking at the rela-
tionship between increased inequality
and potential growth, meaning that
there is a possibility and even a proven
correlation that increased inequality is
actually damaging to economic growth.
It is easy to understand that income
inequality may have negative im-
pacts politically and socially, but with
regards to income inequality and the
economy, the OECD report states that
worsening income inequality hurts the
economy. Why and to what extent can
it hurt the economy?
I think it is important to note that
for many years, the international
community’s economists tended
to look at the inequality growth
relationship as a tradeoff, saying
that more and more growth actually
goes hand-in-hand with more in-
equality. But looking at more recent
data, (including) a recent OECD
study and a recent study by the
International Monetary Fund, both
studies found a negative correla-
tion, meaning that a higher gap be-
tween the rich and poor is actually
damaging; hurting growth.
What are the possible reasons for
this relationship? We looked partic-
ularly at the human capital channel,
because there are several possible
reasons. It seems that this is one of
the channels which is very import-
ant for this negative relationship,
meaning that an increasing number
of lower and lower-middle income
households are not sufficiently
investing in the education of their
children and this in turn is harmful
for potential economic growth.
Does this mean income inequality
hurts developing countries more
badly than developed countries due
to an insufficient investment into
human capital by poorer families in
developing countries?
The study looked at ‘within country
variations’, referring to the difficulty
within countries for lower income
households. Secondly, our study
looked at a sample of OECD coun-
tries; higher income countries, more
advanced economies.
Interestingly, you would not have ex-
pected to find this negative relation-
ship for this sample of countries but
we did. It is true that this human cap-
ital channel plays an important role.
We looked at the relation between
the parental educational background
and education outcomes in terms of
schooling but also in terms of quality.
Of course, the first findings were not
very astonishing, unfortunately, that
people or kids from lower socioeco-
nomic backgrounds fare worse. But the
second finding, which is more inter-
esting, is that this also depends on the
level of inequality in a country.
So, actually if people are from higher
socioeconomic backgrounds, inde-
pendently of the status of inequality
in a country, they will fare better. But
for the poorer people, it plays a big
role whether you were brought up in a
country where inequality is high and
rising or not. So, the potential for edu-
cation is much higher in low inequality
countries and this is the trend which
feeds into economic growth.
Are we going to see an improving sit-
uation going forward amongst OECD
member countries?
Not necessarily. It’s important to
look back before the economic crisis.
The big chunk of increasing income
inequality happened in the 1980s, the
1990s and the 2000s before the crisis.
Actually, in the first year of the
financial economic crisis, inequal-
ity did not grow, but why is that?
Because in the very early period,
the top incomes, basically incomes
from capital fell, because they were
very sensitive to the economic
crisis, and at the same time, in the
first 6 to 12 months of the crisis,
the welfare state in most of the
countries was able to cushion the
effects of the crisis.
So, in 2009 you didn’t find a big
increase in inequality. However,
the cushioning effect ended in
2010/2011, and at the same time
the top incomes picked up again
very early, after one or two years of
stopping; so you have the increas-
ing trend only after one or two
years break so to speak.
24
Photo: Wu Tong
14. 26 27
What kind of policies can ease the situation?
It needs several policies; there is not only one single
policy that will handle reversing the trend. I usually
put forward three strands of policy forward that are
necessary to buck the trend. The most immediate
one is of course changes to the tax and benefit sys-
tem; so taxes and benefits, and social transfers are
the most direct way to impact on income distribu-
tion. Depending on the country of course, there is
room to make the system more redistributive.
The second and most important layer is more medi-
um-term but it is absolutely important, this is inclu-
sive labour market policies. These policies do not only
The Search for New
Professional Farmers
Zhou Jingnan
Many Chinese people live in the
most traditional of senses, toiling
and labouring seven days a week
in the fields for a basic living. But
there is growing pressure on the
hundreds of millions of farmers
who live that way to find a place in
the modern economy.
In his annual Government Work
Report, Premier Li Keqiang talk-
ed about the “new type of skilled
farmer” that the country requires.
During the annual two sessions of
China’s top legislature, Premier Li
outlined the government’s stance on
its hope to achieve these new pro-
fessional farmers, stating that, “On
the premise of keeping household
operations stable, we will support the
development of large family farming
businesses, family farms and pas-
tures, farmers’ cooperatives, leading
agricultural enterprises, and other
emerging agribusinesses; cultivate a
new type of skilled farmer.”
Yu Xuewen, a deputy of China’s
National People’s Congress (NPC),
is one of the farmers that Premier Li
was referring to. In reference to his
own farming exploits, Yu explains,
“We have been developing organic
react to tax and benefits policies, they are also acting
on the market, on the labour market mainly, and in-
clusive labour market policies which put people back
into career prospects and jobs.
And the third aspect, which is even more long-term
but very important, is education and investment in
human capital. In other various analyses, we found
that the increase in the up-scaling series of the
reports in OECD reports over the last 20 to 30 years
actually was a guarantee that inequality did not rise
further, so it is important to continue investing in
education and human capital.
tea for over a decade. Currently, sales
and exports, as well as the plantation
area of our tea, rank first domestical-
ly.” Yu came to Beijing from a small
village in Wuyi County of east Chi-
na’s Zhejiang province twenty years
ago. Since his hometown was famous
for its tea, Yu naturally started out as
a tea merchant.
In 1998, after learning about organic
tea at a training course provided by
the Chinese Academy of Agricultural
Sciences, Yu decided to upgrade his
product and he set about studying
the planting and cultivation methods
of organic tea.
At the same time, Yu opened an
organic tea plantation back in his
hometown. After years of hard work,
Yu succeeded in making his organic
tea well known across China and it
has even managed to gain fame in
foreign markets. Most of Yu’s exports
go to the US, accounting for around
20 percent of his total production.
Professor Zhu Qizhen from China
Agricultural University points out
that China’s new professional farmers
need to meet certain requirements
if they are to rely on farming as an
essential source of income. Zhu ex-
plains, “What makes the farmer new
instead of being traditional is that he must have some
knowledge regarding certain skills; he must be literate;
and know something about management as well.”
During the development of Yu Xuewen’s organic tea
business, Yu created an industrial chain that links the
farmer, the plantation, and the tea brand to the market.
“Our company sets unified standards for managing and
processing products,” Yu noted, “But the management
of each plantation is attributed to its contractor. And
each plantation has an ID so that the quality of the tea
is guaranteed to be traceable.”
Yu Xuewen’s industrial chain for organic tea and
other pollution-free teas covers about ten thousand
farmers. Many contractors employ their own chil-
dren who otherwise would have a hard time finding
jobs, thus alleviating unemployment among the
younger generation of farmers. But nurturing new
professional farmers like Yu Xuewen is certainly not
an easy task. It calls for more education for farmers
so that they can learn new technologies and skills.
However, Professor Zhu Qizhen emphasizes that
education is not a panacea, adding that “The farmers
should also have land. Without land, one can nev-
er be a new professional farmer. That’s why a land
transfer plan is necessary. The government has been
promising to transfer more land usage rights to those
who are good at farming. And after ensuring that
farmers have land to rent, it is also important for the
government to provide subsidies, supporting policies
and services for the farmers.”
Subsidies would serve as a stimulus for farmers to de-
vote themselves to the land but there is a risk that such
subsidies could be abused. As another NPC deputy,
party chief of Huafeng village in Zhejiang province,
Zhu Zhangjin points out, subsidies are given to farmers
only according to the coverage of the land contracted
by them. Efficiency of land use is not considered, so
many peasant farmers choose not to farm all the land
they control. Zhu claims that this leads to a significant
amount of acreage being wasted.
In an effort to address this loophole, Zhu Zhangjin gave
his suggestion to the NPC Congress. As Zhu explained,
“My advice is that the subsidies should be linked to the
crops that are being planted on a certain piece of land.
The more one plants, the more subsidies that person
gets. The less one plants, the fewer subsidies there are
for him. If one doesn’t grow anything on his land, he
shouldn’t get any subsidies at all.”
Zhu believes that with an effective land subsidy system
in place, farmers will have more impetus to make good
use of their land, a vital state of affairs for the nurtur-
ing of new professional farmers.
As a representative of the group, Deputy Yu Xuewen
provided his thoughts on what it takes to become
one of China’s new professional farmers. “You must
adjust yourself to the times. It’s crucial to keep
studying extensively to improve yourself. Also, don’t
be content to stand still, or be too pessimistic either.
Never succumb to the view that farmers are destined
to be poor and underprivileged.”
TheChinesegovernmentisattemptingtopersuade
farmerstomoveawayfromsubsistencefarmingand
towardsthenewprofessionalfarmerstatus.
(Photo:ChinaFotoPress)
A farmer in Tibet works the land.
(Photo: China Foto Press)
