China: Growing Gap Between Rich and Poor

Sources: China's Poorest Worse Off After Boom, In China, Growth at Whose Cost?

A recent study presented to China by World Bank economists shows that China's fantastic economic growth has come at the expense of China's poorest. For instance, the analysis revealed that between 2001 and 2003, the income of the poorest 10% in China fell by 2.4% while that of China's richest rose by an impressive 16%, and the economy as a whole grew by a rate of 10% per year at the time. Those 130 million Chinese at the bottom 10% earn $1 or less per day, which is the World Bank's global benchmark for poverty. Analysts are not sure yet about the reasons for the widening gap.

Bert Hofman, the World Bank's chief economist in China, reports that the majority of China's poorest seem to be only temporarily poor, losing footing after a set-back such as sudden illness or unemployment. This supports the speculation of some that the study is showing the natural consequences of the reforms China employed to transition the economy out of state control, many of which entailed sacrificing much of its social-welfare system. Some believe that the situation in China will shed much light on the "trickle-down" theory of economics, which formed the basis of China's former President Deng Xiaoping's plan to rise China out of the state of poverty it suffered under Communist principles. Nearly thirty years later, this study seems to suggest that the theory that in the process of lifting an entire nation out of poverty, "some must get rich before others," requires a much more subtle analysis.

China's current president, Hu Jintao, has made narrowing the gap between the richest and poorest central to his economic policies.

Questions:

1. What kind of policy reforms can China employ to narrow the income gap between the richest and poorest?

2. Should China redefine its standards for "poverty"? Should it take the World Bank's advice and spend more on health care, pensions, and welfare programs? Will this solve the problem?

3. Only 20%-30% of China's poorest are "long-term" poor. Do you think that the fact that most of the poorest in China are only temporarily poor is significant with regards to the value and the implications of this World Bank study?