China: Beyond the Growth Figures

What has rapid economic development in China cost the country in social terms?

February 21, 2006

What has rapid economic development in China cost the country in social terms?

China is now the world's fourth-largest economy and many developing countries envy its record of economic progress. However, China's phenomenal growth is producing a big misconception in that it is viewed as a big winner of globalization.

Although it is true that market reforms and China’s opening to the global economy gave millions of people there an increased standard of living, more Chinese people are suffering the consequences of its rapid transition to a market-based economy.

The majority of the Chinese people are not too concerned about when China will become the world’s largest economy. Rather, they are asking, “When will the benefits of China’s rise to superpower status start to affect our lives positively?”

China's growth has created winners and losers. It is not a secret anymore that 250 million Chinese people live on less than $1 per day.

Another 700 million — or 47% of the population — live on less than $2 a day.

The work conditions of Chinese laborers — the people who provide the world with affordable consumer products from T-shirts and bras to home appliances and computers — are far from pleasant. They often work between 60 to 70 hours weekly.

In sparkling modern cities like Shenzhen in the province of Guangdong, modernity has two sides: One is made up of the Western-educated corporate executives and technical experts who work in impressive high-rises. The other consists of the millions who work mindless, repetitive factory jobs in the "special economic zones".

Those who belong to the second category receive as little as $100 per month. Most complain about the tasteless food in their cafeterias and cramped dormitories, where 10 to 20 workers share a small room.

The majority of them are migrant workers from rural areas who lack access to many basic social benefits, have few possibilities for upward mobility and have no security of employment.

This vast "floating population" is driven to the cities by the hopeless situations in their villages and the increasing gap between life in the cities and the countryside.

Economic growth has been uneven and unfair to those in the agricultural sectors. Agricultural wages are stagnant, despite China's phenomenal economic rise.

Unemployment in the rural areas has now reached an alarming state. The government estimate is that the number of unemployed and underemployed rural laborers stands at around 100 to 120 million.

The 700 million people that are currently involved in agriculture would have to undergo adjustments to cope with urbanization. The pattern of migration to urban areas is comparable to Japan's experience during the period of post-war industrialization.

In 1947, close to seven million families — or 50% of Japan's workforce — worked in agriculture. This was reduced to less than 3% by 2002. In China's case, the development to date has been more rapid and more dramatic, entailing bigger demands for adjustments and posing bigger problems to the expanding cities than in Japan.

Three-hundred million Chinese are expected to migrate from the rural areas into the cities before 2020. This is one of the largest migrations in human history.

China's "surplus labor" presents many daunting challenges as the country transforms itself into a knowledge and service-based economy.

It is not easy to create productive employment for a 744 million-strong labor force.

China needs to create 300 million new jobs within the next decade to absorb or re-employ those who lost their jobs in the agricultural sector of former state-owned enterprises (SOEs) and provide work for the new members of the labor force.

The lack of jobs and poor conditions in rural areas are bound to result in the loss of already-limited agricultural land to development as well as diminished income because of excessive taxation.

The central government is saying that some policy measures to improve the situation in the countryside are starting to be implemented and are in fact generating positive results. However, the general development in the rural areas is still lagging behind the urban areas by ten years.

The state of the environment is also deteriorating and this is increasingly affecting people's health and livelihoods. Protests and rioting triggered by widely perceived injustice and environmental problems are now an almost daily occurrence in the countryside.

A 2005 World Bank study notes that China’s farmers were already suffering declining incomes before China entered the World Trade Organization (WTO) in December 2001.

Linking China’s fortunes to foreign markets has further aggravated this trend, particularly as China removes tariffs that once protected local farmers from imports.

From 1995 to 2001, the number of workers in state enterprises was reduced by 40% (46 million), while the number of workers in collectively-owned urban enterprises decreased by 60% (18.6 million).

Laid-off state workers number around 34 million. Many of these laid-off workers only received small compensations when their SOEs closed down.

At the local level, problems are now arising due to the uncertain future of 23 million town and village enterprises (TVEs), which employ around 135 million people.

These local enterprises, which served as the driving force of the local economy in the 1980s, are now saddled with rising costs and competition from foreign firms.

The overall urban and rural unemployment rate in China is estimated at approximately 30%.

Privatization encouraged greater dependence on foreign investors, who started purchasing the ailing state enterprises.

The state enterprises' share of industrial output fell from 64% in 1995 to 30% in 2002. The SOEs are now operating at a loss of about 1% of GDP each year.

Exports took a leading role and to continue the rapid growth, the economy relied more and more on foreign enterprises — especially in high-tech industries.

China's rapid growth was indeed achieved with many social and environmental tradeoffs.

Privatization and the increasing power of local elites and foreign enterprises in China are magnifying the already huge division between the winners and losers of such growth.

While China's rise is creating expectations that it will become the "new empire", the world’s fastest-growing and largest developing country seems to have no intention of establishing itself as the advocate of the world's poor.

During the process of negotiations in the Hong Kong WTO meeting in December 2005, China did not offer any important proposals of its own. The other big players, India and Brazil — no doubt in their own interests — have assumed this role.

China's entry to the WTO probably extended the level of transparency in China on issues that are of prime interest to corporations. This includes contracts, regulation of foreign investments, intellectual property rights and other concerns.

However, the full exercise of corporate responsibility within China is still far from ideal, and the reality of greater crackdowns on independent organizing efforts by Chinese workers remains.

The rise of China contradicts the earlier commonly held view in the West, particularly in Europe, that there is a decline in the nation-state development framework.

Less than a decade ago, many adhered to the idea that the future belonged to unions of nation-states, along the model of the European Union and ASEAN.

The current trend, which is showing the rise of countries such as China and India, seems to indicate the ascendancy of a new kind of mega-nation-state. It will be very important to see how China as a new power will interact with the United States, the EU, Japan and Russia.

China is now convincing the rest of the developing countries and the old powers that its rise is peaceful, and it is mainly, but not exclusively, increasing its influence through economic relations. How these relationships develop will be crucial to follow.

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