BEIJINGJoining the World Trade Organization is a milestone in China's move toward a
market economy and integration with the world. But it confronts a big challenge
if it is to combine a high growth rate with social stability: freeing the labor
Visitors to Shanghai and Beijing are
struck by the new buildings and highways and the absence of shantytowns. Visible
modernity is a symptom both of China's success and of its extreme income
inequality. The gap between the coastal cities open to trade and investment and
interior provinces is often noted. A bigger divide is between rural and urban.
Two-thirds of the population is still rural.
According to official data, in 1978, the
year reform began, urban incomes were 2.5 times rural ones. By 1986 this had
shrunk to 1.8 times, as the liberation of peasants from commune bondage led to a
surge in output and incomes. However, by 2000 the situation had reversed with a
vengeance to 2.8 times and still rising, as rural incomes stagnate while
official city dwellers continue to acquire more mobile phones and household
appliances. In India, Brazil or the Philippines, the rural poor can drift to the
city, build a shack, find whatever work they can, put their children in the
local school. Not so in this "people's paradise" where the household
registration, or "hukou," system, the old Communist method of social control,
has become a system for protecting privileged urbanites. For sure there is
freedom of movement. People can travel wherever they want, and there have been
big population shifts, especially from rural areas to the export factories of
Guangdong. It is not hard for peasants to move to small, nearby towns - but work
there is scarce. Greater opportunities lie in the bigger cities, but they are
least likely to admit workers from rural districts.
Big cities also have controls that impede
the informal service sector, which could absorb newcomers. Residence permits
that give access to education and social benefits are very hard to acquire. In
Shanghai you need a postgraduate degree. Everywhere, urban workers without a
permit are second-class citizens.
Agriculture accounts for half of the work
force but only 15 percent of GDP, so obviously lack of labor mobility is a
severe economic constraint.
It has helped cause overinvestment in
factories making cars and consumer durables while consumer demand for low-end
items like textiles and basic services languishes because of lack of buying
The fiscal system favors the cities.
Decentralization of educational funding has meant that rural people have little
chance of advancement. Only 13 percent of senior secondary students are from
The lack of a land ownership system holds
back rural development. People cannot sell the land they till; this prevents
consolidation into more efficient units. Meanwhile, fear of loss of land use
rights is a deterrent to moving off the land permanently. The government views
the rural areas as self-sufficient places to which workers can return if they
lose jobs in town. This safety net concept may serve short-term social
stability, but it does nothing for equity or growth. It is producing an
agricultural surplus but very low farm incomes and massive underemployment. WTO
membership will likely cause farm prices to fall further.
Keeping people on the land has damaging
environmental consequences. Desertification in northern China is the result of
overcultivation of what once were grasslands. Populations tied to poor land tend
to exploit it beyond sustainable limits. Restrictions inhibit a shift in
population from the dry north to the well watered south.
The hukou system is increasingly under
fire from official think tanks. The central government is planning reforms, and
a few big cities are giving residence permits to outsiders who have been in the
city for a few years. But change will be difficult.
Vested interests in the most prosperous
cities want to keep out migrants, or treat them as a cheap labor force which can
be removed at will. State-owned enterprises, once a feather bed, are still
shedding jobs, so established urban residents fear change.
Concerned about social stability, the
government wants an urban income safety net in place before full-scale
liberalization. That could take years, but change there must be if China's
growth is to follow the East Asian model of using improved income distribution
to sustain demand growth.
Freeing labor markets and giving equal
rights to all is essential for longer-term social stability. If it happens, it
will have a profound and beneficial impact on the shape and pace of China's
modernization. International Herald Tribune