May 1, 2005｜China
Researcher, China Center for Economy, Mitsui Global Strategic Studies Institute
At the session of the National People’s Congress that opened in March, Premier Wen Jiabao emphasized the formation of a balanced society. The biggest challenge is eliminating the gap between rich and poor that has expanded along with economic development. The emphasis on a balanced society gives rise to a strong sense that China, which has until now placed the highest priority on economic development, is entering a new development stage.
Deng Xiaoping first referred to the policy of “allowing certain areas and sections of the population to get rich first” in 1978, marking a departure from the mechanism that had prevailed hitherto, which was equal, but did not inspire initiative on the part of the people. After its reforms and liberalization, China experienced rapid economic growth, focused mainly on its coastal regions, due to the vast quantities of foreign investment that were introduced, as well as an increase in the desire of the people to become rich. As a result, nominal GDP in 2004 was $1.65 trillion, while the volume of trade was in excess of $1.1 trillion.
Depending on the way in which it was handled, the imbalance that emerged in the process of economic development had some “value” and until now, China has made skillful use of this. For example, what has supported China as it has become “the world’s factory” has been the supply of labor flowing from underdeveloped inland areas to the coastal regions. Low-paid workers from rural villages have been supplied in rapid succession to factories in the coastal regions and wage rises have been checked at a comparatively low level. However, the seemingly inexhaustible supply of cheap labor from inland areas has recently showed signs of a change.
Moreover, on the consumption side as well, China’s per capita GDP was around $1,250 in 2004, but as it is an unbalanced society, an affluent minority has emerged that is far removed from this average figure; it is these people who are the key players in the purchase of such expensive goods as cars, luxury apartments and foreign travel. In urban areas, the horizons of wealth have spread further and a middle class has sprung up that is fueling the growth in consumption of such luxury goods as cosmetics. On the other hand, rural villages are undeveloped as consumer markets; if we look at the example of color televisions, we can see that, whereas in urban areas there are 130 of them per 100 households, in rural areas there were only 68 per 100 households in rural areas.
Even though economic development is continuing, the gap actually growing, rather than narrowing, and the negative aspects brought about by the imbalance are currently becoming more serious. The disparity between urban and rural areas in terms of net per capita income grew from 2.51 times in 1996 to 3.21 times in 2004; even if they go to work in urban areas, the labor conditions are harsh and such migrants suffer detrimental treatment in terms of the social welfare system, so discontentment is building up in rural areas.
Raising rural incomes is essential to the formation of a balanced society. This will not only contribute to social stability, but also give rise to broader-based individual consumption and promote a shift to a more stable domestic demand-led economy.
In 2004, the Chinese government embarked in earnest on initiatives aimed at tackling “problems concerning the three dimensions of agriculture (agriculture, rural areas and farmers)”, in order to boost the rural economy. As a result, total production of foodstuffs changed course and increased 9.0% on the previous year, achieving the production target of 455 million tons. Not only did agriculture-related income rise: non-agricultural income, such as that arising from activities as migrant workers for part of the year, also rose. Coupled with the reduction in agriculture taxes, this led to high growth in farmers’ incomes of 6.8% in real terms, a scale unseen since 1997.
Initiatives aimed at tackling “problems concerning the three dimensions of agriculture” have got off to a moderate start, but China is still a long way from a fundamental solution to the gap between urban and rural areas. The structure itself is unreasonable, with 49.1% of the workforce (2003) involved in primary industry, which generates no more than 14.6% of GDP (2003). The demographic shift from rural to urban areas has continued at a pace of 20 million people annually since the mid-1990s, and it is said that the workforce in primary industry will fall to 40% of the total workforce by 2010. If the demographic shift from rural to urban areas does not continue, progress in eliminating the imbalance between them will not be forthcoming, but there is also concern that a new distortion will be created in urban areas if this process takes place too quickly. It will not be easy to steer the country in the right direction.
In the 11th five-year plan that will begin next year, particular emphasis is likely to be placed on initiatives aimed at creating a balanced society. In tackling such issues as the disparity between urban and rural areas, the low efficiency of resource use and environmental problems, with a view to achieving this balanced society, it is possible that the Chinese economy will undergo a temporary slowdown. It is likely that this slowdown in the Chinese economy will also affect Japan, but if China can resolve its problems and move on to the next stage of development, this will also benefit the Japanese economy. Moreover, fields in which Japanese companies excel are involved in the process of achieving a balanced society, including environmental conservation measures and improvements in the efficiency of energy use at production sites, so such companies are likely to be able to identify business opportunities.