July 18, 2004

The Two Nations

Simon in Hong Kong channels Disraeli, who had his characters talk of:

The Two Nations: '"....Well society may be in its infancy," said Egremont... "but say what you like, our Queen rules over the greatest nation that ever existed."

"Which nation?" asked the young stranger, "for she reigns over two... Two nations; between whom there is no intercourse and no sympathy: who are as ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets; who are formed by a different breeding, are fed by a different food, are ordered by different manners, and are not governed by the same laws."

'"You speak of -", said Egremont, hesitatingly.

'"THE RICH AND THE POOR."'

But Simon is talking about China, and the two nations are the coasts--the land of export manufacturing--and the interior--the land of two-acre dry wheat farms:

Simon World: A tale of two countries: Many people think of China as potentially two countries: the People's Republic on the Mainland and the Republic of China in Taiwan. However there's a far more important split with the Mainland's populace. China's economic boom of the past twenty years has primarily benefited those living in the provinces on China's coast as high as Shanghai and across to Beijing. However the great mass of people living in-land have largely missed out on the benefits of this boom.

Today's Standard carries a report by the Chinese State Council's poverty reduction office saying the number of residents without adequate food and clothing increased by 800,000 last year for the first time in 20 years.

"Since Beijing started transferring money originally allocated for coastal economically developed provinces including Guangdong, Fujian, Zhejiang and Shandong, to relatively poorer western provinces in 1994, six million people were lifted out of extreme poverty every year,'' he said. "However, the number fell to about two million in 2001 and 2002.''

China's extreme poverty levels, defined as those without adequate food and clothing, and earning less than 625 yuan a year, are significantly lower than the international standard of US$1 a day...

"The people lacking adequate food and clothing, mostly farmers, are those earning less than 625 yuan a year while the income in China's rural areas on average is 2,622 yuan. This means the average income of rural people is about 4.12 times the extremely poor figure. But in 1992, the average income of rural people was about 2.45 times the extremely poor figure,'' he said.

"The current gap might widen more when one takes into account social benefits provided in some rural areas.''

Even in China the rich get richer and the poor get poorer. And note that we are not talking about poverty (the US$1 a day mark) but extreme poverty: 625 yuan a year is US$80 a year. China's economic reforms have been a great boon for lifting literally millions out of poverty. However the "trickle down" effect of this wealth has not permiated inland and is not likely to for a variety of reasons. While China has pretentions of being (or at least becoming) a First World economy, when 30 million citizens still exist on less than a US quarter a day, there's more work to be done. All that glitters is not gold.

Posted by DeLong at July 18, 2004 08:59 PM | TrackBack | | Other weblogs commenting on this post
Comments


I was told in Taiwan that Chiang had taken quite aggressive steps to see that economic development was geographically distributed away from the port cities. Taiwan is tiny, though.

Posted by: zizka / John Emerson on July 18, 2004 09:07 PM

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Your article presumes that Beijing views the hinterland as a political problem, just like George Bush views America's hinterland and its inner cities. *Not* a problem. Disenfranchised people don't vote. In China, there is no vote. Disenfranchised people are immobile, on fixed income, one pack of food stamps to the next, a half-rack of beer, a half-tank of gas and a honkytonk on Saturday night, stewed on meth.

The hinterland and inner city folks are totally apolitical, ravaged by junk food starvation, drugs, booze, gangs and AIDS. The five horsemen of the apocalypse do an apartheid isolating the royals from the majority, and add the three old horseman, Fed, credit and mortgage companies, you have a recipe for mass extirpation of the majority, while George plays out the back nine.

The rich couldn't *care less*! Don't you get it? Cities? Who cares? Rural folks? Who cares? All they care about is ticker tapes and inside tips,
and the price of food and gas at Costco. That's all. M-O-N-E-Y. That's why Martha's doing time, she almost gave away a little game that's being played on Wall Street and Pennsylvania Avenue.

Posted by: Lash Marks on July 18, 2004 10:56 PM

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Lash:

I'm not quite sure your comments make sense. The Chinese Communist Party was a peasant party, started as a revolt against the Nationalists. Despite the modernisation push of recent times the CCP is fully aware of its history and the importance of keeping the faith with the peasantry, which is still the most significant source of its political power. Being undemocratic actually in some ways makes China's leaders even more sensitive to the needs of "voters", especially in the heartland and this is how they gain and maintain legitimacy.

While I'm not sure your rant even makes sense in the context of the USA, it makes absolutely no sense at all in the context of China. It's actually insulting.

Posted by: Simon on July 18, 2004 11:50 PM

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You're repeating a media fallacy re: currency conversion. Third world peasants don't live on "less than a quarter a day" in terms of purchasing power within their country, which is the more relevant measure:

http://www.vij.com/archive/delhibucks.html

Posted by: Manish Vij on July 19, 2004 07:09 AM

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I would have to agree with you Simon and add that China has a history or peasent revolts ending dynasties that goes back 2500 years (mixed in with the occasional barbarian invasion). I think it would be impossible for the communists (not really communists in anything more than name these days) to not pay attention. In fact the Chinese banking system is so hugely bankrupt it makes our savings and loan scandal look like rounding errors as they desperately try and stuff money into ineffecient state industries and rural infrastructure projects.

A more appropriate analogy to the United States would be the depopulation of Rural America that started at the end of the Civil War and the start of the industrial revolution and continues today. It just seems to be happening in China in fast forward. We all better hope that they get it right because a blow up in China will make an Oil Embargo seem like a minor inconvinence.

It's funny how every post no matter what the topic seems to return to the Evil Bush administration. Lets stay on topic people.

Posted by: Dex on July 19, 2004 07:18 AM

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"The hinterland and inner city folks are totally apolitical, ravaged by junk food starvation, drugs, booze, gangs and AIDS. The five horsemen of the apocalypse do an apartheid isolating the royals from the majority, and add the three old horseman, Fed, credit and mortgage companies, you have a recipe for mass extirpation of the majority, while George plays out the back nine."

an exerpt from "My Little Red Book", 2004 ed.

We must always bear in mind the virtue of starving together. That some may not be is unbearable to think on. Glorious equality!

Posted by: Jason Ligon on July 19, 2004 07:20 AM

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Lash: Peasants in China may not vote, but they can revolt.

Posted by: Walt Pohl on July 19, 2004 08:33 AM

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In India, China's success at fighting poverty is often stated as an example. For instance, literacy has signifigantly risen, to be about 85%. The birth rate has dramatically fallen, and infant mortality rates have signifigantly improved. Also, two weeks ago in the New York Times, there was an article on two Chinese authors who wrote a book, which is now published and distributed underground, about the extremely poor living standards of the rural Chinese. The Chinese government, because they say that the book implies the Chinese government doesn't care about this problem, stopped publication of the book.

These conflicting stories and statistics, then, leave the impression that the Chinese government certainly is addressing the extreme poverty of those who live in the mainland, and also, it questions how successful the government can be in redistributing wealth. Is, for instance, the rapid economic growth largely indepedent of the government's ability to address poverty? Or, is the government not addressing poverty as it should because it's concerned of slowing economic development?

Also, Amaryta Sen, the Noble Prize winning economist, stated last week in India, at an economic conference, that he believes that the Chinese are so pragmatic, unlike Indians, that they'll peacefully adopt democracy in the near future. One of the reasons they'll do so, he argued, was because of the inequality that the rapid economic development has caused.

Posted by: Adam Morgan on July 19, 2004 10:25 AM

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Simon

You have a wonderful blog. Do you mean 300 million peasants at the extreme? There are about 750 million peasants. Thanks.

Anne

Posted by: Anne on July 19, 2004 10:53 AM

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"And note that we are not talking about poverty (the US$1 a day mark) but extreme poverty: 625 yuan a year is US$80 a year."

Can poverty really be this extreme, USD 80 a year, about 20 cents a day, a fifth of UN's absolute poverty line? These people would probably be dead if they had to live on the purchasing power in the US of 20 cents per day. I think Brad just did the currency conversion without correcting for the local purchasing power upon which UN's poverty measure is built.

"1 USD a day mark" should be "1 PPP adjusted USD a day mark", and 20 cents a day is *much* better than 20 PPP cents a day in China. They're still starving poor alas. (like 50 PPP cents a day?)

Posted by: Mats Lind on July 19, 2004 12:55 PM

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You would not want to use PPP because that would undermine arguments about the rich world getting richer and poor world getting poorer. Come on get with the program son. Much of the rural economy in China is not measured as barter and subsistence farming (non traded) is hard to account for, but it is still grinding poverty.

Posted by: Dex on July 19, 2004 02:13 PM

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Coasts vs. inland.

Hmm.

Posted by: Frank Wilhoit on July 19, 2004 02:45 PM

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"arguments about the rich world..." I'm just an engineer, so I keep looking at the issue in a narrow perspective. Using local rather than national PPP adjustments - i.e. taking into account that stuff is probably a lot cheaper in rural China than in its urban districts, things might lighen up quite a bit. Maybe those 20 cents may actually in some places buy as much as the whole dollar buys in the US?

Statistically speaking, (infant) mortality figures would probably be a lot more descriptive here? I guess it's bad, but hopefully nothing like a 20 PPP cent a day demographic collapse!

Posted by: Mats Lind on July 19, 2004 03:04 PM

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But the Chinese have to keep them down on the farm- or they need to import massive amounts of food while integrating and modernizing their agricultural sector. Of course they are in such dire straits that they literally have to decide where to start and what to do with the surplus people that will poor in out of the countryside when real reform starts and millions are rendered surplus by small amounts of mechanization. The most dangerous bunch is the ones that buy a tractor instead of a village tv set.

Posted by: AllenM on July 19, 2004 04:52 PM

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http://www.nytimes.com/2004/07/09/international/asia/09peas.html?pagewanted=all&position=

Exposé of Peasants' Plight Is Suppressed by China
By JOSEPH KAHN

HEFEI, China - In their muckraking best seller about abuses against Chinese peasants, the husband-and-wife authors, Chen Guidi and Wu Chuntao, told the stories of farmers who fought the system and lost.

The book, 'An Investigation of China's Peasantry,' describes how one farmer's long struggle against illegal taxes ended only when the police beat him to death with a mulberry club. It profiles a village activist who was jailed on a charge of instigating riots after he accused a local Communist Party boss of corruption.

Now, Mr. Chen and Ms. Wu say, it is their turn to be silenced.

Though their tautly written defense of China's 750 million peasants has become a sensation, their names have stopped appearing in the news media. Their publisher was ordered to cease printing at the peak of the book's popularity this spring, leaving the market to pirates who subsequently churned out millions of copies in violation of the copyright.

A ranking official sued sued the authors, accusing them of libel, in his home county court. In a country that does not protect a right to criticize those holding power, it is a case they say they are sure to lose.

Top Beijing leaders acknowledge that China's surging urban economy has done relatively little to benefit the two-thirds of the population living in rural areas. They have put forward new programs to reduce the widening gap between urban and rural living standards.

But the effort to quiet Mr. Chen and Ms. Wu makes it clear that officials will not tolerate writers who portray China's vast peasantry as an underclass or who assign blame for peasants' enduring poverty.

Posted by: Anne on July 19, 2004 04:59 PM

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I accept the PPP argument and should note that it was I would equated the 625 yuan to US$0.25 a day in order to give a point of reference. I even accept that using PPP 25 cents a day is worth more in China than in the US. And I welcome any reader or commenter here to come to China and live in such a village on such a sum. I'm not aware of what the PPP is between the US dollar and the yuan, but let me go out on a limb and take an extreme ratio of 150%. So would my friends here like to be living on a PPP adjusted US37.5 cents a day instead? It doesn't buy much no matter where you are living.

Don't get me wrong: China has made massive gains in fighting against poverty. My original point remains simply that China is not universally benefitting from its economic boom and there are large areas being left behind. The 30 million is an estimate of those in extreme poverty; the number living under US$1 a day is a multiple of that. As Anne points out there are 700 million peasants in China that much of the world doesn't hear about. Instead everyone hears about the 300 million living in coastal regions that are rapidly catching up to the West.

Posted by: Simon on July 19, 2004 05:35 PM

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I ask those who complain about currency conversion omission: who in the hell reading an economist's weblog doesn't understand this aspect of currency conversion?

Posted by: Andrew Cholakian on July 19, 2004 06:08 PM

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The question seems to be what does 625 yuan in China actually mean. Here's one view.

Each of the around 2,000 counties in China sets a monthly minimum wage level on the basis of a complicated formula determined by the government. According to Section 1 of "Regulations concerning minimum wages in enterprises", the minimum wage should 'ensure the basic needs of the worker and his family' and - as stipulated in Section 9 - 'shall take into account the specific conditions of different localities and trades of the same region...'

In Zhangzhou - a city in Fujian - the hourly minimum wage is calculated thus:

The hourly minimum wage standard = [(the monthly minimum wage ÷ 20.92 ÷ 8) * (1+ the proportion of the premium paid by the enterprise for each worker's retirement and basic medical insurance)] * (1+ fluctuation coefficient).

The minimum wage does not include: 1. overtime wages; 2. subsidies for night shift work, working at high or low temperatures, in mine shafts, or in workplaces where conditions may be harmful, and so on; and 3. payments for insurance and welfare.

There's lots more, but you get the picture. It's not based on guess work.

Knowing minimum wages, then, we would have a better idea of what an annual income of 625 yuan means for people living on it.

As of the beginning of July 2004, Wuxi and Shanghai increased their minimum monthly wages to 620 and 635 yuan. That's monthly; or 7,440 and 7,620 yuan per annum respectively.

Shenzhen raised it's monthly minimum wage in May 2004 to 610 yuan. In the outer zone - i.e., the factory zone - it went up to 480 per month.

Shanghai, Wuxi and Shenzhen have among the highest minimum wage levels in the country.

In Shanxi, a province with lower wages, there are four minimum wage levels, ranging - as of July 2004 - from 420 to 500 yuan per month; or from 5,040 to 6,000 yuan per annum.

Mid-level technical workers - of which China suffers a shortage - could expect to earn around 2,000 to 7,000 yuan per month in Nanjing. Experienced moulding engineers and senior technicians could expect to earn more than 10,000 yuan per month. Senior technical workers could, in rare instances, earn around 200,000 per annum.

The figure of 625 yuan per annum is, therefore, a very low figure indeed. A 17-year-old girl from a rural village could earn as much in her first month of factory work as she might earn all year back home. (There are lots of other factors to consider here, but I won't burden you with them.)

To put that in terms that make sense in the US (even though I'm unfamiliar with US minimum wage laws and rates), I've chosen one example from the Department of Labor's Web site. Nevada, according to this site, expects employers to pay a basic hourly minimum rate of $5.15 for a 40-hour-week ($206 per week; around $865 per month - based on a 21-day month, or $10,380 per annum).

I'd be interested to know what proportion of people in Nevada are living on the equivalent of a one month wage - $865 - per annum.

An equally interesting question would be to ask people who were living on that amount, what might they do to earn in one month what they are currently living on per annum. In their response we might find the same answers you'd hear from China's impoverished who head for the coast and the inevitable factory or construction work.

Posted by: Stephen Frost on July 19, 2004 11:15 PM

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At least this reinforces my observations that if i want to make a decent wage I've got to get the heck out of Iowa. Too bad there isn't more dialogue on the interplay between regional economies.

Perhaps a neo-VonThünen school of thought?

Posted by: Clayton on July 20, 2004 12:34 AM

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Excellent comment, Simon.
Excellent blog, Simon World, full of droll humor.

Posted by: Anne on July 20, 2004 11:43 AM

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A modified version of the "Big Mac Index" adjusted for PPP suggests that the figure of 650 RMB/year amounts to roughly a month of employment at McDonalds by Beijing standards. Whether one doubles or triples that according to the reduced living costs in the interior, it is clearly an abysmally low annual income by any standard.

In response to Adam's comments -- underground in China isn't as underground (or sexy) as the NYT makes it sound: when I bought my copy several days ago in downtown Beijing the vendor was unaware the book had been banned. Reading it also made me curious if there were political motivations behind the censorship. One reason was the remarkably positive treatment of Wen Jiabao. The book devotes at least a chapter to praising his efforts to uncover rural poverty in the face of local rural resistance.

As far as the rest goes, Lash Marks is a troll. There may not be direct democracy in China, but there are limited efforts to move towards it at the township and county level which can't be summarily dismissed.

Posted by: trevelyanq on July 20, 2004 12:33 PM

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Hi trevelyanq: have you seen ESWN's postings on "The Chinese Peasant's Study"? This one's a good place to start: http://www.zonaeuropa.com/01734.htm

On the 'Big Mac Index': in 2002, a couple of us at AMRC developed our own Big Mac Index - but this one showed how long it took employees at various McDonald's restaurants in Asia to earn enough money to buy a Big Mac. There are lots of variables of course, but here are some of the results that I think are reasonably accurate (expressed as hours worked to earn the money required to buy a Big Mac)

Australia: 17 minutes
New Zealand: 28 minutes
Thailand: 2 hours 25 minutes
Sri Lanka: 5 hours 52 minutes
Pakistan: 14 hours 12 minutes

China (and I can't recall if our figure was based on Beijing prices): 3 hours 57 minutes.

These figures are based on Big Mac prices and McDonald's hourly wages in late 2001 and early 2002. I'd be interested to know if they still hold.

Can I ask you a favour, then, trevelyanq? Could you go and buy a Big Mac in the interests of research and let me know the following two things: What is the cost of a Big Mac in Beijing, and how many yuan per hour do counter staff earn?

Anyone else who'd like to send me the same information for where you live please feel free to do so. I'll post results on my site.

Wages per hour should be before tax, and the food item should be the standard Big Mac.

Posted by: Stephen Frost on July 20, 2004 08:24 PM

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Unlike the sheep-like American people, who quietly accept and even seem to reward with their votes such inequalities, the Chinese will not. There will be an explosion someday.

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