Inequality gap will come back to haunt China

Por • 1 nov, 2019 • Sección: Economía

By Gordon Watts

October 31, 2019. Former Finance Minister Lou Jiwei warns of the dangers to the economy if Beijing fails to solve the problem. 

It was rather apt that the ghost of Halloween past should come back to haunt China’s political elite.

Outspoken, audacious and erudite, Lou Jiwei cast a spell over the Fourth Plenum of the 19th Congress of the Chinese Communist Party in Beijing this week.

Known for his reforming zeal, he created another horror show for the CCP when he claimed the widening chasm between rich and poor was the country’s biggest challenge.

“China’s urban-rural dual system structure drives inequality as a lack of access to social services for migrant workers is unfair and counterproductive,” Lou, who stepped down as minister of finance in 2016, said.

“China’s hukou system, [a family registration program which breeds inequality] is largely to blame for these problems,” he wrote on the Caixin Chinese media website.

Still, his remarks were simply echoing what has become a crucial issue for President Xi Jinping’s administration in its drive to eradicate poverty amid a slowing economy and the trade war with the United States.

‘Unequal country’

Last year, a working paper by the International Monetary Fund revealed that the “inequality” gap was opening up again. The IMF reported:

“China has moved from being a moderately unequal country in 1990 to being one of the most unequal countries. Income inequality in China today, as measured by the Gini coefficient, is among the highest in the world.

“[The country’s] rising inequality in the last decades can be crucially tied to structural factors such as urbanization, aging and sectoral rebalancing, with policies not providing enough of an offset. Going forward, inequality will rise further without policy changes, on account of continued urbanization and demographic changes.”

Lou would probably agree with that assessment. But then, he has often been a stringent voice against the Party’s collective decision-making process.

During his tenure in office, he unveiled plans to transfer part of the equity in the sprawling state-owned sector to tackle a shortfall in the national pension fund.

Yet, perhaps, it was his vehement opposition to the central government-funded “Made in China 2025” policy that caused the most embarrassing headlines for Beijing.

The program was rolled out in 2015 and encompassed an array of industries, from chips, computers and the cloud to “smart” transportation networks and “smart” factories.

Linked together by ultra-fast 5G strands, “MiC 2025” was launched to turn China into a technological superpower.

A vision that Lou felt would turn into a nightmare. For him, it did as he was forced to resign as the head of the influential National Council for the Social Security Fund a month after his comments.

‘Local government’

“It has wasted taxpayers’ money … I was against it from the start,” he told a media briefing on the sidelines of the National People’s Congress in March. “There was a lot of talking about [MiC 2025] but very little was done.

“There was no need to talk about the year 2025 in the first place. [The government] wants industries to be at the top-notch by then, but those industries are not predictable and the government should not have thought it had the ability to predict what is not foreseeable,” he added.

Lou was also at the forefront of highlighting China’s local government debt mountain more than four years ago. Back then, it stood at 18 trillion yuan (US$2.56 trillion).

“The problem of local government debt is undeniable. For those regions with an excessive proportion of debt, we will need to pay extra attention,” he told the Central Banking media site at the time.

Fast forward and the mountain continues to grow. Last year, a report released by S&P Global Ratings painted a picture layered in confusion and secrecy.

“The extent of off-balance-sheet borrowing among local governments isn’t known, but could be as high as 40 trillion renminbi [yuan] (US$5.78 trillion),” it said. “That’s a debt iceberg with titanic credit risks.”

A metaphor that would not be lost on Lou.

https://www.asiatimes.com/2019/10/article/inequality-gap-will-come-back-to-haunt-china/

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