openEconomy

China's poor: always with us?

Hu Xingdou
5 November 2009

The second-generation poor stand in contrast to the second-generation rich. One group inherits their parents’ poverty, the other their wealth. Together they demonstrate the hard facts of the rich-poor divide and its permanence - the children of the rich stay rich, and the children of the poor stay poor. And while wealth may often be squandered - fortunes, the Chinese say, never last three generations – poverty persists, with even third and future generations unable to change their fate. 

So who is responsible for the vast numbers who inherit poverty? And how to change their fate?

In China, the cycle of poverty is due to the failings and irrationalities of a number of systems – of household registration, education, state-owned monopolies, taxation, distribution of resources, welfare, the press, public representation and government bureaucracy.

The household registration (hukou)  system classifies people according to domicile and rural or urban status, and creates congenital poverty for rural families. Their children will always be classed as rural residents unless: – they get into university, and the chances of that are extremely slim. The offspring of those who move to work in the cities will not be treated as locals or even Chinese citizens

By leaving their domicile, they lose entitlement to even the limited welfare / services they would get at home, so the very much fall through the cracks. – their parents buy property or start a business, and the chances of that are again extremely slim. According to one report only four or five of Nanjing’s one million migrant workers obtained an urban hukou over a five year period - even the lottery offers better odds. The household registration system is the prime cause of prejudice, social immobility and second-generation poverty.

The hukou system also gives rise to a divided educational system. Vastly greater spending in urban areas leaves rural children struggling to obtain a good education. Their chances of attending university are slim: According to a report from an academic seminar on the theory and reality of educational equality in China, children from rural households are only one fourth as likely as children of urban workers to be accepted to a key national university, and have less than one thirtieth the chance of children of government and Party officials. Educational inequality passes poverty on through the generations.

Meanwhile, the state monopoly on banking results in guarantee requirements, borrowing costs and a lack of credit rating information that only large firms can overcome. SMEs, individuals and rural residents are left without credit and so many smaller firms collapse, jobs are lost, and individuals cannot start their own businesses. In the US and EU there are numerous smaller private banks, community credit cooperatives and loan companies lending to ordinary people – but in China a handful of state-owned banks ignore the poor in favour of state monopolies and multinationals. Businesses fail and vulnerable groups are denied the financial assistance they need to achieve a better life.

Ever-stronger state-owned monopolies crowd out private enterprise, which can only survive by offering low wages and benefits. This again harms the interests of urban workers and young migrants to the cities – the inheritors of poverty.

China’s finances are controlled by government and bureaucrats. Party cadres have the final say on government spending. This leads to huge waste on government wining and dining, official vehicles, travel within China and overseas, and the construction of government buildings – yet public service funding is barely adequate. Meanwhile taxation is levied mainly on businesses and the wages they pay – worsening the plight of small companies and poor families.

The social structure of rich northern countries can be described as bell-shaped – the bulk of the population is middle class, with small groups of the very rich or very poor. In China the picture looks more like a dumbbell – many people are either very rich or very poor. In particular workers and rural residents are vulnerable, with very low annual incomes. Unreasonable distribution of resources directly creates second-generation poverty.

China’s welfare system works on three levels, or classes. Cadres and civil servants enjoy the best treatment. Next are urban residents and company employees, many of whom face issues with unemployment or healthcare provision. The third class is rural residents, with medical care and pension provision only just getting started and currently at a very low level. Generational poverty will, I fear, just carry on.

But these are just the secondary causes of second-generation poverty. The most fundamental cause is that vulnerable groups lack the right to speak, to organize and to exercise oversight of government. We lack private publications – local officials control radio, TV and the new media to protect and add to their own interests. The voices of the poor, petitioners, the workers and the rural are not heard. Workers and rural residents lack a truly representative organization. They are therefore unable to negotiate on a level playing field with capital, and so wages and benefits stay low. There are severe restrictions on what farmers can do to market their products, so rural incomes remain low and quality and safety remain in question. Meanwhile, people’s representatives and officials who have not been appointed through genuine elections will not of their own accord represent the people’s interests. And so poverty will be passed on again and again through a vast and vulnerable population.

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