Capitalism and Inequality in China

Essay, 2012

8 Pages, Grade: 8/10


The author of this text is not a native speaker of English. Please excuse any grammatical or lexical inconsistencies.

Capitalism and inequality in China


Nowadays, world's economical, political and social systems are ruled by the commonly concept of capitalism. Its definition varies depending on historical and political periods in societies, which allows some negative aspects pointed out. The current situation presents a high rate of disparity: 6% of the world population own 52% of the global assets. Thus, it gives rise to analyze the possible connections between capitalism and inequality. As an example, in China, we can observe a certain count of phenomena, which completely upset the economy of this country. Since the transition from planned economy to a free market system in the 1970s, Chinas economic growth is about 9 per cent annual and the country’s GDP represents 13 per cent of the global output. As capitalism is considered as the best economic system for modern societies in as much as it seems to be the most productive and efficient, noteworthy, behind this visible global opening, very big spatial disparities exist. Between 1980 and 2005, the inequality in China grew with a double speed than in the U.S. At the present time, China is one of the most inequal societies in Asia. Indeed, China opted for a growth model spatially unbalanced, by hoping that by the effects of pouring, the rest of the country could benefit in his turn from this development. However, the positive effects of the economy limited to the coastal provinces, which became the engine of the Chinese growth. How can one explain that China, one of the former most egalitarian states in the world, is in a dangerous area of inequality? To answer this question, one must have a look at the changes from Mao Zedong era to the current shift towards capitalist economy, by focusing on the causes of this evident disparity, e.g. the gap between the urban and rural areas and the ongoing process of state capitalism.

From Mao Zedong's era to the market economic system

Looking at the scholarly literature about markets and income inequality in China, the major shifts in inequality within the society of China was caused through various aspects; namely: the monetization of incomes, the introduction of market competition, privatization and economic restructurings. To understand the case of income inequalities between urban and rural China and, again, between poorer and more prosper regions in the rural areas, it is noteworthy to give an insight in the historical processes, which the Chinese economy was running through.

The first of October in the year 1949 marks the beginning of the People´s Republic of China, with the proclamation Mao Zedong, as the head of the communist party, KPCh. The economic system under his rule in common was characterized by planned economy with the most possible growth. Therefore, China followed the example of the Soviet Republic. In this time, the focused country was shaped by an agrarian field economy. During the period of the 1950´s, the economic enrollment was strongly influenced by decentralization and a developing collective agriculture.

“China´s land reform had a profound leveling effect on land ownership and rural income distribution by eliminating tenancy and hired labour, strengthening the position of landless and land poor, and creating communities of roughly equal small owner cultivators.” (Matson 1992: 702) Between the years of the 1930´s and 1952, the poorest 20 per cent, especially of the rural, households succeeded to nearly double their share of income from 6 till 11 per cent, while at the same time the share of the richest 20 per cent of the rural population fell from 42 down to 36 per cent.

Even if, as part of the land reforming areas under Mao Zedong, the concentration of private wealth should be eliminated, small, but still important differences within the ownership of land and even bigger ones within incomes on an intra-village level stayed ahead. The differences between various spates on the same level also remained untouched by the land reforming activities.

The here mentioned reforms peaked in collectivization and communization, especially during the years 1955 until 1958. The, within the 1950´s established, hierarchies between cities and countryside and, again, between poorer and more prosper rural regions were fixed up during the following decade and roofed by state- control. The poverty in China in these days was most obvious in the rural areas and much loss was experienced within the populations of these poorer zones. Until the turn to the 1970´s, important and significant technical foundations for modern agriculture were made.

To sum up the economic activities during the Mao-Era, it is noteworthy to say, that China, in this period, was longing for economic autarchy. Therefore, the development of the Chinese economy was hindered and no basic economic relations with other nations were made ore fixed up. The year 1976 marks a political change within the People´s Republic of China. Deng Xiaoping became the head of the country and laid the foundation for important changes within the Chinese economic activities. A first step consisted in an affront of collectivization within the agricultural sector: a defined amount of property rights for the agricultural products were given to the farmers. This mentioned shift describes a move from collective agriculture towards household economic practices and again from simple grain production towards non-staple crops. This turn means on the base a shift towards industry and commerce. These reforms of the 1980´s lead to the development of a rural industry, orientated on commercial profit (TVE). In this context, the scholarly literature points out two main factors concerning the ongoing development of, especially rural, inequality in China. A first one is the large population movement from the countryside towards the big cities and also on a smaller level from the poorer rural areas to the more prosper ones. A second is shown up within the strong and fast industrialization of the countryside. In this period a special and characteristic kind of private economy developed; namely the cadre capitalism, which contained strong benefits for influential and powerful families, as well as for functionaries of the leading communist party. The aforementioned economic transformation from planned economy to household production vitalized the rural markets, but constituted a radical and fast change. The land was equally divided among the households and the individuals were more bounded on their homes, to counteract a rural exodus and support the rural workforce (HRS). In turn, the rural cadres feared of eroding their power and benefit. Therefore, they built up a new base of power; namely: commercial and industrial enterprises. This process describes a cadre adoption of the market. Moreover, it shows up, that the transition from planned economy to market economy is defined by a shift in power and opportunity: cadres´ loss of control over economy, no longer depend of village officials on rural households. The power was shifted towards household entrepreneurs.

From his rise to power in 1978, Deng Xiaoping operated various economic reforms, which mainly contained objective decentralization and liberalization. This led finally to a profound transformation of the Chinese economic system. One of the decisive reforms was the implementation of the so called "open door" policy, which means an opening of the Chinese market towards other industrial nations.

An example for economic experiences within the period of the late 1970´s and 1980´s were special economic zones, where new and experimental liberal economic practices were proved since 1979. Firstly, China limited its opening to two coastal provinces: Guangdong and Xiamen. Then, in 1980, four Special Economic Zones (SEZ), were created: Shengzen, Zhuhai, Shantou and Xiamen with tax incentives to attract foreign capital. The success of these SEZ led to the fast opening of fourteen coastal cities in 1984 and in 1988,a new SEZ was created in the province of Hainan. Afterward, Deng Xiaoping boosted the opening by spreading it to six ports situated on the river Yang Tsé; to thirteen cities borders and to the capitals of provinces and autonomous regions. Finally, all maritime Chinese coast was transformed. By being integrated into the international economic flows, the Republic of China became in a short time a key actor of the world trade. It is from 1990s, that the Chinese exports diversified and increased considerably. An expansion of these areas towards bigger parts of the country shows the success of these zones. The economic reforms and the opening on the outside were unquestionably successful, because they allowed China to strengthen its global power and to become one of the economies with the fastest growth of the world. Over the period 1980-2005, Chinas average growth rate was around 9,5 %. In 2001, China joined the World Trade Organisation, the body that sets the rules for world trade.

The international insertion of China in the world economy is a success, as far as it facilitated its economic take-off. However, the consequences of this growth were not distributed in a fair way on the entire territory. The concentration of foreign trade activities on the maritime coasts was a cause of uneven growth between provinces, which led to an increase of the regional disparities. This phenomenon was also favored by the process of industrialization. The opening of the coastal regions was indeed the origin of their strong economic growth. However, it little spread in the other provinces. Since 1978, the differences between the east coastal provinces and the internal provinces, in the center and west, did not stop increasing, which entailed a strong regional dualism.

We observe a geographical concentration of the industries because of clustering effects and of the rapprochement of the markets. The opening of the littoral zones allowed a rise in the range of the productive structures, because of technology transfers from developed countries. China went from activities based on textile industry to more technological activities. This change led to a social mobility and therefore, income gaps between coastal and inland regions.

Problematic issue in the current Chinese economy

China's economy is dominating and affecting the country's culture and policy but not everyone can profit from this development. The relationship between holders and non-holders is hazardous. This mirrors in the amount of mass protests incidents: in 1993 there were 8700, while the sum rose up to 87000 in 2005. The Gini co-efficient, an indicator for income disparity, reached 0,53 in 2004. The dangerous limit is defined as 0,40. The new leadership formed in 2002-2003 announced policy changes to stabilize the mood in China.

There are two major victim groups suffering under the Chinese economy are the rural migrants and the urban laid-offs. The HRS reprivatized the collective land and created taxes for the new landowners. But these taxes burdened the farmers too much so that the fees were being eliminated or reduced. Nevertheless this process led to high rates of migration: since 1979, 225 million peasants moved to urban areas. But these migrants do the unpleasant work for low wages even they produce high value. This "enormous surplus [...] is the secret of China's wealth." (Long 2011: 9)

But there is a pool of willing workers so they resign oneself for the slavery work. Moreover, there is a high level of discrimination against migrant workers; it manifests itself in missing welfare benefits and slim chances for migrants' children of attending school. The other victim group are the laid-off workers but a problem with this group is the fact that the Chinese unemployment rate (e.g. from 2000 with 8,27%) does not represent the reality. The Xia gang-system is used state enterprises and keeps workers in the companies with paying the minimum wage but without using their labourforce so that they do not have to face the problem of laid-off workers. These workers and 'not-workers' mostly don't have access to healthcare, education and housings.

One reason for the inequality is the Chinese way of communism. Chinese philosophers and as last consequence, Mao merged Social Darwinism into their ideas. Mao's modified industry was controlled by the state, not by the workers and created the rural and urban split. The rural population is weak because the progress is in the nature of the survival of the fittest. Also the Deng era promoted this development with slogans like 'to get rich is glorious'. The pursuit of self-interest became principle of the economy and had strong impact on the population. The 'China Survey on Inequality and Distributive Justice" from 2005 inquired the reasons for poverty and wealth. The comprehensive survey explains the main reasons for poverty with: lack ability or talent, low education and lack of effort. The reasons for wealth are caused by ability, hard work and a high educational level. Common reasons explaining the gap between rich and poor like discrimination and unfairness are at the bottom of the order. This reflects the perception of the Chinese population characterized by Social Darwinism and not Socialist ideals of equality. The citizens seem to be less upset about current inequality as analysis show and the government is afraid of. The existing inequality is accepted because competition adopted the former values.

Nevertheless, the inequality is real and conspicuous. The German newsmagazine SPIEGEL published, in the context of the Chinese power struggle, the earnings and economic background of the elite and their families. The totaled up sum is more than 2 billion $ and the politicians are in high positions of state companies. The nouveaux riche are closely related to the political elite or even them itself. This Chinese phenomenon is unusual because the capitalists are not from the bourgeois class but from the bureaucrats who control the important state enterprises e.g. the TVE. These state-owned enterprises (SOEs) and the government officials use their influence to divert public property for them. They generate in co-operation new mechanisms to accumulate more surplus value by low wages. The law legalized these developments by having no unemployed rights. Furthermore, the introduction of private property right and the enhancing power of bureaucrats made collective ownership notionally and led to a policy to protect rights of the new rich. Yet well-intended laws like the Regulations on Enterprises Minimum Wage from 1993 which guaranteed a minimum level of income were skewed and became the standard value of maximum wages in many companies. The laws are oriented to help Chinese economy.

For China, the industrialization and modernization are evolutionary processes to a better future. Science and self-interest leave a gap of moral justification of inequality which is caused by indomitable will to progress.


After assessing the main problems of People's Republic of China's economy, it seems clear that it has to face important issues in next years that will determine its own future. Most of all, China politics needs to come up with ways of mitigating its strong inequality without hurting economic growth. It should be noted that reducing inequality is not only a matter of moral or political justice: many economists worry that widening income disparities may have damaging side-effects. Therefore, if China wants to maintain its high level of economic growth, it seems to be forced to find solutions about the increasing inequality about both opportunity and outcome.

In this perspective, China has to work out a solution for the big problem represented by cronyism. According to The Economist analysis “In China cronyism is even more ingrained (than other rich countries). The state still has huge control over resources, whether directly through state owned enterprises, monopoly control of industries from railways to mining or the distorted financial system, where interest rates are artificially depressed and access to credit is influenced by politics. The importance of the state means that the beneficiaries tend to be close to state power.” Moreover, it seems of great relevance for China to improve its education system in order to limit the strong inequality of opportunity. Concerning this big issue, the remnants of the country's hukou system of household registration appear to have bad impacts on Chinese society. Even if the restrictions on mobility were abolished in the 1980s, the millions Chinese people, became migrant workers, still retain hukou of their birth, as do their children. Therefore, from housing to school, this leads them to have big disadvantage compared with holders of urban hukou.

Furthermore, it should be pointed out that China needs absolutely to introduce a more efficient, and progressive, social safety net in order to protect citizens equally; especially people in difficult living conditions as unemployment and disease.

In conclusion, the phenomenon of inequality can be reduced by important reforms. The most relevant ones seem to be: first of all, both developing and developed countries should start to fight the system of cronyism and corruption. In this perspective, “removing subsidies for too-big-to-fail financial institutions should also be high on the new progressive agenda” (The Economists). Secondly, inequality has to be tackled with pointed and progressive social investment. Hence, the process of redistribution has to be optimize in order to guarantee universal access to education system and health care. As a matter of fact, there is a strong priority to reform taxes, to make them a lot more efficient and somewhat fairer.

These are the main reforms that governments have to introduced in order to respond to the increasing inequality as the most significant challenge for the current worldwide politics.


Bian Yanjie, Chinese Social Stratification and Social Mobility, Annual Review of Sociology, California, 2002.

Blecher Marc , Inequality and Capitalism in China, paper prepared for the American Political Science Association Task Force Conference on Inequality and Difference in the Thirld World,Washington, 2005.

Hsieh Jiann, China's Nationalities Policy, Anthropos, Switzerland, 1986.

Follath Erich, Ein moerderischer Machtkampf, in: Der Spiegel, Hamburg, nr. 42/15.10.2012.

Long Qinglan, Thoughts on China's inequality, Pacific Rim Law & Policy Journal Association, Washington, 2011.

Matson Jim and Selden Mark, Poverty and Inequality in China and India, Economic and Political Weekly, Mumbai (India), 1992.

The Economists, True Progressivism: The new politics of capitalism and inequality, London, 13/10/2012.

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Wu Xiaogang, Work Units and Income Inequality, Social Forces, Oxford University Press, 2002. und-die-usa-gemeinsam-haben/3916036.html (12/11/2012). das-ewige-raetsel-seite-2/2965776-2.html (12/11/2012).

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Capitalism and Inequality in China
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Maximilian Wilms (Author), 2012, Capitalism and Inequality in China, Munich, GRIN Verlag,


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