A ChinaFile Conversation



Andrew Nathan:

The new Chinese leadership under Xi Jinping seems to be making some bold opening moves with its attacks on corruption and the announcement on February 5 of plans to reduce the polarization of incomes.  Does this mean Xi is leading China in new directions?  I think not.  The reforms are continuations of priorities long pursued by the Hu/Wen regime.

Hu Jintao and Wen Jiabao came to power 10 years ago saying they needed to attack corruption and raise rural living standards. And, contrary to widespread perceptions, they acted on their words. Faster, tougher prosecutions of higher-level officials may not have rolled back corruption, but seem to have stopped it from getting worse, according to Andrew Wedeman’s recent book, Double Paradox: Rapid Growth and Rising Corruption in China (Cornell Unversity Press, 2012).

On the income side, Hu and Wen abolished the agricultural tax, extended free public education to nine years, loosened restrictions on labor migration, and started the arduous process of building a health insurance system—a mix of measures designed to improve peasant incomes in the short and long terms.  Last year, the World Bank and the Development Research Center of the State Council jointly published a report called China 2030: Building a Modern, Harmonious, and Creative High-Income Societywhich recommended further steps in the same direction, such as speeding liberalization of the hukou (household registration) system, enhancing the social safety net, and protecting land rights.  Since this report was conducted under the aegis of incoming Premier Li Keqiang, it surely forecasts the trend of social and economic policy in the coming years.

These are adaptive changes, not signals of a new direction.  The party knows it has to evolve if it is going to stay in power over a society in which expectations are constantly rising.


The choice of Wang Qishan to be the chief corruption fighter as the head of the CCP Central Discipline Commission looked like an encouraging sign. In his previous jobs, Wang impressed foreigners and Chinese alike for his decisiveness and economic sophistication. Many thought he was one of the most liberal leaders of his generation. He must know that fighting corruption through Party discipline is a losing battle, even with the addition of Netizen vigilantes who try to out corrupt officials by posting graphic exposes of their watches, houses, and mistresses. Wang certainly must realize that the essential element in fighting corruption is strengthening the independence of the legal system. Will Wang lead a drive for legal reform even though his formal responsibilities are limited to Party ‘justice?’”

I agree with Susan’s point, and just want to note that strengthening the independence of the legal system is a major task of constitutional proportions. The reason corruption can’t now be fought effectively through the legal system is that courts, police, and prosecutors in China, like almost all other government agencies in China, operate under a principle of horizontal accountability. Judges (who have no security of tenure) don’t answer to superiors in a judicial bureaucracy; they answer to local power-holders (ultimately, the Party bosses) at the same administrative level. To change that system would mean changing both China’s written constitution and, more significantly, its unwritten rules of politics. And it’s not clear that senior leaders would want such a change. A court system that had enough independence to fight local corruption would also have enough independence to impose real limits on official power, and so far the Party has resolutely set its face against the idea of limited government and genuine separation of powers.

Let’s face it, income distribution doesn’t usually generate much news. Calculations of income distribution require a lot of data and time; the discussions about measuring income distribution are dry as dust; and anyway income distribution usually changes so slowly that there’s not much new in the news anyway.

So you have to give the Chinese government credit: in the past three weeks it has generated two big stories on income distribution. Now everybody can take a week off and welcome in the Year of the Snake!

The first big story was that the National Bureau of Statistics finally published an official estimate of China’s Gini coefficient, after not reporting any significant data on income distribution for nearly 10 years! The second big story was that the State Council released its “Opinions on Deepening the Reform of the Income Distribution System.” In both cases, the announcement of the document is good news: each of these documents reflects a new seriousness on the part of China’s economic policy-makers, and a willingness to tackle the fundamental economic issues that lie behind China’s critical social challenges. To be sure, it’s still a long way from here to meaningful changes, but these are important first steps, and in the right direction.

According to the numbers released, China’s Gini increased from 0.479 in 2003 up to .491 in 2008, and then declined slightly to 0.474 in 2012. (A Gini coefficient of zero reflects a perfectly equal distribution, and a coefficient of 1.0 means that a single person consumes all of the “pie.”)

How do we evaluate these new numbers? A first preliminary take: These numbers unambiguously show that China has become a much more unequal society in a very short time. China’s Gini hit bottom in 1982-83 with a Gini below 0.3, making it one of the world’s most equal societies; but within a mere twenty years China has become one of the world’s more unequal societies, with a Gini of 0.48. China’s Gini is today at the levels of historically high Latin American economies, and surpasses that of Mexico. Second, China, like all countries that calculate Ginis based on household surveys, misses a lot of high income households and off-the-books income. This effect is probably larger in China than other economies, and has generated a great deal of discussion lately. Finally, the improvement in the last few years may be real, since the higher unskilled wages, higher food prices, and new welfare systems of the past several years all have the potential to reduce inequalities.

The new income redistribution program, which involves increasing interest income; raising social security and welfare spending; and increasing the remittance of state-enterprise profits to the budget (so that they can be used for social spending), could be an important step toward solving China’s income disparity problem. But implementation will depend on the outcome of intense politicking and struggle for the control of resources. They are expressions of intent: it is quite likely that Premier Wen Jiabao insisted that this program—which was delayed for many months but which he clearly sees as part of his legacy—finally be pushed through before the end of his term.

This program is more than what it might appear to be.  It is not a mere wish list of unrealistic but well-intentioned measures designed to reduce inequality. According to some reports, early drafts were widely criticized and extensively revised because they didn’t have enough teeth.  Instead, the program is a remarkably thorough acknowledgement that improvement in China’s income distribution will require deep structural changes in the economy.

This program commits China’s leaders to begin to adopt a series of policies designed to shift power from the state-run corporate sector to the household sector. It attaches specific objectives and numbers to most of the policies. A program like this is inconceivable in our own political system—it contemplates a massive re-orientation of interests, albeit gradually. For that reason, nobody in their right mind would take it as a done deal, or anything more than—so far—a declaration of intentions. But as a declaration of intentions, it goes surprisingly far. The first step in overcoming the income distribution problem is to recognize that the problem is serious, and deeply embedded.  After these three weeks, we can say that China has officially recognized that fact.