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Myth of Chinese Capitalism Inequality in the worker’s
THE MYTH OF CHINESE CAPITALISM
SURGING INCOME INEQUALITY,
an unfair social welfare system, and rising social tensions block China’s continued economic rise, says Dexter Roberts, with implications for companies and countries around the world. From the December 2, 2020, Humanities MemberLed Forum online program “The Myth of Chinese Capitalism.” DEXTER “TIFF” ROBERTS, Adjunct Instructor of Political Science and Mansfield Fellow, University of Montana; Nonresident Senior Fellow, Atlantic Council’s Asia Security Initiative; Author, The Myth of Chinese Capitalism: The Worker, the Factory, & the Future of the World MEI FONG, Director of Communications and Strategy, The Center for Public Integrity— Moderator
DEXTER ROBERTS: I’d like to start by talking about how I came to write my book, and in order to do so, I have to take everyone back about 20 years to the year 2000. At that point, I had been in China for about five years and had been covering the business story, mainly working for BusinessWeek full-time at that point. I had been spending a lot of time for that reason in the big cities of Beijing, where I was based, and Shanghai and Shenzhen and places like that. But that year, 2000, I did two cover stories that took me to a part of China that I had never been to before. The first of those [articles] was called “China’s Wealth Gap.”
This story was looking at the already then-fast growing gap between the coastal regions of China and the interior. I went for this reporting to the province of Guizhou in Southwestern China, then and unfortunately still today, one of the much poorer parts of China. At that point, we’d seen a couple of decades since [China’s leader] Deng Xiaoping opened the economy and started reform. We’d seen a rapid growth, but much of that concentrated on the coast. So there was a policy by the then-leader, Jiang Zemin, called Develop the West, which was an effort to try to address that already strong growing gap between the coast and the interior that same year. [In] 2000, I went back for a second cover story, “The Great Migration.” I was looking at the already hundreds of millions of migrant workers that were, in response to this unequal
THE MYTH OF CHINESE CAPITALISM
development, leaving their homes in places like Guizhou and going to the coast to work in the factories.
So I focus my book by looking at two places in China representative of both the wealth gap and the tremendous growth that [moderator Mei Fong] and I both experienced and wrote about in our years in China. At an SUV factory, . . . I met Mo Rubo. I believe he was 21 when I met him. He had already left his village for probably five years, and he had been a true migrant. He had worked in Shanghai, he’d worked in a city called Ningbo, a big coastal city, not far from Shanghai, and then worked in a number of different jobs around Guangdong before I met him [when] he was working as a welder in a Taiwanese-owned electronic components factory in the city of Dongguan. [I took a] picture of Mo Rubo with his then-girlfriend, who also [was] a migrant worker in a different factory there.
Another person that I spent a lot of time with is . . . also surnamed Mo— most of the people in this small village of Binghuacun share the same surname and are distantly related, which is common in the smaller villages in China. I had met her in Dongguan, outside the factory she was working in several months earlier, and then when I visited the village of Binghuacun, I met her again. She had returned for two reasons. One was to help her parents with the rice harvest. And the other one, which was probably far more important, was to renew her identity card at that point.
Again, we’re going back to the year 2000; migrant workers in China were very vulnerable to local police authorities. One of the things that could happen to them was if they did not have all the proper documentation on them, and that included an up-to-date identity card, they could get picked up and put into what they called black jails, then effectively held for ransom where they would have to pay [the] equivalent to several months of their salary in order to get out. Something like this had happened to one of her distant relatives in the village there. So she had gone back to make sure that she wouldn’t get in trouble with the local police because of this expired identity card. I visited Guizhou for the first time in the year 2000 [and] visited the village of Binghuacun in that year. This was actually before China was to enter the World Trade Organization, which came one year later.
At that point, people in China already knew that China was going to enter the World Trade Organization. These key bilateral agreements had been negotiated between the U.S. and China in late 1999, which was a big part of my early reporting in China. So even in this little village, they knew that China was going to, about a year later, enter the World Trade Organization. I remember talking to the village [Communist] Party chief, and he was very hopeful that with China’s entry into the World Trade Organization and, frankly, after talking to a foreign journalist, that this might bring investment to his village. He was very hopeful that they would get a vegetable and fruit processing factory, so they could move beyond their reliance on subsistence agriculture and remittances from the migrants, the young people that left the village and became migrant workers.
So China enters the World Trade Organization. It brought literally tens of thousands of new investors into China, factories sprung up, even more throughout the Pearl River Delta up near Shanghai in the Yangtze River Delta. It created countless new jobs for these young people from the countryside. And we saw China’s economy grow very rapidly and the living standards of its people go up dramatically as well.
WTO brings tremendous progress to China, undeniable improvement in living standards across the board. It brings infrastructure throughout the country—the expressways, high-speed rail was built throughout China, including in remote places. And this indeed did help local economies.
So we saw infrastructure built throughout the country and also of course propaganda reach deep into China.
China has set some centennial goals. Next year will be the hundredth anniversary of the founding of the Chinese Communist Party, which was founded in 1921. And for that celebration, China has announced that they will end absolute poverty. As some of you may have seen recently, they have basically achieved that. So they’ve met that goal. They also, as part of the centennial goals, announced that they would double GDP—and also double disposable per capita income—between the years of 2010 and 2020. And even with COVID-19, which slowed the economy, it looks like they’re going to achieve that goal as well.
So, very impressive. I’d like to highlight quickly, however, another statistic, which says a lot about the challenges that still lie ahead for China. When I first visited in 2000 and wrote about this effort to narrow the wealth gap, a statistic that I always heard about from local officials was the fact that rural incomes on average were about one-third that of urban incomes. That proportion is still roughly the same. So despite all the years of effort and the real growth in incomes, there’s still this about 1:3 gap between those people from the countryside and those people from the cities. At the same time we’ve seen an explosion in wealth inequality in China. Thomas Piketty, the noted inequality expert, has found that the wealth gap in China is roughly comparable to that in Russia, which might come as a surprise to some people; even more, it’s growing at about the same speed as it’s growing in Russia, which is also very, very fast.
I think that there’s a couple of legacy policies in China that explain why this gap still exists today. Actually more important than any other policy that still exists in China today that has a very negative influence on income growth in rural China is something called the household registration policy, or in Chinese the hukou. This is a policy that was set up during the Mao era to keep rural people working in communes and therefore having adequate cheap food for people in the cities that were supposed to carry out the industrialization of China.
This policy still exists today. It has changed in that it used to bar people from rural China from coming to the cities; obviously that has been completely tossed out. Now we have maybe 300 million migrant workers that have left the countryside and come to work in the cities. But what the household registration policy still does today is tie every person’s access to social welfare, access to health care and education, to the place where they were born, or actually more specifically where their parents were born. What that means in effect for China’s people today is that half the population—of migrants and their relatives in the countryside—are receiving much lower-quality health care. They’re supposed to be getting it from rural China. And their children are receiving a far
inferior education as well. It also is the source of [what is] really a human rights tragedy in China today, which is what they refer to as the “left behind children” phenomenon.
That is the reality that up to 100 million young people, the children of migrant workers, typically do not travel to the cities and live with their parents where their parents work, but stay behind in the countryside because of that restriction on where they can get educated. Many of them today live in large impersonal boarding schools and are not receiving very good education there and also face some really sad both physical and psychological issues related to growing up in these boarding schools. Typically they see their parents once a year, quickly.
The last policy that I talk about in my book, which I think is also key to explaining the continuing existence of this inequality, is the dual land system. It is again a policy that originated many years ago under Mao. What it does in effect is ensure that while people in the cities are able to buy and sell their apartments, and they’ve done it with great gusto and become very wealthy in many cases, most rural people—and that includes the migrant workers—are unable to actually buy and sell their property at market rates.
Many migrants now are returning to their villages to try to reinvent themselves, now that China’s factories are automating and also some manufacturing is moving overseas. So Mo Rubo and his wife—who is the same person who was his girlfriend earlier—they’re married, they run a small business sourcing athletic apparel, and they have their own small brand, which none of us would have ever heard of and not even most people in Beijing and Shanghai would know about. [It is] not very easy, struggling to get by there. They have their office in their small apartment, which they rent; they can’t afford to buy. During that visit, the big issue they were struggling with was what to do about their daughter, who was turning six—what to do about her education. And Mo was adamant that [his daughter] would not go back and become a left behind child in the villages or in the townships near where he had grown up, but instead would go to school and live with them there in the city. That is very, very difficult, because he already knew she wouldn’t be able to go to the public schools and that the alternative then was a small private school, of which there are many that have been created to cater to the migrant workers’ kids. Not only do they typically have far poorer quality than the urban public schools, but they are also often very expensive. MEI FONG: Just very quickly before we jump into the discussion, we had an interesting question from the audience that was asking if you spoke Mandarin and whether you had any issues with the language barrier. You’ve been in China for 20-plus years and you probably speak Mandarin way better now, but I was going to say part of venturing outside of Beijing and Shanghai, the big cities, is that it’s actually a different kind of Chinese spoken out there, right? There’s all the different dialects and things; it’s actually a quite a difficult process. ROBERTS: The village that I spent so much time in and that I write about in my book, Binghuacun, the people there are actually not the majority Han Chinese. They’re an ethnic minority group, a very small one called Buyi, which many people have not heard of, and they have their own language. But most of them do speak Mandarin. And there were several people, typically migrant workers who had spent years outside the village, that actually spoke quite standard Mandarin Chinese. So the fact that they had left as young people, had all that time in the factories, earned a little bit of money, but they’d actually also learned to speak Mandarin quite clearly. So that was not a challenge in that particular village. [With] some of the elderly people, I would actually need someone to serve as my translator, because they would speak a very, very thick version of Mandarin Chinese and be more comfortable in their own language. FONG: What I really found so fascinating about your book was the central tenet of [how] we were very used to—outside of China—seeing China as this great economic miracle, you know, the rising tides of 300-, 400-million people lifted out of poverty.
Your book sort of pulls back the curtain a little bit and shows that’s really quite not the case, because of these two fundamental, huge iron bands that sort of keep migrant folks tethered to the land that they might have left 30 years ago and probably don’t even know how to farm, but they can’t sell it. At the same time, they can’t fully assimilate into any of the bigger cities, because they can’t get any of the benefits that accrue as a city resident. They can’t send their kids to school, they can’t into get the medical system. The message has been “Come here, work, power the economic engine, and then go back home.”
But this situation as you describe it is to some extent changing. And that’s partly because the great economic engine that China has been powered on for a long time—which is cheap labor—is no longer the case. Automation is happening. So isn’t there some sort of a huge push to change the way things are, or is there some tension because of [a desire] to keep things the way they are? ROBERTS: That’s a very good question. I think there is [a push to change]. Training is undergoing an economic shift that I would argue is probably as big as—you have to go back to Deng Xiaoping’s reform and opening to find such a big shift. That’s really this move from the factory-to-the-world model, based on low-cost labor producing goods mainly for export to the world, and now to a much more domestic market driven economy, and an economy driven by the service industries rather than manufacturing and investment. This is happening very quickly in China. I would say that the two-year trade war with the U.S. plus COVID-19 has really brought home to the Chinese officials that this transition needs to happen much more quickly than before. And they’ve been talking for probably at least a decade that they must undergo this transition.
They’ve seen wages go up; average manufacturing wages today in China are actually higher than in Mexico or Malaysia. So on the one hand, they’ve tried to automate their factories, and they’ve been quite successful. On the other hand, they really are trying to push this much more domestic market driven economy. They face this until-today seemingly insurmountable obstacle, which is the fact that they have these policies in place that ensure that about one half of the population aren’t on a path to become middle-class consumers.
You have a situation that economists call precautionary savings, which is a big problem in China. Migrant workers in particular feel that their futures—and they’re right, I think—are precarious. They have to pay for their children to go to private schools that are expensive in the cities or [send] their children back to the countryside. On the health-care side, they live in fear of having a medical emergency that they won’t necessarily get covered because they need to be back in their villages, where they probably couldn’t get good care, in order to get proper coverage. So what you see is a very high savings rate across China, and therefore the flip side of low domestic consumption.
China’s been struggling to lift domestic consumption as a proportion of its overall economy. For years now, it’s stuck just below 40 percent. That’s far lower than the global average, so they know that they need to change that. Then you get to the issue of why aren’t they reforming these policies. And there’s a bunch of different reasons. FONG: I had an interesting question from [the audience] pertaining to the Mo family. They had to send the little girl to a private school because she doesn’t have the residency papers to get into the local schools and that’s way more expensive. What would this cost be relative to income? ROBERTS: Their income is very variable, because they have this small business and they have good months and they have bad months. I would have to say it’s been tough for them to ensure that they pay their rent, which is quite a modest apartment, which is where they have their office as well. But it’s expensive in [the city], far more expensive than when he went there as a young factory worker. So they have the rent, it’s variable depending on what sort of business they’ve done that particular month, but, the tuition could be a multiple of monthly rents. FONG: It’s been a couple of years since I was in China reporting, but part of the problem isn’t so much the cost, but then you’re kind of going into the under-the-table, not fully state-sanctioned school system. The problem that comes later on is they don’t have the right kind of school certification to progress at the higher levels and maybe even get into college, relative to if they were going to a state-sanctioned public school in the right areas. So that’s a problem; you’re paying through the nose for inferior education. ROBERTS: The way the system works in China, those children that do stay with their parents in the cities pretty much have to go back to the countryside when they’re getting ready for a high school. That’s the requirement. that they take those tests. China’s a very test-based system, as you know, and in order to get into a high school and then to get into a good college, you have to take the test where you’re officially registered. So those children often right before high school will go back and try to get into a real rural high school. And interestingly, in some cases, they find that they’re actually not as well prepared as the children that have stayed behind, because they were in these private schools that aren’t very good. What it means in effect is there’s an extremely high dropout rate, much higher than the Chinese
government likes to admit. FONG: For a long time, many people [believed] that once China opened up economically, China would become like the West; they would demand democratic reforms. They would want more freedoms. Now we’re clearly seeing that that isn’t the case. China is going to be whatever China is going to be. [These chronic problems we’re discussing] could result in social uprisings, but do you think that’s also a myth? ROBERTS: I think the myth is that the well-educated urban middle-class is going to become a source of social change. This sort of the NIMBY idea—not in my backyard— that you do well; if you get educated, you buy an apartment and a factory goes up across the way. And you [respond], “There was no public consultation before this factory was built. We need a real political system that doesn’t surprise us with things like that.” I think that is a myth. That was something that certainly in my earlier years in China seemed to be sort of a given, this idea that with economic growth, particularly urban China and welleducated China would become a source of political change. This is what we heard from U.S. politicians, Bill Clinton and others, when the decision was made to bring China into the World Trade Organization. This was quite explicit that with time, political change would follow economic change, and there has been no evidence of that happening at all.
I think one of the reasons we all got it wrong, and I put myself in that group as well, was that you miss this reality in China, defining a contract between the government and the party and the people has been not all of it said explicitly, but very important, which is “We, the party, will guarantee that your living standards will continue to rise and you, the people, will not demand real civil rights. You won’t demand a free press. And you will accept the fact that you have one party ruling all—the Chinese Communist Party.” That bargain has been very effective in buying off political aspirations or ideals of the better-off people in China.
That bargain was already frayed significantly for migrant workers and for rural people in China, for the reasons I just said. Migrant workers and rural people have done far more poorly than the rest of the population. I do think that there is a growing awareness that this is the case and that it’s happening because of a structural system, the hukou system and the land system. That’s something when I first started reporting, most rural people and migrants were unaware of, but I think today they are quite aware of it.
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