Good news from China

The Financial Times has several interesting pieces on recent trends in China:

Chetan Ahya, an economist at Morgan Stanley, said that alongside the decline in the Gini coefficient, China has also improved another measure of inequality, the rural to urban income ratio, from a low of 29.4 per cent in 2004 to 37 per cent by 2016.

The rapid rise in rural incomes means Morgan Stanley now predicts that China will reach the World Bank’s high-income threshold of $13,700 a head by 2025, two years earlier than its previous forecast.

Alongside rising wages, Mr Ahya said equality was also being aided by gradual, if slow, reform of China’s hukou system, which has restricted access to public healthcare, education and housing for the many millions of migrant workers who have flocked to China’s major cities.

The existence of this system meant that, “on an underlying basis, income inequality was actually higher” than the Gini measure suggested, Mr Ahya argued. However, with cities with populations below 500,000 now fully open to migrants, those with populations up to 5m having to accept urban residency applications after five years of social security payments, and Beijing having set a target of giving urban residency status to 100m migrants by 2020, this impediment is starting to be removed.

There is also progress on the environment, something I noticed the last time I went to Beijing:

A lower Gini coefficient also helps de-risk investment in China, Mr Bakkum argued. “The current leadership understand that social inequality and environmental problems can lead to social unrest.”

As an example, he cites the notoriously bad air pollution problems in Beijing, which now finally seem to be being addressed. “They have focused a lot on the environment in Beijing in particular and you can see the difference. The risk of big social unrest because of the environment has come down.”

Another FT article suggests that the Chinese are beginning to heed my “more money, less credit” suggestion:

China’s central bank injected $47bn into its financial system, its largest intervention in nearly a year, in an effort to calm investor fears that Beijing’s crackdown on debt-fuelled growth would put a brake on the country’s rapid expansion.

Please don’t take any of this as an endorsement of the recent political trends in China, which has followed the sort of anti-intellectual nationalism that we see in Russia, Turkey, Poland, Hungary, Philippines, India, and yes, another former leader of the “free world”.

Speaking of China, this is a smart move by the GOP–at least in political terms:

The U.S. Justice Department has threatened to sue Harvard University to force it to turn over documents as it investigates whether the Ivy League school’s admission policies violate civil rights laws.

Citing a 2015 lawsuit that charges the school’s affirmative action policies discriminate against Asian-American applicants, the federal government in a letter set a Dec. 1 deadline for Harvard to hand over documents on its admission policies.

I don’t have an opinion either way on whether this is good public policy, but the Dems are foolishly throwing away votes in the Chinese community by ignoring this issue.  It may not have shown up in the polling yet, but there is a strong move toward the GOP among educated Chinese-Americans, and it’s driven almost exclusively by perceived anti-Asian racism at elite universities.  This should be a strong Democratic issue, as the GOP generally doesn’t believe in these sorts of anti-discrimination lawsuits.  The fact that it’s the GOP doing this and not the Dems is  .  .  .


PS.  The article points out that Brazil has made more progress against “inequality” than China, as seen by the more rapid decline in its Gini coefficient.  So in which country are the poor doing better?  (Hint, compare recent GDP growth rates.)



23 Responses to “Good news from China”

  1. Gravatar of B Cole B Cole
    28. November 2017 at 16:12

    Interesting post.

    We often hear about debt problems in China and Japan.

    But in both nations the central banks buy debt and in large doses (the PBOC buys bad loans periodically).

    Both nations are below inflation targets.

  2. Gravatar of Major.Freedom Major.Freedom
    28. November 2017 at 16:40

    This blog:

    Always praising China, always shi%%ing on America.

    Next up?

  3. Gravatar of Jonathan Jonathan
    28. November 2017 at 18:45

    On the state of rural China, check out the work of another Scott (Rozelle). Quite eye opening.

    Also, the cities most desirable to migrants have become dramatically less welcoming. In particular, Beijing (the city) is going full-speed ahead with aggressive forced expulsions.

  4. Gravatar of Benjamin Cole Benjamin Cole
    28. November 2017 at 19:41

    Krugman discusses some interesting aspects of taxes and globalization in his latest post.

    “It [GOP tax bill] also ignores leprechaun economics — the potentially large difference between GDP and national income when foreigners own a lot of your capital stock. Meanwhile, America is neither small nor perfectly open, so that the rate of return to foreigners depends on how much capital we suck in — and since around a third of corporate profits already go to foreigners, they’re likely to collect a significant fraction of the gains from a tax cut.”

    Is it multi-nationals pushing the GOP tax bill? (I will refrain from the word “globalists”).

    A third of US capital stock is owned by offshore entities?

    BTW, I see a lot of US-based joint ventures that buy US real estate, but represent foreign money. Typically, the general partner is US based and 10%-20% of equity from US, the other equity from offshore. But since this is a US based JV or partnership buying the property, I wonder if it is counted as a foreign purchase of land.

    This may pertain to other businesses, but I work in real estate.

  5. Gravatar of Alec Fahrin Alec Fahrin
    28. November 2017 at 21:03


    I read those articles over the last couple weeks. Happy you posted them.

    Although I must admit I’m not an expert, my impression from my studies is that China requires centralization and a strong leader to make reforms and improvements like we are seeing now. Deng, for all his pragmatism and reforms, purged most of his Maoist comrades in 1978-1982 and ordered the Tiananmen crackdown. Both of the reform periods followed this concentration of power. In Chinese history, these strong leaders also have a habit of using their power to destroy.

    In the meantime, will you make a post about Powell’s comments today?

  6. Gravatar of Alec Fahrin Alec Fahrin
    28. November 2017 at 21:10

    Major Freedom,

    I don’t believe this post referenced any American except the President in regards to his authoritarian tendencies. He looks set to pass a tax cut and stocks are hitting all time highs (partly credited to him).
    So there’s something American for you to cheer about.
    But that has little meaning towards life continuing to improve for the 1.4 billion people in China. They are people just like us and their success is our success.

  7. Gravatar of DF DF
    29. November 2017 at 05:46

    Are non-Beijing-hukou migrants in Beijing considered urban or rural income in this accounting?

  8. Gravatar of AlecFahrin AlecFahrin
    29. November 2017 at 06:43


    They are mostly considered rural income. Not all migrants to urban areas come from rural areas though. That explains part of the income inequality decrease. More fundamentally, the poor inland regions are catching up to the far richer coastal regions. That’s basic economic convergence theory at play.

    China still has about 620 million rural people, most of whom want to move to the cities or their suburbs. This massive migration pisses off the privileged city dwellers and tends to degrade the quality of life in the so-called tier one cities. For example, after a major fire in migrant housing in Beijing, the city government has initiated a campaign to evict about 50,000 of those semi-legal migrants. Many intellectuals are criticizing the evictions and protesting outside the city hall, to no avail.
    That’s China.

  9. Gravatar of DF DF
    29. November 2017 at 07:40


    If urban migrants without urban status are considered rural income, and we are talking about a decade long trend during which China’s cities have substantially raised productivity, then it’s hard to trust Chetan Ahya’s or Scott’s claim that the gap is being closed. Anecdotally, a close Chinese friend of mine who goes back to his hometown in rural Anhui yearly conveys exactly the opposite narrative, that the countryside more and more is being sapped of able-bodied labor. His not even high school educated uncle has taken up tutoring in his retirement because all the competent teachers have all left.

  10. Gravatar of Benny Lava Benny Lava
    29. November 2017 at 10:41

    I knew Scott would side with the lawsuits against Harvard due to family ties. A better question is should affirmative action be dissolved? And why is Scott surprised that the Dems are not on board with dissolving affirmative action?

  11. Gravatar of Alec Fahrin Alec Fahrin
    29. November 2017 at 11:23


    What matters is total inequality. The fact many rural migrants now work in urban areas has no effect on the total inequality rate. Now many of these rural people who work in the urban areas have an income significantly closer to that of the urban people. The best way to fix inequality is not to subsidize the poor in poor places, but to bring them to areas where they can be much more productive.

    The second measure the authors reference, “the rural to urban income ratio, from a low of 29.4 per cent in 2004 to 37 per cent by 2016” appears to be what you are talking about. I was talking about GINI (total inequality rate). By this second measure they are looking at average income in rural areas relative to urban areas. The migrant phenomenon is nonexistent in this data set, but exists in the GINI data. That’s why the authors also point out this rural/urban income ratio.

    Therefore your anecdote is just that, an anecdote, and the issue we discussed above is irrelevant to this rural/urban income ratio. Inequality is significantly declining in China by both measures.

  12. Gravatar of Bob Murphy Bob Murphy
    29. November 2017 at 11:46

    Scott, you’re surprised the Obama Administration didn’t sue Harvard over its policies that favored black and Hispanic students in admission?

  13. Gravatar of Scott Sumner Scott Sumner
    29. November 2017 at 13:09

    Alec, Actually, Deng decentralized the country, which is one reason it grew so fast.

    Tiananmen set back reform efforts.

    I will do something on the Powell testimony.

    DF, I believe they are urban.

    Benny, You said:

    “I knew Scott would side with the lawsuits against Harvard due to family ties.”

    Not sure what is more sad, that you would think that my views on an issue are due to “family ties”, or that you don’t even bother to read the post, where I state I have no view on the issue.

    You said:

    “And why is Scott surprised that the Dems are not on board with dissolving affirmative action?”

    I never said I was surprised, and I’m not.

    Next time, try to read the post before commenting.


    Bob, You said:

    “Scott, you’re surprised the Obama Administration didn’t sue Harvard over its policies that favored black and Hispanic students in admission?”

    Not at all surprised.

  14. Gravatar of Brian Donohue Brian Donohue
    29. November 2017 at 13:25

    C’mon Scott, Democrats are 100% politically incapable of advocating on behalf of Asian American students. There are a finite number of spots available; preferential admissions for one group mean a higher bar for all non-preferred groups by definition.

  15. Gravatar of E. Harding E. Harding
    29. November 2017 at 14:00

    “This should be a strong Democratic issue, as the GOP generally doesn’t believe in these sorts of anti-discrimination lawsuits.”
    -Wrong; even Rand Paul was forced to support them in principle when he accidentally slipped up back in 2010.

    The R party is (mostly) anti-discrimination; the Dem party is just anti-White. The Dems fear the Chinese lawsuits because it might force unis to address anti-White discrimination.

  16. Gravatar of LC LC
    29. November 2017 at 17:30

    After CCP’s 19th party congress, I am more concerned that Xi seems to be heading toward a 3rd term. The fact that a consensus on 2 term limit can be broken doesn’t bode well for China’s future path. There are many leaders who have stayed on too long and damaged their countries.

  17. Gravatar of Scott Sumner Scott Sumner
    29. November 2017 at 18:26

    Brian, They are already advocating for about 70% of the US population. You really think they are incapable of bumping that up to about 73%?

    LC. I agree.

  18. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    30. November 2017 at 11:24

    Interesting new book: ‘China’s Great Migration; How the poor built a prosperous nation,’ by Bradley Gardner.

    China’s economic surge over the past thirty years is a story of mass migration—the largest migration in human history—as more than 260 million people left the countryside in search of urban jobs. More than 20 percent of China’s GDP growth has come directly from the transfer of workers from agriculture to industry. The most conservative estimates suggest that migration within China added $1.1 trillion to the global economy over twenty years. The indirect impact of this mass migration may be even more substantial.

    China’s economic progress reinforces the findings of recent research on the importance of migration for economic development. This growing body of research finds that migration barriers are by far the largest remaining obstacles to economic activity in the global economy, with their impact felt mostly by the poor. China’s experience during the Great Migration substantiates these findings and illustrates some of the difficulties faced when developing a pro-migrant economic policy.

    China’s Great Migration wasn’t a product of state-led reform. Many of the nation’s most important economic reforms were, in fact, forced on policymakers by changes to the structure of China’s economy brought about because people were willing to disobey laws against migration and private employment. China’s experience with tax reform, social services reform, and urban infrastructure development suggest a number of lessons that could help countries to capture the benefits of migration with less of the costs.

    Understanding the role of migration in China’s economy is essential to make sense of China’s export machine. As private enterprise began to flourish, the Chinese government used its control of the financial sector to redirect capital toward failing state-owned enterprises. Faced with an abundance of labor and lack of capital, the private firms came to depend on cluster effects—mutual benefits that arise when firms in the same industry locate in close proximity to each other. China’s uniquely dense labor pool and limited capital help explain why China rapidly dominated industries with a low-cost to entry and a demand for flexibility—like textiles, plastics, and electronics assembly—but could not compete in sectors that demanded investment in R&D or branding.

  19. Gravatar of Wonks Anonymous Wonks Anonymous
    30. November 2017 at 16:05

    “It may not have shown up in the polling yet, but there is a strong move toward the GOP among educated Chinese-Americans”
    If it doesn’t show up in the data, why should we believe it actually exists?

  20. Gravatar of Lorenzo from Oz Lorenzo from Oz
    1. December 2017 at 13:42

    A more prosperous (and so more powerful) China may also wish to recreate the traditional tributary system in its (expanded) neighbourhood.

  21. Gravatar of Lorenzo from Oz Lorenzo from Oz
    1. December 2017 at 13:45

    Patrick: rural to urban migration is a pretty standard pattern in generating mass prosperity. Doing so within a country also evades almost all the potential costs of migration except infrastructure costs.

  22. Gravatar of ssumner ssumner
    2. December 2017 at 09:02

    Wonks, Consider that a prediction on my part, the chatter on WeChat is strongly shifting to the GOP. And anti-Asian bias is the key issue.

  23. Gravatar of John Thacker John Thacker
    5. December 2017 at 07:43

    There’s certainly signs that the hukou system is far from dead, as the NYT reported recently.

    It’s certainly a good point by Mr. Ahya that purely monetary based Gini coefficients don’t capture the true inequality of a very regulated system where status, rather than money, is what gets you things.

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