How long until the country faces up to its financial instability?by George Magnus / May 16, 2016 / Leave a comment
I have just returned from my annual visit to China, the mission being to get a feel for the economy, which is in an increasingly fractious period right now. Many economists do this, yet it’s unclear whether we come away with a better idea as to what will happen, or whether we simply confirm what we already know, that China is a nation of extraordinary contrasts. You can see this in its geography, its urban areas and the urban-rural divide. You can see it in the air, the yellow smog that hangs over its cities one week, and deep blue skies the next. You can see it when you snake your way though the hutongs—tranquil ancient alleyways and courtyards—in Beijing’s residential neighbourhoods before they empty out into six or eight-lane expressway systems. This may seem like a strange segue into China’s political economy, but bear with me.
It’s hard to know where to start, but the biggest contrast facing China is between the past and the present-and-future economy. After an unprecedentedly fast period of development from the 1990s until 2011, it is now in the midst of a protracted economic slowdown, and possibly nurturing a future financial crisis. During the go-go years, it brought 800m people out of poverty. Today, it is one of the world’s worst countries for income inequality as measured by its Gini co-efficient—a scale ranging from 1, where all income resides with an individual or family, to 0.1, where it is equally divided among the population. The World Bank estimates that in 2012, China’s score was 0.49 (a score over 0.4 means that income inequality is severe). Income per head in Shanghai is about the same as in Portugal, but in some provinces, smaller cities and in parts of the countryside, it can be about 10-20 per cent of this level.