Years ago Deng Xiaoping famously remarked that “some people have to get rich first” if China is to develop successfully. And although Zhu’s leadership helped as many as 300 million join the ranks of the middle-class, Zhu’s successor, Wen Jiabao, must now work to buoy the many millions more who have been left behind.
In this task, Wen and his economic team face an awesome challenge. Every major economic divide in China–between urban and rural residents, coastal and inland provinces, skilled and unskilled workers–has expanded markedly in the past decade. And the tools available to bridge the gap are limited at best. China’s personal-income tax–potentially a redistributive instrument–touches few. Beijing’s new “Go West” campaign was intended to spur economic growth in China’s hinterland, but with the share of national investment financed through the state budget dipping to 5 percent, there’s little chance the government will be able to channel sufficient sums to poor, inland areas. And as China’s WTO commitments are ratcheted up to meet more stringent levels of compliance, the national economy will be exposed to even greater foreign competition. Beijing understandably worries that opening its markets further will not only add to the rolls of unemployed urban workers–which already tops 15 million–but also to the potential for serious social unrest.
To meet these challenges Wen Jiabao must work fast to push the country’s reform agenda forward. Highest on the list must be to adopt a policy of zero tolerance toward local officials who divert–often to their own pockets–funds that the government has earmarked for workers who have lost their jobs in the state sector. Anything less runs the risk that worker demonstrations, which to date have been largely isolated and nonviolent, will escalate. Similarly, the nation’s social safety nets must be broadened to provide benefits to all unemployed urban workers, not merely those laid off from state companies. Little of this will be possible if Beijing doesn’t fundamentally reform its tax system to mitigate the growing inequality in personal incomes.
China’s distinction as a lone bright spot in a gloomy world economy should not obscure its daunting challenges for the new leadership. If Wen and his colleagues wait to seize the initiative, there’ll be little cause for self-congratulation in the years to come.
