Over the Chinese New Year holiday, a crowd of passengers at the Tianjin Railway Station were held waiting by police, left holding their luggage on the platform in the piercing cold wind while a small group of Communist Party cadres strutted onto a first class carriage. Enraged by the unfairness of it all, a young law student from Beijing University snapped a photo of the scene with her cell phone. Several uniformed and plain-clothes police rushed her, yelling at her to surrender her camera and come with them. When they grabbed her, she screamed ‘like a fishwife’ (in her own words), creating a scene until they let her go. The moment she did board the train, she posted her story on her school’s micro-blog, where it spread like wildfire across the Chinese Internet.
Ever since President Hu Jintao took office in 2003, he has made fairness a central theme of his agenda. Hu, along with his power base in the Communist Youth League, view China’s widening gap between rich and poor as a significant threat to social and political stability. The country’s latest Five Year Plan, which was unveiled last November, aims to redistribute income more evenly in order to foster ‘inclusive development,’ reflecting a widespread belief among Party leaders that Deng Xiaoping’s maxim—‘let some people get rich first’—has gone too far.
The incident at the station, however, reveals the disconnect between the government’s fixation with income inequality and what’s really been rubbing the masses the wrong way. What people resent isn’t wealth, it’s privilege. By and large, your average Chinese worker admires people who have gotten rich through cleverness or hard work, because that’s what they aspire to do themselves. What bothers them, though, is the growing sense that there’s a special class of people who get to live by a different set of rules than everyone else.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
One night last October, in the provincial city of Baoding, just west of Beijing, a 22 year-old drunk driver mowed down two female college students—then casually cruised away, to pick up his girlfriend a few blocks away. One of the girls, left lying in a pool of her own blood, died. When a crowd of bystanders followed and accosted the perpetrator, he contemptuously brushed them aside. ‘Sue me if you dare,’ he reportedly taunted, ‘My father is Li Gang!’—the district’s deputy police chief.
The incident was just the latest in a series of fatal hit-and-run incidents where young hot-rodders appeared to get off scot free due to family political connections. Despite the government’s best efforts to suppress the story, it quickly became a cause célèbre via the Chinese Internet, with the slogan ‘My father is Li Gang!’ emerging as an all-purpose catchphrase for official arrogance and corruption. Under immense public pressure, Li Gang’s son was eventually tried and sentenced to six years in prison.
The assumption, in Beijing, is that the government needs to intervene more actively to combat inequality. But the real problem is that government officials have far too dominant a role in picking winners and losers in almost every walk of life. Lack of accountability, combined with a natural tendency to favour family and friends, gives rise to a vicious cycle where influence begets money and money buys influence. According to a recent survey by YouGov and London’s Legatum Institute, 93 percent of Chinese entrepreneurs cite guanxi—connections with government officials—as a critical factor in business success.
Getting ahead means getting access to special treatment. China’s tax system is a case in point. The country’s tax authorities estimate that mid- to low-income workers account for two-thirds of personal income taxes paid, in sharp contrast to the United States, where the top 5 percent of income earners pay nearly 60 percent. The difference isn’t the tax rate—with its top tax bracket at 45 percent, China actually has a higher marginal rate than the United States, scoring second only to France in Forbes’ ‘tax misery index’ based on nominal rates. The disparity is due to rampant tax evasion. China’s millionaires may owe more in theory, but they pay very little in practice.
According to a recent study commissioned by Credit Suisse, and conducted by Prof. Wang Xiaolu of the China Reform Foundation, hidden, undeclared income in China may total as much as RMB 9.3 trillion ($ 1.4 trillion), equivalent to 30 percent of GDP. Nearly two-thirds of hidden income belongs to the top 10 percent of households; 80 percent belongs to the top 20 percent. As a result, the per capita income gap between the top 10 percent and bottom 10 percent of urban households is much wider (26 times) than official statistics suggest (9 times).
The nature of this income is what rankles. According to the Credit Suisse report, ‘The facts show that grey income has its origins in the misuse of power and is closely connected with corruption.’ In other words, it’s the power wielded by government officials, not the absence of it, that’s fuelling inequality and fanning popular discontent.
Resentment has been dampened, somewhat, by China’s spectacular rates of economic growth, which helps explain the Chinese government’s obsession with hitting its growth targets. For the past two years in particular, China has been able to say to its citizens, ‘You think you’re unhappy? Just count your blessings that you’re here, and not someplace else.’ But what would happen if growth faltered?
The other day, I was parking my car in an underground garage in Beijing, when I came across an all-too-common scene. A black luxury sedan with official red People’s Armed Police plates had just parked in a spot reserved for someone else. When the garage attendant came over and rather meekly suggested that he move the car, the driver turned on him viciously. ‘Who are you? You’re nothing!’ he bellowed, with such force the concrete walls seemed to reverberate. ‘I will squash you like a bug!’ His father may not have been Li Gang, but the point was still clear. In today’s China, like in Orwell’s Animal Farm, some animals are more equal than others.
The Author is a professor of economics at a university in China. His real name has been witheld at his request.