A long-awaited China Human Development Report for 2005, Development with Equity, was finally published in mid-December after delays caused by Chinese government concerns that the report’s central theme—growing disparity of income and opportunity in China—was treated too bluntly.

Tempered with plaudits for China’s progress towards the Millennium Development Goals, the report highlights social and economic disparities, including gender inequity and growing income inequality within rural areas, and makes a number of policy recommendations. These include calls for greater public investment in agriculture, rural infrastructure and ‘human capital formation’; universal coverage of basic social security; revitalisation of the ailing public health system; fiscal reforms to allow more redistribution from rich to poor provinces; abolition of barriers in labour markets; promotion of labour-intensive industries, and policy support, including improved access to credit, for private businesses.

Whilst the policy wish-list includes relatively little that is original, there is significant innovation in the report’s authorship. Previous China Human Development Reports, which are commissioned by the United Nations Development Programme (UNDP), were penned by international analysts drawing on background research papers by Chinese scholars. This time the situation is reversed, with Chinese analysts to the fore and foreigners relegated to the footnotes.

The effort was coordinated by the China Development Research Foundation, a semi-independent body established in 1997 under the State Council’s leading policy think-tank, the Development Research Centre. The report, whose original version was written for the first time in Chinese, was compiled by an array of distinguished researchers who have substantial experience of collaborating with international organisations.

The China Development Research Foundation issued invitations to a launch ceremony in October, 2005. However, the event was postponed because, according to a source in UNDP, Chinese government partners in the National Development Reform Commission found the document ‘too strong’ and requested that it be toned down. A final, 177-page version was launched on December 16.

It is impossible to tell from the published report what changes were introduced at the eleventh hour, or to know what in the original document gave senior officials cause for concern. While noting problems of corruption and calling for more citizen participation in various spheres of public life, the final report at no point ventures to discuss the sustainability of China’s political institutions and one-party system. Moreover, while offering a general catalogue of development ‘challenges’ that China faces, the report explicitly endorses many reforms that government has introduced; and few, if any, of its main recommendations conflict with the general direction of central government policy. The recommendations largely amount, rather, to urging the leadership to speed up the pace of social and economic transition while paying more attention to this and putting more money into that—although missing from the argument is any detailed analysis to show whether or how increased public spending can be reconciled with the fiscal stability that the authors also commend.

An introductory section appeals to the authority of Nobel laureate, Amartya Sen, to support the claim that “Enhancing freedom is ultimately the goal of human development, the means to achieve it and its guarantee for sustainability;” but the authors then work hard to demonstrate common ground between this goal and the ideas of xiaokang (modest prosperity), ‘balanced development’ and ‘harmonious society’ advanced by China’s top leaders over the last few years.

Sections on growing urban-rural and inter-regional social and economic disparities will contain few surprises for readers of China Development Brief, but also tell a less familiar story of steeply rising inequality in distribution of assets within rural areas. (The poorest 10% of rural people now own just 2% of all rural wealth, while the richest 10% own 31%.) In addition, the authors discuss several public opinion surveys on wealth distribution. According to these, a substantial majority of Chinese people—ranging from over 95% of Party and government officials to 60% of private entrepreneurs and 55% of ‘rural administrators’—consider that income inequality is necessary. (Business people, it seems, are more egalitarian in their instincts than Party cadres.) However, other opinion surveys showed that, across provinces and income groups, well over 80% of people feel that current income distribution is ‘very inequitable’ or ‘not so equitable.’ (In the lowest income bracket, 45% opted for ‘very inequitable,’ compared to around 27% in the top income bracket.) In sum, the prevailing opinion seems to be that some inequality is necessary—but not as much as China is experiencing. Rhetorically, at least, the national leadership appears to have taken this on board some time ago.

The report catalogues inequality not just in incomes but in social protections. It tells us that 70% of retired people in urban areas, but only 0.29% in of older women in rural areas, have some form of retirement pension coverage; that all permanent urban workers, but only 2% of rural migrant labourers, are covered by unemployment insurance; that by 2003 medical insurance coverage had fallen to 34.2% of the urban population and a mere 2% of the rural population. Farmland is traditionally regarded as the basic social security in rural areas, but the report highlights the fact that 40-50 million farmers have lost some or all of their land to urban development and infrastructure projects. According to several surveys cited, many of those affected experience net income loss despite receiving compensation payments, and unemployment is high among those with no land left.

For it is still by no means easy to get a foot on the ladder of urban opportunity. The report estimates that there are now some 150 million migrant labourers living away from their home areas, working long hours (60% more than ten hours a day) for low pay (about one third earn less than CNY 500 per month). They often endure wage stoppages and arrears (a quarter of migrants in Beijing are owed back pay). They generally live in poor housing (less than 17% have their own toilet). They endure very poor occupational health and safety (for example, China produces 35% of the world’s coal, but accounts for 80% of deaths from coal mine accidents and occupational diseases). And in most areas their children still face discriminatory fees for entering state education and so are generally consigned instead to second-class, private schools.

To address these glaring inequalities the report argues that the state should “Grant compulsory education funds sufficient to ensure compulsory education for rural migrant children” while continuing to dismantle the hukou household registration system that underpins China’s two-tier society. The authors acknowledge, however, that the main obstacle is the gulf between social protections and services available to rural and urban people. Therefore, they argue, the state should develop a universal system of social welfare, including medical insurance, retirement pensions, accident and unemployment insurance, spreading government resources thinly but widely rather than concentrating them on urban populations. It should, similarly, extend state minimum guaranteed income (dibao) support to rural areas; “take tough measures, including legislation, to ensure adequate funds for compulsory education;” provide public health services “including immunisation, infectious disease control, maternal and child health care, occupational health, environmental sanitation and health education . . . free of charge to all members of society,” and also provide curative health services free to “vulnerable population groups.”

This amounts to nothing less than establishing a comprehensive social welfare system for around one billion people; but the report offers relatively little discussion of how to conjure up the necessary resources. A vibrant economy, it says, is absolutely essential: in order to create jobs and grow tax revenues government should stimulate private businesses (and the informal sector) through means such as encouraging the establishment of small, commercial banks. For this is a solidly pro-market—and perhaps idealised—vision of China’s future, in which the vigorous creation of private wealth provides sufficient surplus to fund public goods.

Also urged, as a key component of this vision, is another overhaul of the fiscal system to allow more scope for redistribution from rich to poor areas. China’s taxation, the authors note, remains highly regressive. “Rural residents bear greater tax burdens than city dwellers,” with surveys showing that rural households pay about 12% of their total income in taxes. The per capita revenue of the richest provinces is seventeen times greater than that of the poorest provinces; yet tax rebates from the centre to the provinces favour those areas that generate most revenue. Meanwhile, a declining share of total government revenue is going to township and county governments, although it is they who bear the main responsibility for providing local services. By 2000, these local governments were running an aggregate, annual deficit of 37%.

Overwhelming though the case for reform may be, richer provinces are likely strenuously to resist any loss of revenue, and it is not clear that even substantial redistribution would suffice to fund the ambitious programme of public investment and social protection that the Human Development Report advocates. Indeed, all of the report’s recommendations are much easier to make than to implement, as the government has already found in its piecemeal efforts to move forward on many of the issues that are identified here.

Nevertheless, this strong, and ultimately optimistic case for ‘equity’ is a significant step forward for public policy debate in China. It is to be hoped that, now the intellectuals have set out their stall, they will be encouraged to pursue more detailed work on costing, prioritising and sequencing the reforms they suggest.

Sadly, the authors are let down by poor proof-reading of the English version of the printed document. There are errors in the keys of several charts, rendering them unintelligible, and throughout the document apostrophes have been mysteriously replaced by the character ‘ì,’ leading to the irritating and repeated appearance of phrases such as ‘Chinaìseconomy.’ Translation is also awkward in places. It is regrettable that UNDP, whose global budget in 2004 exceeded USD 4 billion (of which USD 4 million was contributed by the government of China), did not pay a little more attention to this.

The last China Human Development Report, Making Green Development a Choice, was compiled by the Stockholm Environment Institute and published in 2002. In 2004, a report was drafted on the impact of information technology and its implications for poverty reduction and human development, but this was abandoned after the first draft.

Report by Nick Young, January 9, 2006