Despite recently describing China as 'the most unequal society in Asia' the UN is bullish about its prospects for working with the government to make 'xiaokang' a reality. UN China Representative, Khalid Malik, talking here to Nick Young, points to the top leadership's willingness to learn, a strong relationship with the National Development Reform Commission, and signs of progress on the environment and civil society. All this, Mr. Malik believes, will help to make China's development more balanced.

The draft UN Common Country Assessment (see endnote) quotes figures that suggest China is 'the most unequal society in Asia' . . .

One of the most unequal societies in Asia.

Do you think China is now turning the corner, or is there still a trend towards greater inequality?

I think the trend will continue unless action is taken. And I think the government is now quite aware of that, and the Party as well, for the simple reason that if growth and development is not evenly distributed then there are some large social and political questions generated as a consequence. This is one of the reasons why over the last two years China has reaffirmed its commitment to what is called 'xiaokang' - this vision of an all-round, well-adjusted society - and placed new emphasis on what are called the 'five balances:' balancing for instance, economic growth and social development. Historically the focus has been very much on economic growth, and maybe the social part has not received as much attention. Another key balance is the balancing of economic growth and environment: it's very clear that for a country as big as China, with an economy as big as China, growing so rapidly, there are going to profound disruptions and adjustments to be made. The projection for xiaokang is that by 2020 they aim to quadruple per capita incomes in China. At that point China will be the largest economy in the world. But they only plan to double energy use. How is that even feasible, how do you do that? So what we are really pleased about is that there is a very close synergy between China's vision as to what they want to do - which is to balance development, ensure that inequalities are managed better, to ensure that the benefits of development are more broadly shared - and the UN's own perspective, which is very much driven by the millennium development goals. The debate is no longer about what to do, the debate is about how to do it. And that is where perhaps the UN's value-added can be the greatest.

That sounds a bit like a wish list of what's socially desirable. In terms of addressing inequality, what specific policy measures do you think the government needs to make?

Well, policy measures have to be taken by the Chinese, not by us. But what is clear is that the balance between urban and rural areas has to be recalibrated. We have a very interesting programme in which we work with the government on trying to introduce pro-poor fiscal policies. What that means is in the first instance to make the fiscal, taxation policies more pro-poor than they are now. Currently the situation is that a rural householder earns less income but pays more taxes than an urban householder. There are of course policies under way to reduce the taxation on agriculture over the next five years. But it's not just the taxation part, it's also a question of trying to find ways of boosting farmer incomes; trying to find ways of making life in the rural areas attractive enough to keep a fair number of people in the rural areas. Right now there are 800 million people in the rural areas. The projection again is that something like 300 to 400 million people are going to move to urban areas. Now that's a lot of people moving but still also a lot people staying in rural areas; so the return to farming [needs to go up] somewhat - which is beginning to happen in some provinces, the price of commodities has gone up, food particularly.

Another challenge is that in the nature of the decentralisation that has occurred, a lot of the revenue gathered by provinces is kept by provinces. So if you're Shanghai, you raise a certain amount of revenue, that's great, you get to keep most of it. But if you're Gansu, you raise a certain amount of revenue, which is not as much as you need, you need to rely on central transfers. But the centre doesn't have that much money . . . So there's a whole budgeting process [to deal with].

But net government revenues are in fact rising steeply aren't they, at roughly twice the rate of GDP growth?

But the overall figure is still quite low, about 19-20 per cent of GDP, which even compared to some Asian countries, is still quite low. So it is rising, this is true, but there's a structural issue of the balance between the centre and the periphery and there is also a growing recognition that certain social sectors have been under-funded: health, education in particular. And increasingly there's a recognition that the state has to play a role in that. Over the last ten years the state has actually withdrawn from playing a leading role in many of these sectors. When you go for health care you have to basically pay for it, almost anywhere. And if you're poor that's very difficult. Even if you're above [the] poverty [line] you can't afford to be ill because that pushes you down. The same is true of education. They are trying very hard to have grades one to nine subsidised to some degree. But even some subsidy may not be sufficient if you are poor. So there are issues like that, which I think have to be dealt with in the next few years.

So basically you think more social expenditure would be desirable, and inter-provincial transfers to subsidise provinces. But that's been the case for ten years that I've been in China . . .

[Laughs] Meaning what? 'What is new?' Just because something has not been done yet it does not mean that it's not . . .

But why would government listen to that message now? Because of the social pressures?

Well I think government has accepted it. This is why the re-emphasis on the five balances is so important. The 16th Party Plenum has reconfirmed the need to balance and I think the new leadership is absolutely clear in its own mind that this is essential for the stability and the long-term security of China itself. It's as profound as that I think. So the question is how, actually do you do it? One doesn't have to convince the government anymore on these issues: they're the first ones to tell you 'We want to do it and we have to do it.' The question is how do you do it: because China's large, it's a complex environment, and its not simply a question of saying 'Look, spend more on education!' They will buy that, but how do you actually do it? It's not just spending more on education or health, but getting more out of what you're spending, getting more results from it. That means maybe you need to do less construction and more on people.

There are lots of things that need debating and I'll give you a very informative illustration. A couple of months ago we signed a very important project with the Central Organisation Department of the Communist Party. This is an Advance Leadership Training Programme, where we are planning to introduce ministers, vice-ministers, governors, vice-governors of China, 300 of them, to actual lessons learned in other countries of how to balance development; how do you actually balance economic growth with development.

Which countries do you have in mind as being places where they would learn this?

If I can just finish that thought. To me, this was a very impressive acknowledgement that top management in this country is actually willing to learn. And frankly, if I were to compare this with my own country [Pakistan], where if you're a Minister and [someone] says 'Maybe you should get some training' they will laugh at you and say 'A Minister is there to teach others how to do things!' So I think this reflects a very pragmatic attitude from the Chinese.

[As to selecting countries to visit] there's not perfect fit anywhere but there are systematic introductions one can organise in terms of both developed and developing countries as to how they have taken up an issue and what have they learned from it. Let me give you a very specific example. If you are a governor, vice governor or a party leader in China, your future career success is determined by your performance -- on GDP growth, essentially. Now if you broaden that measure of performance, to include social indicators also, what would that mean? Some countries have tried it. New Zealand has tried it, Australia has tried it, the UK has tried it, and there have been good experiences and less good experiences. In the end, the Chinese institutions and people have to decide from themselves; but our role is to make certain international experiences available in a systematic way, to allow them to make good choices.

Let me read you something from the 2003 UNDP document on China's progress towards the UN Millenium Development Goals (see endnote). It's talking, towards the end, about what international experts and other countries have to offer. It says: 'Particularly useful would be experience on how data are gathered, how policy is formulated, how options are explored, and how the private sector and civil society are engaged in the policy process.' So there's a lot of thinking about policy processes. Can I ask how you think policy is decided in China? Presumably it's a bit more complicated nowadays than twelve men sitting in a room deciding what will be; but what is the policy formulation process at the moment?

It's a good question. China is a large country, a complex environment. It has structures that are uniquely adapted to the Chinese situation. If you look at matters of strategy, of strategic direction, clearly it's the Party that sets the overall framework. Then there's the interface between the Party and the government, which is the State Council; and then there are institutions that service the State Council. What I am impressed by is that on any given issue, any given policy matter, there's actually a lot of debate and discussion that takes place. There are studies organised by the Academy of Social Sciences, or the Development Research Centre or the National Development Reform Commission. There's also a lot of pilot and demonstration work going on. They very much believe - and I think it's probably the right thing to do in a country, certainly as large as China - they really believe in testing out ideas, seeing how they do and then building a concensus around it and actually introducing it.

I think that talking about policy in China as [if it were] a single policy document issue is not doing justice to the complexity of China or the nature of China's government or administration. There's a very complex interplay between the Party and the government. There are a lot of institutions around both, which interface in different ways. Now they're working on the eleventh Five Year Plan, which is formally led by the National Development Reform Commission. I think by the middle of this year it's going to be settled, and it then goes through a process of approval by the Party Congress by, I believe, next February. But the Five Year Plan, unlike the earlier Five Year Plans, has evolved quite a lot. It's less quantity-driven, more policy-driven, more measures-driven, but very determined to continue the current move forward.

On this issue of pilots, learning from experience and then rolling out a programme. I often feel that China announces a pilot and then goes to scale very quickly. We saw this for example in the tuigeng huanlin, the grain-to-green policy. Fees-to-taxes too. There was an experiment in Anhui; it wasn't clear what the result of the experiment was, but then it became national policy: push it out. In another sector, there's methadone maintenance for heroin users: half a dozen small pilots, and then suddenly it expanded, to 50 I think, before the pilot really had a chance to show itself. I wonder what's going on there. Is it that China still suffers from automatically reporting central initiatives as a success, a reluctance to do empirical work on the actual implementation of policies?

You should ask that question more of the government itself, but let me attempt to fashion some kind of response. Much of the work we are still doing with government is very much trying to anchor evidence-based work: that you base policies and programmes on evidence that you've secured using methodologies with some robustness. At the same time, what is fascinating for me is that China has also managed to produce a phenomenal success. So they must have done something right, right? What, to me, they have done right is this constant experimentation - a very pragmatic attitude, changing things if they don't work - with, at the same, time a long-term commitment to reform. You see that very much in the programmes that we're working on with them. They've used a lot of our programmes very much as piloting efforts in different ways. And I'm sure they're doing similar kinds of things with other donors, and they're comparing notes.

Can I take you back to the National Development Reform Commission. How much access do UN agencies enjoy to that Commission? Are you to some extent hamstrung by the fact that, having coming to China in the early 1980s, the main institutional relationship was with the foreign trade ministry?

We have a very close partnership with NDRC through the UN system as a whole and I think it's getting stronger. UNDP itself is in the process of finalising a major programme with them which is essentially to operationalise xiaokang, and which deals with this question of scientific development and indicators and developing evidence-based work, doing assessments at community levels and trying to take stock of how well provincial level work has gone. In fact we are setting up a series of things with them; between now and when the Five Year Plan is done we will be interacting closely with them in many areas.

What about public opinion in the policy process, what about civil society? I've heard cases, from other donors, where government apparently signed up to the involvement of civil society in projects but actually on the ground people in the institutions were quite hostile to that and felt threatened by it.

Well I think the reality is that we're in the first stages of civil society in China and we have to just accept that as the starting point and not be particularly surprised by that. The question is can we make a change happen, can we actually develop it further. We are working quite closely with the Ministry of Civil Affairs, trying to help them get a better, enabling infrastructure in place for civil society development. Inevitably, for the system and society in China there's going to be a certain amount of adjustment issues. But we're working with the government, they're allowing us to work with them on these issues, both in terms of individual civil society organisations but also in terms of policy framework. So actually I'm more hopeful on that than when I first came about a year and a half ago.

I'll give you another example. We're putting the finishing touches to a major environmental awareness programme, jointly with SEPA [State Environment Protection Agency]. The basic premise is that if you're unable to educate the Chinese citizen the environment will never get its act together properly, no matter how many policies and instructions you send out. You really need to engage in a very significant way. The idea for this actually came from the government. There are people in the government who are very progressive on these issues. And as you know the environment sector has actually produced some genuine NGOs. Civil society organisations are very much engaged in this matter.

I'm interested in both those examples. The Ministry of Civil Affairs, it strikes me - and we look at this quite often - is increasingly warm to the idea of NGOs, partly because this is their institutional basket, so it's going to expand their institutional status. Similarly, SEPA is full of genuine environmentalists who passionately believe in what they do. But both of those agencies are relatively limited in their political weight in China. Surely it's the State Development Reform Commission that needs to be preached to about the virtues of civil society and the environment?

But I think this is where partnerships with the UN become so important in bridging these things. The challenge in China is that things are still very vertically organised. If you work in one ministry you stay in that ministry for your entire career. You hinted at an issue earlier on about how historically we worked with MOFCOM and how are our relations with NDRC. To me it's already a non-issue at this stage. It may have been an issue at some point, it's a non-issue right now. But there's a large issue for us which is the arrangements which have existed historically, of agencies dealing with a particular ministry, [whilst] the nature of what we do is becoming much broader. Our concerns are much more horizontal in nature. Take the case of HIV/ AIDS. HIV/AIDS has been seen very much as a health-driven issue here in China. Of course it's a health issue. But it's fundamentally an education matter in society, a change matter. And unless we take it at that level we will not be able to deal with the full magnitude of the matter. So we have advocated a lot on creating an inter-ministerial committee group at the State Council level. This finally got accepted and created, and Madame Wu Yi now chairs [the committee], which occasionally we interact with. But it took a lot of effort to do it. I don't think there's ever a perfect fit between a structural arrangement and an ideal behind it, but I think there's been a lot of movement in the last couple of years. And certainly in HIV/AIDS there's been huge movement since 2003 onwards. My sense is that environment and civil society are also poised for considerable movement. We in the UN system are very pleased that we are working with parts of government who are willing to take this forward.

A final question to draw some of these points together. You concluded the 2003 report by saying that governance will become ever more important. Now, it seems to me that China has long been keen on 'modern scientific management,' so sending leaders on courses where they get modern scientific management is very attractive. But I also suspect that the senior leadership comes at this in a very technocratic way, and thinks about governance in a technocratic - some would say pragmatic - way, in terms of what works and what doesn't. Do you think, in some of the progress that you've been describing, that there is a greater sense in senior levels of government of the rights of the population? Or is it merely a crowd control technique?

I think that China has a very specific perspective on rights, and we have been engaged in the last few years in a very extensive dialogue on these issues. But let us look at what is actually happening in China, in the last year and a half. I remember reading somewhere that there have been something like fifty to one hundred thousand 'social incidents' in the country; and there have been actually in the last six months six or seven demonstrations in front of the UN - which has never happened before in the last twenty-five years. Now you could take it as a 'crowd control technique' in that maybe there's a certain social fermentation going on, and the leadership has agreed to take a step back and let it sort itself a little bit. At the same time you can take another perspective, which is that China has crammed maybe two centuries of change into two generations, and there's a lot of settling out and settling in which has to happen, whether it's in land dispute issues, urban-rural rights, etc.

I think what China has done is to settle the very basic right to food. And that's been done very successfully. Then there's the right to basic services of life. As you move up the ladder into other issues, the government and maybe even broader, the Party, are very sensitive now to what people think. They do a lot of public opinion polling . . . Trying to generally get a gauge on what is happening and why things are happening. It is clear there is also a certain amount of experimentation going on at the county level with elections that are more direct, hiring provincial authority directly from the market place as it were. So there is a certain fermentation going on.

But in the end any government, any society has to also measure the results it produces. And citizens recognise [this] and judge them according to the results it produces. So there is a little kind of race going on at this point as to how to calibrate that. Now whether there will be political rights in the sense of a western environment, we shall see. The Chinese always take this very long-term context, perhaps longer that your or my perspective.

Khalid Malik studied economics at the Universities of Oxford, Essex and Punjab. He served as UN Representative in Tashkent and then as Director of the UNDP Evaluation Office before becoming UN Representative in China in 2003. His publications include Capacity for Development: New Solutions to Old Problems Sakiko Fukuda-Parr, Carlos Lopes, Khalid Malik [eds], Earthscan 2002

The UN 'Common Country Assessment' is a situation analysis jointly prepared by the UN agencies in China. The current draft is now being finalised, and will form the basis of a 'UN Development Assistance Framework' document, to be published later this year, which sets priorities for and attempts to harmonise the UN agenices' cooperation efforts.