Following the US presidential election, the handover of power to the next generation of Chinese Communist Party (CCP) leaders at the 18th Party Congress was another global focal point. The new leadership is likely to face several major challenges on the economic front: a broadening income gap, massive local government debt, a fiscal burden caused by an aging population and corruption among officials.
China’s rapid economic growth has made many people rich and the number of wealthy Chinese is rising quickly as the income gap continues to widen.
In 2010, about 1.1 million Chinese households had US$1 million or more in assets. The average national annual income was 13,476 yuan (US$2,140) per person, while the average income among farmers was 5,919 yuan. According to the World Bank, China’s Gini coefficient reached 0.47 in 2010, almost twice as high as 30 years ago and greatly exceeding the internationally recognized warning value of 0.4.
In May, a joint report by the People’s Bank of China and a Chinese university showed that the income of the richest 10 percent of China’s households accounted for 57 percent of total household income, while the income of the poorest 10 percent of all households accounted for a mere 1.4 percent of total household income.
Furthermore, China last year raised the poverty line by 25 percent to an annual income of 1,500 yuan, from 1,196 yuan in 2010. Following this move, the number of China’s poor increased from 30 million people to more than 100 million. Since the poverty line is expected to be further raised in the current five-year plan, the number of poor people is expected to jump to 245 million. The widening wealth gap will create enormous social problems and is likely to become the greatest challenge to the CCP’s new leadership.
Massive local debt poses another major challenge. This issue has not only commanded Beijing’s attention, but also attracted warnings from foreign credit rating agencies. Heavily indebted local governments can be seen across the country. For example, the debt ratio of Hainan Province stands at 100 percent and the same is true for one-quarter of Chongqing’s 40 administrative districts and counties.
In addition, according to the Chinese central bank’s 2010 China Regional Financial Performance Report, released on its Web site, total bank loans had reached 47.92 trillion yuan by late 2010, of which 30 percent, or 14.4 trillion yuan, was lent to local financing platforms. One-third of the loans came from China Development Bank and the remainder from state-owned commercial banks and city commercial banks. At present, between 2 trillion and 3 trillion yuan of these loans have been confirmed to be at risk of default.
According to credit rating agency Moody’s, local debt might even be higher than Chinese government estimates, putting the Chinese banking industry at an even greater risk from bad loans. Compounding the problem is the peak debt redemption period for local debt from last year to next year throughout which local governments are expected to have cleared almost 60 percent of their debt. If the problem is not resolved promptly, it will spawn a big crisis in local development efforts and the financial market, obstructing China’s economic development.
Yet another challenge to economic development is the decreasing labor force and increasing social welfare expenses caused by the aging population. The latest UN data show that due to China’s long-term one-child policy, there are 180 million people above the age of 60 and it is estimated that China’s retired population will equal the total US population in 20 years. By 2035, there will be two retired people for every five workers in China, creating a heavy burden for young workers. Since there are not enough young workers and too many people living on retirement pensions, China’s financial system will be dragged down. This will be one of the most crucial challenges facing the new leadership.
One final issue is the corruption and inefficiency of some Chinese officials, which is arguably among the worst in the world. Even Chinese President Hu Jintao (胡錦濤) admitted in public that it was a matter of life or death for the CCP.
The Chinese Academy of Social Sciences also revealed in a report that if a financial crisis or political unrest occurs, financial institutions will be able to handle between 5 percent and 7 percent of their depositors in medium and large cities, leaving between 93 percent and 95 percent of Chinese depositors unable to withdraw their money.
If China wants its economy to continue to develop, it must first resolve these difficulties. This will be a great test of the new leaders’ wisdom and resolution.
Lee Wo-chiang is a professor in Tamkang University’s Department of Banking and Finance.
Translated by Eddy Chang
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations