Better city, better life

The theme of this year's Shanghai expo is "better city, better life." This slogan also reflects China's growth strategy which concentrates huge investments in magnificent new cities built with the cheap labor of rural migrants who are not allowed to settle down in China's cities.

Perhaps feeling somewhat guilty about the massive concentration of wealth in Shanghai and other Chinese cities, a conference on rural income inequality was held in Shaoxing--a couple hours down the road from Shanghai--to dissuage the guilt by at least discussing the widening inequality of income between rural and urban residents.

To show how great their concern is, they invited a Nobel laureate, Eric Maskin from Princeton. Maskin noted that "China's fast economic growth has come with side effects, the most notable of which has been an increase in income inequality, especially that between cities and the countryside."

The rising inequality is not just incidental to China's growth strategy; it's a core part of it. China's vast number of industrial parks, housing estates, shopping malls, airports, etc. were all built on farmland seized from peasants for virtually nothing. Local governments sold it off at sky-high rates, generating treasure for themselves, their cronies, and their tax coffers. Some of the displaced peasants get jobs paying $1-to-$2 per day building glitzy shopping malls or working in factories. The peasants still in the countryside are told to plant grain that earns them a few hundred dollars a year. Now they get subsidies amounting to over $50 for planting grain and maintaining the country's "grain security."

When the peasants have some savings, they deposit them in their local rural credit cooperative. The credit cooperative is not interested in lending money to peasants scattered across the countryside, so the credit cooperative redeposits those funds with the central bank, which makes them available for loans to the real estate developers so they can finance their shopping malls.

The usual way to get rich in China is in real estate. Nearly every company in China--including those in agriculture and food--has a subsidiary that is in the real estate business. Urban people started doing well when housing was mostly privatized and employees were gifted their homes at bargain basement rates in the late 1990s. Now it's common for middle class urban Chinese households to own multiple houses.

What about peasants? No land ownership for them. That would violate China's constitution, and we know that the Chinese government would never violate one of its laws. Peasants are allowed to rent out the rights to use their land for the equivalent of $25-$50 a year, but they can't sell the land. If their land is converted to urban real estate, the peasants might get compensated big-time, $5,000 or so, but the officials will sell it for $50,000.

After showing their great concern conference attendees no doubt went back to rest in their hotel rooms that cost the equivalent of a factory worker's monthly wage per night.