Regional and Income Inequalities in China

Trade, the transfer of technology, and capital transfers on a worldwide scale are examples of the economic activities that have moved over national borders and are referred to as “globalization” (Li 3). A crucial factor in a nation’s economic progress is globalization. With its growth ranking first among the top ten biggest economies, China is hardly an exception. Globalization in China is associated with the sharp rise in FDI and international trade. Due to several reforms, including joining the World Trade Organization, China continues to rely on international trade. China’s import and export values have risen dramatically during the past 20 years. China experiences more and more foreign capital inflow with the entry of Multinational Corporations (MNCs). The entry of these companies has resulted in technological advancements and growth in the industrial sector of the economy. Nearly three-quarters of the companies listed in the Fortune 500 invested in China.

As the economy of China grows, the living standards of people improve, but still, polarization is evident in the Country. A high Gini Index in the economy insinuates the presence of regional income gaps, reduced social welfare, and rural-urban income inequalities (Li 4). The income inequalities arise from various regions ranging from regional location and rural-urban migration. Despite the growth of the economy, the uneven income distribution in the economy is an area of concern and intervention.

Origin of Globalization and Regional Disparity in China

For nearly 30 years, China endured a period of isolation till 1978 when the country began rejoining with the global economy. The government of China realized that there was a need to conduct trade, withhold foreign capital and acquire superior technology. Subsequently, the government introduced the famous ‘open door’ policy to allow foreign trade and investments. This policy gave preference to the coastal regions of China since the area was quite close to the seashore and a clear channel for overseas activities. The government assumed that the growth of these coastal regions would automatically trigger the growth of other areas including the inland regions of China. However, the policy and its preferences became a source of regional income disparities (Hao and Zheng, 2). By 1980, the opening door policy was on the rise in conjunction with a government strategy of developing the coastal regions. In the same year, Fujian and Guangdong were the first cities to have Special Economic Zones (SEZs). The government of China also introduced eight coastal provinces with the aim of attracting and encouraging trade, with great interest in FDI.

The government opened developmental areas in the coastal regions. Initially, there were only three regions of Minnan, Pearl, and Yangtze. The opening of these areas was a significant move for development. These areas received many privileges from the government, some of which include considerable resources, lenient tax incentives, and autonomy among others. There were lower costs of transactions in these areas and the ease to access export or import rights from the government. In these areas, the government easily approved any new investment project, till the late 1980s when the government allowed more investment in the inland areas. In the late 1980s, the coastal regions dominated by FDIs and foreign trade (Hao and Zheng 2). The open door policy favored the coastal regions and sidelined the inland regions. Obviously, there were more exports along the coast creating the growth disparity between these regions.

Description Inequalities Arising from Globalization

The coastal regions of China act as a hub for FDIs and hence attracting a large population of people from the inland areas. The FDI inflows in the coastal region exceed 80 percent of the total inflows; this is reason enough to encourage migration into these areas. Due to this regional gap, more capital inputs in the coastal regions continuously create an income gap. When MNCs invest in an economy, income inequality rises due to the changes in the wage structures and employment rates in the host country (Chan and Yanrui 2). However, the same corporations improve the technologies of host countries, create employment, increase capital inflow and enhance the spillover of knowledge. How does FDIs reduce income inequality in the country?

FDIs focus on an economy with excessive labor supply, especially where the labor requirements entail unskilled labor. For instance, consider a developing country with high rates of unskilled labor, the FDI to take advantage of such a situation is an export-oriented one. The results of such an investment is an increase in the demand for skilled labor. Cumulatively, the unemployed people end up getting more income. Similarly, the skilled laborers also get their salaries elevate. Both skilled and unskilled laborers benefit from the investment, an increase in the FDIs contributes to a corresponding decline in income inequality (Chan and Yanrui 4). So, does income inequality increase with the activities of FDIs?

FDIs in the host country promote income inequality with the technological advancements integrated into all processes such as production. Where technology is high, huge companies such as MNCs will demand skilled labor in the host countries. Competition between MNCs and industries in the host country increase as more people in the host country try to match the demand. The local industries invest on innovative processes, Research and Development (R&D) and adapt to the dynamic technology. The result is that the economy will require more skilled than unskilled laborers, the incomes of the skilled laborers increase with the foreign investments and local competition. The variance in the wages of the skilled and unskilled laborers create income inequalities. As in the case of China, the income inequality arises from interregional migration. The coastal regions of China experience migrants originating from the inland regions or rural areas. These migrants are people who come to seek employment in these regions where labor and good wages are available. One leaving their rural homes, these migrants cause great losses of income in their areas, as the opportunity cost of their migration. When the migrant workers in the coastal region remit more money to fill the income gap in their rural homes, income at the rural areas increase hence reducing income inequalities of urban-rural regions.

The migrant workers estimate at over 277 million, a number that represents nearly one-quarter of China’s working population. The social welfare of these workers is pathetic despite being the economic movers of the economy in the last few decades. These workers face marginalization, and their children access low-quality education and limited healthcare. From the social setting perspective, the children face separation from their parents for years. China operates with a household registration system known as Hukou; the government introduced this system with three aims. The aims include controlling internal migration, ensuring proper resource distribution and good welfare by the government and controlling criminal activities (“Migrant Workers and Their Children”). The Hukou system was very effective until the 1980s when the demand for cheap labor arose in the major cities. The system never accomplished one of its role, which was controlling rural-urban migration. As the China cities along the coast enjoyed economic booms, thousands and millions of people moved from the countryside to cities to seek labor at the construction sites and upcoming factories. Dongguan and Shenzhen are some of the major cities that received millions of migrant workers, with the rampant migration, the migration restrictions by the Hukou system were unenforceable. According to surveys by the National Bureau of Statistics, the population of migrant workers providing labor in the cities was 277.5 million in the year 2015. However, the population statistics in the year 2015 represented a slowdown arising from the government policies of effective family planning and contraction of the population age of the workers. The migrant working population is sub-divided into two major categories, the long and short-distant migrant workers. The short-distant migrants relocate very close from their homes while the long-distant move very far from their homes. From the income inequality perspective, most of the migrant workers are lowly paid and especially in the service, construction, and manufacturing factories. The charts and graphs below from the survey by the Bureau of Statistics confirm the employment and wages patterns in China.

Between 2010 and 2014, the manufacturing sector increases its number of workers from 16 to 23 percent. The resultant increase is due to the FDI activities motivated by globalization. Despite the low wages on average, the Bureau notes that the wages levels made a steady increase over the years, though not well paid. Some of the lowest paid migrants worked in the services, hotel and catering sectors. For the long-distant workers, 1.012 yuan was the average monthly expenditure for these people, with the expense of housing, transport, and food. The largest share of the income by migrants covered housing. Also affecting the migrant workers is the issue of benefits and working conditions. In addition to the low wages paid to migrant workers, shocking discoveries indicate that the same migrants work for very long hours with little or without job security. The Bureau of Statistics realizes that in a whole month, most of the long-distant migrating laborers worked for over twenty-five days in a month (“Migrant Workers and Their Children”). The greatest percentage of the laborers worked with an excessive figure of forty-four hours in a whole week.

In the developed areas such as the coastal regions, the living standard is far much higher beyond the standards in the inland regions. With the little pay, the migrants have to pay more for respective social services such as healthcare and education. What are the greater results of the regional migration and income inequalities? While living in the developed cities, the migrant workers are subject to discrimination and depression. Most of these workers feel lonely and helpless, with the notion of family separation. The elderly workers leave their children in the rural regions with their grandparents to take of them. The children never receive enough emotional support as well as sufficient education. So, the issue of globalization results in the regional imbalances in China, the regional imbalances regarding growth create the problem of migration. The migrant worker’s pay is low while different regions have different levels of income month (“Migrant Workers and Their Children”). There are other inequalities originating from the different regions and the social welfare of people living in these regions.

For example, the developed coastal regions have better schools and access to healthcare services. The children of migrants into these areas rarely get quality healthcare and education. More fees for the children and discrimination in the schools, inequalities that may not exists with regional growth balance. Research conducted in Cixi city of Zhejiang showed that medical insurance policies never covered nearly 60 percent of the migrant workers.

In a nutshell, the coastal regions of China are wealthier than the interior regions; the situation arises due to more investment activities in the coast. These regions enjoy the support of the government on issues such as business policies and taxation. As a result of globalization, some provinces in the interior China remain poor, while people migrate internally to wealthier regions to seek for jobs and employments. However, the coastal region takes the opportunity in its geographical location of the coast where investment by foreign countries is easier than other regions (Wen 14). Obtaining wealth is not always the result as these migrant laborers receive poor pays, and their living standards are very low. Is there a solution to income and regional disparities in China? The government and the people as well, are responsible for reinstating their social life into shape and ensure uniform distribution of resources.

Reaction of the People

Obviously, the people living in the Coastal regions, the original occupants, have better living standards than people from the inland provinces. For the migrants working in the wealthier regions, their stay in these regions is not warmly welcomed, with some facing discrimination and not accessing proper health care and education. What are the poorly paid workers doing to improve their income? For the laborers working in the companies, from FDIs, the reaction is nothing different from strikes to push for an increase in wages and living standards. Most of these workers are the movers of China’s economic development; it is their rights to better pay and living standards. Additionally, these workers react by ousting out the labor union officials that do not push for their rights. In 2012, the China Federation of Trade Unions decided to unionize nearly all the enterprises for the sake of the laborers. Meanwhile, the laborers made more efforts to choose better union leaders that could push for better wages. With the efforts of the trade unions, close to 90 percent of the workers in China began receiving employee benefits such as pensions, health insurance, and other beneficial policies.

In the year 2014, the economic growth of China was at 14 percent, a figure that dropped drastically in 2015 to 7 percent. The China’s manufacturing sector was in a crisis due to employee slowdowns. The impact of the labor slowdowns included the relocation and closure of many factories (Keidel 10). Additionally, there were instances of employee layoffs, and the country was in a crisis. The government claimed that the labor laws were increasing inflexible and wages were accelerating too much. Even Currently, the manufacturing sector of China is facing the challenge of labor protests with workers demanding an increase in wages and harsh response from the provincial administrations threaten the cooperation of workers. The government responded to the issue of labor protests among migrants and all the workers in the new labor laws of the country.

Effective and operational, the labor contract law applies to all workers in China, including the migrants. The first requirement of the law is that there should be a written labor contract between workers and their employers. Some of the migrants receiving low wages do not have such contracts, making it easier for the employers to terminate work and default pay. Also, the new law provides for open-ended contracts subject to renewal with the will of the workers. The law stipulates that the contract must cover issues of training, social insurance, remuneration, working hours, probation periods, overtime payments and training. As a result of the law, the welfare of workers including the migrants will improve (Lan 495). Additionally, the migrants may also enter into a contractual working relationship with benefits such as severance pay, retirement benefits, covering for occupational diseases and any illness or injuries arising from work. The law also states that two years is the minimum time for a work contract.

In a bid to mitigate the regional disparities, the country also passed the labor promotion law. One of the main aims of the laws was to create social harmony among the people of China. In one of its articles, the law states that its formulation will see employment promotion, promoting stability and social harmony, ensuring a balanced growth in the economic activities and expansion and development of employment opportunities. One of the major section of the law is discouraging all forms of discrimination at workplaces. That implies discrimination against the disabled people, ethnical discrimination, the rural workers or migrants and the people carrying diseases that are infectious (Lan 497). Efficient implementation of the law will see an increase in investments in the inland provinces of China to curb the issue of regional disparity. Also, the law will create employment for even the rural people to reduce the suffering of migrants seeking employment in the developed regions.

Remember that the Hukou system just facilitates registration of people and controls migration activities. This system implies that migrant workers have to present their documents to employers to show their regions of occupation. For example, migrants from the inland provinces present the Hukou document to employers in the coastal regions. While some workers lack the documents, others with the documents and not from the coastal areas do not get some rights such as access to healthcare and quality education. According to a survey by the bureau of statistics, a percentage of not less than 30 suffer from chronic diseases. This population of sick people comes from the manufacturing industries, yet these workers never get enough to cater for the basic healthcare needs. Most of the migrant workers are now embracing the move to return home, where despite being poor, the basic needs such as food and healthcare access is affordable. Most of the children left behind in the interior regions with their grandparents prefer to stay with their parents. After many decades of staying away from their original homes, some of these migrants from the rural areas are returning to the inland provinces to reunite with their families.

The potential of China’s inland provinces not well explored despite the disadvantage of their geographical position. Investment in the Central areas of China is still high, with even the FDIs making progress into the rural regions. A company such as Honda is located in the central regions of China and provides labor opportunities to many people. Many companies are also investing in the inland locations, providing employment and trying to create a balance of regional growth. Through some policies, the government of China is trying to eliminate the causes of regional and income disparities.

In conclusion, China experiences regional, and income disparities are arising from differences in economic growth of regions. The Coastal regions of China are more developed than the inland regions, making migrants flood in these areas to look for employment. However, these migrants are ill-treated and paid poorly, resulting in income inequality. Migrants never get affordable health care and education due to restrictions in the Hukou making their living standards poor. The population of migrant workers along the coastal regions of China increases annually, becoming uncontrollable by the government. Due to increased labor protests, the government of China implemented major labor laws to see an improvement in the social welfare of the country’s workers. As the economy of China continuous to grow, the social problems of income and regional inequality are creating a great gap between the poor and the rich.

Works Cited

Chen, Chunlai, and Yanrui Wu. “Interregional Impact of Foreign Direct Investment on Urban-Rural Income Inequality in China’s Inland Provinces.”

Hao, Rui, and Zheng Wei. “Fundamental causes of inland–coastal income inequality in post-reform China.” The annals of regional science 45.1 (2010): 181-206.

Keidel, Albert. “Chinese Regional Inequalities in Income and Well‐Being.” Review of Income and Wealth 55. s1 (2009): 538-561.

Lan, Na. “Is there new hope for labor rights protection for Chinese migrant workers.” APLPJ 10 (2008): 482.

Li, Yue. “Globalization and Inequality in China.” 北東アジア研究 18 (2010): 1-13.

“Migrant Workers and Their Children.” China Labour Bulletin, 2017, http://www.clb.org.hk/content/migrant-workers-and-their-children.

Wen, Mei. “Foreign direct investment, regional geographical and market conditions, and regional development: a panel study in China.” (2005).