Examination of Witnesses (Questions 80-88)
DR LINDA
YUEH, PROFESSOR
JUDE HOWELL
AND PROFESSOR
YONGNIAN ZHENG
8 MARCH 2006
Q80 Mr Illsley: In terms of the increase
in the Chinese economy and the problems that causes with social
inequality, perhaps you could tell us whether that is exacerbated,
rural against urban, and in geographical areas? I recall that
the last time the Committee visited China in 1999 we visited Shanghai.
The mayor of Shanghai told us an old proverb, along the lines
of, "Beijing is far away and there are many hills between
here and where the Emperor lives"; in other words, "We
will do as we want in Shanghai...." Are there major geographical
differences within the country and are any steps being taken to
address that? Or is it simply a policy of, if one area pushes
forward, it pushes forward on its own?
Dr Yueh: The measures of income
inequality for China show that inequality has risen very rapidly
throughout the reform period. Since 1979 the Gini coefficient,
which is a measure of income inequality, has grown to roughly
around 0.45 for China, making it a fairly unequal society. The
evidence suggests that, although hundreds of millions of people
have been lifted out of poverty, the growth in rural incomes lags
behind urban incomes. Rural incomes started from a lower level
than urban incomes and now there is a growing gap between the
two. That gives one of the measures of the gaps, which is the
urban-rural divide. One of the other measures of inequality is
coastal versus interior, because three-quarters of China's GDP
can be accounted for by the three major river deltas on the coast.
This essentially means that there are various divisions, which
can be traced to the way China has developed. This is why the
current growth strategy has shifted away from growth at any cost
towards growth which tries to take into account the consequence
of the way that China has developed. However, the level of inequality
between urban and rural areas in recent years has plateaued, and
that is because of increasing urbanisation. So intra-province
inequality has been falling but inter-province inequality is still
expanding. Some provinces are very rich—Guangdong—and
other provinces, like Zhejiang, are very poor.
Q81 Sir John Stanley: Can I turn
to Hong Kong? As we know, the Chief Executive's proposals, through
the constitutional task force, for some modifications of the electoral
system in Hong Kong were rejected by LegCo. The objective amongst
the democrats in Hong Kong is of course to achieve a genuine universal
suffrage system, with the ultimate abolition of the functional
constituencies and to go to a one-person-one-vote system. Though,
in fairness to the Chinese, it is right to point out that that
was never achieved during the British period of colonial government
of Hong Kong. Can you tell us whether you think that the government
in Hong Kong, the Chief Executive in particular, will seek to
modify the proposals that were originally put to LegCo, to try
to get a majority vote in favour of them through LegCo, or whether
the position of the Hong Kong government will be, "That's
as far as we are prepared to go, certainly at the moment",
and it is a matter of "take it or leave it"?
Professor Zheng: I think that,
for the moment, it is quite unlikely that the Hong Kong government
will have a dramatic change over the proposal for political reform.
Because China as a whole is still an authoritarian system, I do
not see any possibility for this authoritarian system agreeing
to radical democratisation in Hong Kong. The problem is that a
few years ago the government failed to pass Article 23, which
deals with national security. I think that unless this article
was to be passed before radical democratisation, there would be
no possibility of passing this article after democratisation taking
place. So lots of negotiations are going on between Hong Kong
and Beijing. Beijing still prefers an incremental way for Hong
Kong's democratisation, not a radical way. Beijing feels that,
once radical democratisation takes place, the situation will become
more complicated. For the moment, Beijing has used different economic
means to stabilise Hong Kong. The situation since last year has
been quite good, and the Hong Kong people's confidence is coming
back; the economy is again in good shape. So there is no urgent
need for the Beijing government to allow Hong Kong to go through
a radical democratisation process.
Q82 Sir John Stanley: Do either of
the other two witnesses want to add anything to that?
Professor Howell: No.
Dr Yueh: No.
Q83 Sandra Osborne: At the moment,
China is attracting a great deal of foreign direct investment
because of the cheap production costs. As wealth increases, will
that come under pressure? Could you foresee a situation where
foreign companies take their investment elsewhere as costs increase
in China? How would it affect the economy if that happened?
Dr Yueh: Since China's open-door
policy took off in 1992, exports have become increasingly important
as part of its economy. But the way that China has increased exports
is via attracting foreign direct investment, taking those multinationals
which are investing in China and putting them into joint ventures
with Chinese firms. This has happened, primarily starting in the
southern provinces but is now happening in many of the Special
Economic Zones. There are two implications from this approach.
One is, if a Chinese firm is in partnership with a foreign firm
with more advanced technology, it facilitates the technological
upgrading of that Chinese firm, which would allow China to grow
even if the export side were to slow. The other element is, by
attracting foreign direct investment in this way, China has plugged
itself into what we call "production chains" across
Asia. So there is a high degree of vertical specialisation: where
a firm will locate partially in China for part of the process
and then partly in other Asian countries. That would suggest that,
so long as Asia remains attractive as a place for multinationals
to locate, China is part of that chain. In my submission I gave
some evidence about the rapid growth of this type of trade. That
implies that if labour costs were to rise in China, even though
China is still very much below the level of wages in the newly
industrialising countries in Asia, which are the old East Asian
Tigers, it still has a place in that production chain. Finally,
China's membership in the World Trade Organization, which it joined
in 2001, means that it has now opened its domestic market and
will do so increasingly, then the openness itself will bring with
it pro-competitive effects; meaning that, if you find more efficient
companies locating on their own in China, they would stimulate
productivity and competitiveness among local firms around them.
So the benefits of globalisation for China are quite varied and
only part of it would be driven by its original source of what
we would call China's comparative advantage, which is low-cost,
abundant labour.
Q84 Sandra Osborne: Is the skills
base in China expanding sufficiently to go into a more high-technology
export market?
Dr Yueh: China in this respect
has potential, but we have not yet seen it in terms of the technological
advancement indicators. China graduates around two million scientists
and engineers per year, but the overall enrolment in tertiary
education is much below that of secondary and primary education.
It is a feature of a developing country but, because of China's
1.3 billion people, China can still generate quite a high number
of what we would consider to be potential innovators. China's
overall skills level is fairly good, because of the high levels
of educational enrolment and attainment at the primary and secondary
level. The challenge for China now is to translate the skills
of its scientists, those who are educated to degree level, into
productive capacity. So they could innovate, but is this translated
that into breakthrough, general-purpose technologies which stimulate
economic growth? That is a hard question for any economy and it
is also quite a difficult one for China. The evidence is that
China has not shown very much technological advancement in its
growth so far, but there are efforts towards investing more in
R&D—China now invests much more in R&D as a percentage
of GDP than it did in the past and is expected to outpace that
of the OECD average in the next few years—and it has created
high technology development zones. It has entirely transformed
the Special Economic Zone system so that it can have these hi-tech
centres, creating science and industrial parks, to help its researchers
achieve technological advancements which will generate long-term
growth in the economy.
Q85 Andrew Mackinlay: This is perhaps
a matter for Professor Howell. The impression I have in broad-brush
terms is that democracy at a very local level, outside the main
cities, is fairly pluralistic. People do not have to be candidates
of the Communist Party; lots of independents are elected, even
to senior posts in the municipal government. I wonder if we are
comparing like with like. Presumably some of these local government
units are of quite a substantial size in terms of population.
I think that you used the term "village"—I forget
the term you used—but what I want to establish is if, in
some of these local government units where people are voted in
against the Communist Party-anointed candidate or candidates,
where there are lots of independents, we are purely talking about
the village, or are we talking about municipalities or county
council equivalents of some thousands, hundreds of thousands.
It seems to me that is very important. We tend to think in terms
of the broad, federal structure: central government, Beijing,
and the big regional governments; but I would like to get some
feel as to the level below, how democratic that is, and what sorts
of numbers we are talking about.
Professor Howell: We are mainly
talking about village committees. The lowest level of government—
Q86 Andrew Mackinlay: Parish council,
basically?
Professor Howell: . . . is the
township. However, village committees—the next level below—carry
out certain government functions. For example, in the past they
would raise grain and agricultural taxes, be responsible for family
planning policy, and other kinds of directives which come down
from the centre—which creates a contradiction for any village
committee head because, on the one hand, they have to look upwards
and, on the other hand, they have to look downwards. Most of these
elections have started at the village level and are an initiative
of alliances between what you could say were reform-minded party
members, ministers at the top, and the lower levels, the villages.
The township government has often been quite resistant to the
idea of having the village committees elected, because it is not
so easy for them then to assert their control over the villages.
When people stand for the village committee elections they cannot
stand as an alternative party, except for the parties that are
recognised in China. They stand as individuals. So they are always
standing as individuals, rather than standing as a representative
of a party. The elections have been greeted with enthusiasm in
many quarters and have inspired other initiatives. For example,
in some villages you will find that the selection of party branch
leaders at village level, where the party branch is big enough
to exist at village level, has also given way to elections—so
a more competitive type of election than before. There have also
been experiments at township level with elections. There are experiments
at urban neighbourhood committee level, with elections. The issue
really is that, although there have been experiments at township
level with elections, the party is not yet ready to allow this
to be generalised across China. The risks are seen as too big,
whereas the risk of having village committee elections is less.
Q87 Andrew Mackinlay: So the policing
and enforcement, if that is the correct word, of, say, the one-child-per-family
policy is very much a matter at the village level. There might
be some villages which are slack on that and some which would
be robust on that. Would that be correct?
Professor Howell: Yes, but the
pressure will come from the township, which will have targets
for the family planning policy, and which will then go down to
the villages to try to implement those targets.
Q88 Mr Horam: What is going to happen
to the one-child policy? Will that be affected by the economic
development, or will it remain the same?
Professor Howell: That is an interesting
question. I am not an expert on the one-child-family policy. That
is a whole area in itself. It was interesting that recently there
were some press reports which said that wealthier people were
getting by the one-child-family policy in the city by paying the
fines, and there was some concern about this at central level.
In the countryside, as I am sure you are aware, rural residents
are permitted to have more than one child. However, I would say
that there is a rather unfortunate element to this, namely that
if you are so unfortunate as to have a girl as your first child,
then you can have another shot and see if you can get a boy! That
does not apply in the urban areas.
Professor Zheng: This policy of
one child per family has already changed in the rural areas. As
Professor Howell mentioned, if your first child is a daughter
then you can have a second. However, because everything now in
China is commercialised, if you have money you can pay. There
is a fine. If you have more children, the government will fine
you; but if you have money you just pay that. Collecting population
statistics in China is problematic. Even local governments sometimes
do not know how many people come under their jurisdiction. For
the urban areas, the policy has been under debate. I think that
the government has begun to consider making changes, because of
the ageing population and for the future. So changes will happen
to this policy.
Chairman: I am afraid that we have to
conclude this session now. Dr Yueh, Professor Howell and Professor
Zheng, thank you very much for coming and giving us such useful
information.
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