Select Committee on Foreign Affairs Minutes of Evidence

Examination of Witnesses (Questions 80-88)


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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 13 August 2006