Inequality in China has widened

Seumas Milne is quite correct ( These strikes are good for China , 1 July) that China needs to boost consumption and that wage rises are one way of doing this. But the picture is considerably more complex and nuanced than he suggests. The strikes have been solely at companies owned by Japanese and Taiwanese – no mainland firms have been affected. They have been in a small area of Guangdong. Companies affected will react by increasing productivity through use of new machines that require fewer workers. They will move production from the coast to inland areas where wages are lower – Foxconn has already announced plans to expand its labour force inland to 300,000. The wage rises announced on 1 July apply only to minimum wages and do not affect higher-paid workers. Up to 50% of the earnings of Chinese industrial workers comes from overtime, which is not affected either. Without effective health, education or pensions systems, precautionary savings will remain high and present a deterrent to consumption spending. Finally, the past 30 years have shown no evidence that rising living standards on the mainland lead to "progressive democratic change". It would be nice to think that we are witnessing a decisive shift in the Chinese model but, as with the currency, it would be wiser to be patient if recent history is any guide. Milne refers to Hu Jintao's "attempt to reduce inequality", but the share of wages in China's GDP has slumped from 53% of GDP to 40% in the last 10 years, while the Gini coefficient measuring wealth disparities has steadily widened. Jonathan Fenby Director, China research, Trusted Sources