China's growth threatened by social divide

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Sun 16 Nov 2008, 11:06 GMT

BEIJING (Reuters) - China's growth prospects are clouded by a gulf between rich and poor, deterring consumption and dragging down productivity, said a report released on Sunday.

The U.N.-sponsored "China Human Development Report" appeared a day after Chinese President Hu Jintao told a summit in Washington that his nation's continued fast growth was its "important contribution" to steadying the global economy.

But the report warns that skewed policies reinforce social divisions and threaten growth by giving the richest Chinese cities European-like levels of development while the poorest rural regions struggle at levels similar to African nations.

The resulting mobility barriers, stagnated skills and dampened consumer spending could stifle growth unless the government channels more resources to poor groups and regions, said the report's authors from the China Institute for Reform and Development and other think-tanks.

"Inequalities that have emerged during rapid growth have widened to levels that pose additional obstacles (to development)," says the report, published in English and Chinese.

"Equalisation of basic public services is an important condition for expanding domestic demand and maintaining steady and rapid economic growth," a chief author of the report, Chi Fulin, told a meeting to mark its release.

"LEVELS COMPARABLE TO BOTSWANA AND NAMIBIA"


The report praises China's achievements in narrowing inequality. But it also lays bare the domestic pressures that may deter China's leaders from taking a leading role in efforts to revamp international finances, preferring instead to focus on problems at home.

Using the U.N. "human development index" (HDI) as a key measure, the researchers found that China has made big gains in lifting the incomes, living standards and health of citizens.

From 1990 to 2005, China climbed from 101st to 81st in global HDI rankings. Its performance in healthcare "surpasses developing country averages by wide margins," the researchers found.

But the gains have been far from even, leaving China and its more than 1.3 billion people exposed to sharp imbalances in social welfare, education funding and old-age care.

While urban residents enjoy relatively high levels of government spending, farmers must largely fend for themselves.

Human development levels in the richest major cities, Beijing and Shanghai, are comparable to poorer Western European economies such as Portugal and Cyprus. But the "worst performing Chinese provinces like Guizhou, on the other hand, have HDI levels comparable to Botswana and Namibia", the report said.

Restive and mountain-bound Tibet has the lowest HDI level (0.616) of China's provincial-level administrations, compared with top-performing Shanghai at 0.911.

The report urges faster steps to give rural residents public services similar to urban residents', and to extend welfare to 200 million migrant workers leaving farms.

Otherwise, it warns, the "imbalances between consumption and investment could pose risks to macroeconomic stability".

Chinese Premier Wen Jiabao has said a huge economic stimulus package announced by the government this month will focus on improving rural infrastructure and services.

But lifting China's 750 million farming population to levels of school, medical and welfare support near to urban levels would be much more costly. Chi estimated that equalising basic services nationwide by 2020 would cost at least 5-8 trillion yuan over the next 12 years.

But achieving equal access also needs more effective and transparent government with much less waste, he said.

"The main conflict is not one of finances but of institutional arrangements," said Chi.

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