China may be Rich, but the Chinese People are Very Poor

This is a follow-up to the post “Why The US Is Still The Number One Economy In The World, And Will Remain So For A Very, Very Long Time“. There are still many Americans who are under the illusion that somehow China is a more enlightened, modern, and progressive country then the US, and that the Chinese people are now–or will soon be–as a consequence wealthier than typical Americans.

Much (all?) of this foolishness comes from the fact that the country of China has amassed a substantial reserve of US dollars, and owns a large portion of the US debt. However, the issue of dollar reserves and debt has little to do with the actual economic health of the country or wealth of its people, and everything to do with its neo-mercantilist trade policy–an economic policy which exchanges a lower standard of living for greater internal control over the economy. Ultimately, neo-mercantilism is unsustainable, and must be followed by greater openness or a zombie economy will result, as what happened in Japan. However, there is the risk that with this greater openness a neo-mercantilist country will kill the goose that lays the golden egg, hence the neo-mercantilist dilemma–a dilemma China is now facing. (A good look at some of the economic pressures China is facing–and why their economy is unsustainable–can be found here.)

Regarding the standard of living for the Chinese people, the following graph, though initially difficult to follow, is quite instructive. It is from the book, The Haves and the Have Nots, written by an expert at the World Bank.

As explained by Veronique de Rugy,

On the horizontal axis  we have 20 equally-sized income groups, country ventiles, what Rampell describes as “a cluster of five percentiles.” On the vertical axis are percentiles of world income distribution. So, for instance, in the chart above you can see that Brazil has both spectacularly rich and spectacularly poor people.

The incomes on the graph are adjusted by PPP (purchasing power parity), so exchange rates are not a factor here–this is a strict comparison of standard of living. There is a lot that could be said about the graph, but let us focus on China. From the graph, it appears that about 85% of the Chinese people have a standard of living that is poorer than the poorest people in America. That’s right. If we take the poorest inner-city families, the poorest reservation Indians, or the poorest Appalachian top-land farmers, all live better than 85% of the Chinese people. As for the richest 15% of the Chinese, most would not even be considered middle class in the US–by US standards they are still quite poor.

The graph raises a lot of questions. For one, what is the money the Chinese government is amassing being used for? Second, how is it that such a poor country can have so many millionaires and billionaires? And third, since the economy is unsustainable as is, what will happen when the goose that lays the golden egg is led to slaughter? Can there be a so-called soft landing?

(Graph h/t NRO)

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16 Responses to China may be Rich, but the Chinese People are Very Poor

  1. As you have demonstrated well, the growing economy of China is not what it seems. Like I’ve said, the communists were only really good at propaganda and that’s about it. Central planning of any kind beyond the individual or family level will always have its holes and ultimately lead to tyranny.

    I’ve heard all kinds of things about what the Chinese government has been doing to prop up their GDP. What most people don’t realize is that government spending is part of the GDP equation, so any centralized government with a command economy can easily manipulate it. For example, I heard a rumor that a good number of imported cars that were bought by China were stored in a warehouse. This was done to give the appearance of more and more Chinese drivers on the roads of the various cities they have built. Given that 85% are still very poor, I highly doubt that there is high demand for cars across China.

    I fully expect our fears of Chinese global economic dominance to end within this decade. If anything, the Chinese government should start bailing us out, along with the rest of the world, because if our economy falls, so does theirs.

    But in a world where appearance matters over substance, China will continue to appear to be an emerging world leader. And while I admire the fact that the leaders of China are engineers rather than lawyers (about the only superior thing they have over the United States), they are still human.

    • Nii Sapu says:

      China’s GDP will surpass that of the United States, but China’s massive population keeps it from being so rich–if that is the right word for it. Additionally, China is not really as interested in looking rich and powerful to people who do not really matter by manipulating GDP as they are about actually holding economic power and such. A few years ago, Hu Jintao said he was more concerned about the welfare and power of China than the GDP itself. Besides, China’s GDP per capita is just plain awful, but people in urban areas aren’t actually dirt poor.

      • samuel welsh says:

        think again-

        this is the communest partys result.

  2. An excellent post, John. China with its centralized planning will go the way of all centrally planned governments; down the tube of misery. That doesn’t mean that China does not have economic power. For the time being they do. But they will screw it up the same way our centralized planners are screwing up our economy.

    • John Scotus says:

      Thanks for the comment. I’m not really sure than anything in China could be accredited to central planning. This would entail being centralized, and having and following a plan. Doubt this is true. Inertia seems to be more the name of the game. The two most important mantras: If you do not do anything, you cannot get into trouble; and, pay attention to your own field–what someone is doing in the field right next to you is none of your business.

    • Nii Sapu says:

      China has had centralized planning and socialist policies since it’s earliest stages in history, but its economy really has never gone down the tube as a result of it. China’s economy is not the economic systems of the USSR or Cambodia: it is more a market socialist system, which can, in theory, be quite successful. Therefore, I don’t think China will have any major issues other than a crash in the housing market for quite some time. Still, China’s GDP per capita will not surpass that of the United States of our lifetimes, unless something unexpected and bizarre happens.

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  4. jennifer says:

    China is rich, the people are NOT poor. There are more rich chinese people in China than there are rich Americans in America. John Scotus- you should do more research if you are going to write an article on this subject. At least there are no welfare system in China like we do here in America. People in China take care of their own problems, they do not rely on others to provide them with “projects” to live in or collect “welfare” money from other people’s paycheck money. There are rich and poor in every country, city, state. If it weren’t for China taking over our trillions of dollars worth of debt, you would not be eating lunch or sitting in front a computer typing your garbage/nonsense. People talk negatively about China out of pure jealousy and pride, not wanting to believe there is a country out there wealthier and better than ours. As an American, I have been to China and lived in China. I am a journalist, so I have done numerous documents and articles on China. The people there are kinder, smarter, and RICHER. People like you who take one element of a certain matter and think it represents a whole entire country are ignorant. People in America murder one another. People in America get involved in incest. So does that mean the majority of America is like that?

    • shao she says:

      jennifer i have to say that is the best comment i have ever read in my entire life thank you for supporting china lol

    • Dong Ho says:

      Jennifer, i strongly beg to disagree with your idea. yes chinese government is rich, but if you visit rural areas in china.. picture of poverty is much with locals .. be realistic .. and real measure of rich country is the richness of its people in the whole country, not only by very few especially, govt officials, some elite group and urbanites…

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  6. the one that is having money will remain rich while the one that is not holding any money will stay cheap as working labour in factory….

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  8. Bryan says:

    People talk too much about china… First question.. What is the real population in china ? 1,3… Or maybe 1,8 billion.. How many people are hiding their babies… .? Divide that real population by gdp.. Aother good question… Anyone like me who has live in china will u derstand that china is no danger to anything but themselves… An aircraft carrier from old russia ?? Is that a joke ? Or what. Giys stop talking about china .. They live on bullshit.. The more you talk the more time you loose in your life.. It is a powerless, poverty huge la our camp of the world… That is why it exists… No brains.. No culture just alot of fake eggs… .? Now that is abother question.. What country is so desperate. To make fake eggs ???

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