Study says China's high economic growth creates inequality

Jun 5, 2008, 16:20 GMT

New York - China's economic growth, which has been hailed for fighting poverty, has actually created more inequality between the rural and urban areas, the UN University said in a study published Thursday.

The study said growth alone cannot reduce poverty and recommended that China allow cities to take in more poor migrants from rural areas in order to try to close the rural-urban gap in economic development, which has grown since the early 1990s.

'While growth in China has been hailed as a miracle and its impact on poverty is well-recognized, its growth-biased development experience has led to a fast rise in inequality,' the study said.

Inequality has caused a series of economic, social and political problems in the country of 1.3 billion people, it said.

While the economic miracle happened mostly in coastal regions and big cities, the poor in inland regions lack purchasing power and rural residents contribute to a sluggish domestic demand. But China's low labour costs have helped its exports expansion, the study said.

The study conducted by Guanghua Wan, an economist at universities in Sydney and in China, and Terry Sicular, who teaches economics at Canadian universities, was backed by the Finland's World Institute for Development Economics Research of the UN University.

It called on China to promote foreign trade and investment in inland areas now that foreign investments were being phased out in coastal regions. Public research and development funding in agriculture should also be increased to improve farms' productivity.

China now has a surplus of rural population of 500 million, including 100 million laborers who should be allowed to legally migrate to cities to find employment, the report said. The study cited as examples several large cities - Tokyo, London, Sydney, New York and Mexico - that have been able to accommodate 10 per cent or more people.

The study said Shanghai, with a population of more than 18 million people in 2007, could accept a larger population, possibly up to 50 million as suggested by some leading Chinese economists.