Cost of Living Increasingly a Struggle for China’s Poor

December 9, 2010
BEIJING — China’s poor are being hit hard as the cost of putting dinner on the table soars, sharpening resentment and highlighting a fast-growing gap between rich and poor.

Vegetable prices are up anywhere from a third to double over the same time last year. Cooking oil, fruit and some meats are also up, according to surveys, official figures and testimonies from food sellers and shoppers.

The upshot is that China’s poor — though not its rich — are struggling.

“Not all prices are going up. And not all people cannot afford it,” said Ye Tan, a popular economist and media commentator. “This time inflation really is a problem of the poor. If you are middle class or rich, you don’t notice that cabbage has gone up from 2 to 7 mao per half-kilo,” or 4 to 11 U.S. cents, or that ginger now costs around 6 renminbi, or 90 cents, a half-kilogram, or just over a pound, about double the price of last year.

Analysts say the causes of inflation are complex, but key factors include a surging money supply — up 47 percent since 2009, according to Jing Ulrich of J.P. Morgan — rising commodity prices overseas and a late, cold spring and summer rains. Others say fast economic growth inevitably produces some inflation. China’s economy has grown an average of over 9 percent annually since 1989.

The consumer price index for October stands at 4.4 percent, above the government’s goal of 3 percent. Ms. Ye expects the November figure to be between 4.7 and 4.8 percent, with increases to 5 percent next year. That’s below a brief high of 8.7 percent in early 2008, but the government is worried enough to have introduced administrative measures, like lifting road tolls on trucks bringing food into cities. It has also announced a new, “prudent” monetary policy for 2011.

“Fear of inflation is hard-wired into their system,” said a historian-turned-consultant, who spoke anonymously, reflecting political and social sensitivities.

The Chinese Communist Party never forgets it seized power in 1949 following not just military victory, but also hyperinflation under the Kuomintang government, he said. High inflation in the late 1980s — around 20 percent in 1988 — was a major cause of unrest leading to the 1989 democracy movement that nearly toppled the party.

A divorced Beijing father surnamed Wei, who asked that his full name not be used for shame at his poverty, is trying to put his daughter through college on a pension of 1,000 renminbi, or $150, a month.

“I can’t afford fruit at all now,” said Mr. Wei, 52, who took early retirement at 50. “I only buy the cheapest vegetables, like cabbage and radishes.”

Cakes and other prepared foods are out, as he tries to squeeze his personal expenditure to 400 renminbi a month. The rest is for his daughter. He believes President Hu Jintao’s government is doing more for the poor than former President Jiang Zemin’s, but the government’s small subsidies for low-income households don’t help much. He’s angry about the inequality he sees around him.

“It feels unfair, for sure, that for many years now the rich have been getting more and more rich,” he said, “while people like me live a life that’s more and more poor.”

China’s income inequality is growing steadily. That explains why inflation is increasingly controversial, even if it’s still below the spike of early 2008.

Accurate data are hard to come by, but many economists estimate the country’s Gini coefficient — the index of inequality — crossed the danger threshold of 0.4 about a decade ago. On the Gini scale, 0 represents complete equality and 1 represents complete inequality.

Officially, it is somewhere around 0.45-0.5, similar to the United States. But a landmark study earlier this year on unreported income, by the economist Wang Xiaolu at the China Reform Foundation, found that hidden income totaled $1.5 trillion, with 80 percent in the hands of the richest 20 percent. That would put China’s Gini index at over 0.5, on par with many South American countries, and, if trends continue, headed for the income inequality of much of Africa.

Average incomes are rising, but remain low, especially in the countryside. Urban disposable incomes averaged 17,175 renminbi per capita in 2009, according to government figures, and 5,153 renminbi in the countryside. With households spending about 40 percent of their income on food, inflation in that sector quickly translates into hardship for millions.

Zhu Xuliang is one of Beijing’s thousands of taxi drivers, who typically work 12-hour days, six days a week. He earns about 3,000 renminbi a month for his family of three — a nonworking wife and 14-year-old daughter. They are all tightening their belts.

“We have squeezed family food spending from about 1,500 renminbi to 1,000 renminbi a month,” he said.

Mr. Zhu has an advantage over Mr. Wei — he is from the countryside near Beijing. With prices rising, he has started going home on weekends to pick up free food from his farming relatives: mostly potatoes, onions and cabbage.

“We’re O.K. because I get these things. But we have stopped eating out. KFC, all that, don’t do it anymore. In fact the real problem is that even as we save, the taxi company wants more money from us to cover its rising fuel costs. So overall my income has shrunk over the last two years. I used to earn 3,500 renminbi.”

Yang, 26, is a native Beijinger and office worker who lives with his parents. He considers himself lucky as he pays no rent, so his 3,500 renminbi income goes further than for some.

“Supermarkets are offering fewer discounts all the time, and fruit, vegetables and meat are all up,” said Mr. Yang, who asked that his full name not be used to avoid exposing his financial situation.

What to do with his modest savings is another problem. Bank deposit rates are too low to make an account worthwhile, he said. “I can tell you a secret,” he said. “I’m buying gold to hold my money’s value. There’s no better way.”

“Really, I want to go abroad, but I can’t afford to,” he said. “I think there is more fairness in foreign countries. I come from a family without any special social connections, so all I can do is trust in the gods.”

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