China's Wealth Worries

Article excerpt

Byline: Rana Foroohar

Why they'll cause headaches for America.

Is China rich, or is it poor? The question is at the heart of the deterioration in U.S.-China relations over the last few months. So many of the things that America is asking China to do--such as revalue its currency, improve human rights, help ensure the world's energy security and financial stability, and stop favoring its own state businesses--are predicated on the notion that China is now prosperous enough to play the role of a developed nation. Plenty of bankers agree; banks such as Credit Suisse and Goldman Sachs now think of China as being several steps up from your average emerging market.

But just as there are two Americas, so there are two Chinas. Many of its coastal cities are as prosperous, modern, and bustling as any Western metropolis; indeed, New York feels positively relaxing after a week in Beijing. China's GDP is now second only to America's, and its top companies are among the world's largest and most successful (Tencent, a Chinese instant-messaging platform, recently became the second-highest-valued dotcom in the world). Since 2001 Chinese growth has not only propelled the Middle Kingdom forward, it's created some 10 million new jobs abroad.

Yet a 50-minute ride outside the Chinese capital quickly presents a different picture. While a burgeoning middle class along the coast lives comfortably on $10,000 a year or more, 36 percent of the country's 1.3 billion people live on less than $2 a day, and an incredible 150 million are living on $1 or less. As Nan Zhenzhong, vice chairman of the Foreign Affairs Committee of the National People's Congress (NPC), pointed out to me last week, "We are second only to India in terms of sheer numbers of poor people. In this sense, the only role we can play in international affairs is the role of a large developing nation."

The rich-China/poor-China debate is becoming a major issue not just in terms of Sino-U.S. relations, but because it threatens social stability in the Middle Kingdom. Revolutions in China have always started in the countryside, and the future of the Chinese Communist Party depends on its ability to spread the wealth beyond the urban elite. That's why last week's NPC session in Beijing, dedicated to the writing of the country's next five-year development plan, focused largely on the idea of "inclusive growth. …