The Daily Update - 40 years of China’s reforms

Tomorrow will see the Chinese President Xi deliver a speech commemorating 40 years of China’s ‘reform and opening’. The speech is being eagerly anticipated due to the recent developments within China and the external pressure that has been exerted, especially by the Trump administration. Both of these headwinds may force Xi to change course on both the substance and direction of macro policy reform going forward. Although Xi will commemorate the first 40 years of reform led by Deng Xiaoping and his famous ‘Emancipate the mind, seeking truth from fact, and unite as one to face the future’ speech, which opened China up to the international community and foreign investment. It is thought he will try to have a clean historical break from previous policies. In macro terms, Xi’s speech is expected to emphasise the equal footing of state-owned, private and foreign enterprises, and even go as far as ‘neutral competition’.

China has come a long way in the last 40 years when nearly 90% of the Chinese population lived on less than USD2.70 a day, that figure dropped to approximately 6% of the population last year. Although it has to be said the difference between the poor and rich in China is enormous. According to a report from the Peking University, the richest 1% of households own nearly 35% of the country’s wealth, with the poorest 25% owning just 1% of the country’s total wealth. In a widely used measure for countries inequality, the Gini Index, a statistical measure that is used to represent unequal distributions, puts China at 46.5 in 2016 (the closer the value is to 100 the greater is the inequality). This figure is down from over 49 in 2008, however still far too high. For reference, the US has a figure of 41, the UK 33 and the EU just over 30.

As we have seen in many other parts of the world (indeed in France over the weekend) inequality is a growing problem and one the Chinese authorities will need to address, especially when you have well over 1 billion people who are getting better education year on year and don’t live in a democracy.

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