China's economic progress is fabulous, but are the Chinese living better lives?

China is now the world's second largest economy, in terms of Gross Domestic Product (GDP), just behind the United States of America. China's economic growth has been significant within the past decade as indicated by Figure 1. Although the Chinese economy has slowed slightly recently, the Chinese economy is still experiencing much of a rapid growth of about 10% annually as seen from Figure 2. Economic growth is good news. However, does this necessarily means that the lives of the Chinese are getting better?

Figure 1: China's GDP from 2000-2011

Figure 2 : China's Annual GDP Growth 2000-2011

An increase in GDP means an increase in national income (NI) of the Chinese economy. This means that as a nation, Chinese citizens have become richer and are now able to buy more goods and services for their daily consumption. The material standard of living (SOL) is the quality and quantity of goods and services available to the an economy's citizens for consumption. An increase in NI supposedly increases the material SOL of the Chinese, thereby, improving their lives.

Meanwhile, it is necessary to factor in the GDP per capita for a more complete analysis of material SOL. This is because when an economy's GDP growth rate is lower than its population growth rate, the wealth of an average individual in the economy actually decreases.

In the context of China, the population growth data from 2000 to 2011 has decreased from 0.8% to 0.47%. Since the GDP growth (Fig.2) is significantly higher than the population growth rate, we can safely say that China's NI per capita has improved in the past decade. This is proven by Figure 3, which means that theoretically speaking, the life of an average Chinese should have increased within the past decade.

Figure 3: China's GDP per Capita 2000 - 2011

In addition to the population data, we should also factor in the inflation data. After all, if consumer prices have risen more than the GDP of an economy, an average citizen in the economy will now have the ability to consume less goods and services than before and the material SOL would have decreased over the years. 

In the context of China, the annual inflation rate (Fig.4) has never exceeded the annual GDP growth rate (Fig.2). Thus, we can safely say that an average Chinese's material SOL has improved over the years despite there being some inflation in the country.

Figure 4: China's Annual Consumer Price Inflation Rate 2000-2010

However, when it comes to income distribution, China faces a big problem. The Gini index measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. China's Gini index is high at 40. In fact, China's Gini index has even risen a little in the past decade.

Fortunately for China, this widening of the income gap is caused by the rich getting richer faster than the poor but not the rich getting richer and the poor getting poorer. As prove, data shows that the poverty headcount ratio at national poverty line in China has dropped from 4% to 2.8% from 2000 to 2004. This shows that even the lives of the poor are getting relatively easier due to China's economic development. Therefore, we can say that all Chinese have benefited from China's economic progress. It is just that the poor's material SOL has not risen as much as that of those who are more affluent. 

On the other hand, this widening of the income gap can create discontent among the poor. If actions are taken due to this discontent, there might be social unrest created in the country which will lead to a drop in the non-material SOL of the Chinese population.

Furthermore, China's economic development is at the expense of its environment. The lax waste management laws in China has resulted in improper disposal of wastes from factories into the natural environment. It was reported that “up to 40 percent of China’s rivers were seriously polluted” and “20 percent were so polluted their water quality was rated too toxic even to come into contact with.” The air quality problem in China has also been increasing in intensity recently. The Air Quality Index (AQI) of the air in Beijing is at 282, which means heavily polluted. The clearing of forests for development has also cause desertification and increment in sand storm occurrences in China. All these negative externalities lead to a worsening the Chinese population's non-material SOL over time.

In conclusion, while the material SOL of the Chinese have definitely risen over the past decade, the non-material SOL of the Chinese might have actually worsened. China needs to recognize this problem of non-sustainable development and stop the single minded pursuance of economic growth. China should increase the focus on environmental conservation and start taking measures to reduce income inequality before this two factors pose challenges to the nation.