South-Western College Publishing - Economics  
In its move to capitalism, China discovers income inequality
Subject income inequality increases with moves toward greater capitalism
Topic Income distribution and poverty
Key Words

income inequality, development, poverty, China

News Story

Zhang Yuchen, one of China's new rich, constructed a replica of Chateau Maisons-Laffitte, the 1650 French masterpiece located on the Seine, on his estate in Beijing. Meanwhile, the 800 peasants who used to farm the land on which his estate sits, must sit and stare at what was once their own farmland.

Construction of the replica cost him $50 million. To get details accurate, restorers tooks 10,000 photographs, and Zhang used the same white Chantilly stone as the original. He expects visitors to rent rooms from him, and once the castle is constructed, the owner expects other newly wealthy citizens to purchase one of the 1,000 luxury homes he plans to build on his estate, near the pools, equestrian trails and golf courses.

The government does not allow individual ownership of land, but does allow individuals to lease the land--Mr. Zhang pays $300 per acre annually. But that $300 per year does not go back to the people who once farmed the land-these farmers are not allowed to have control over any of the land, removing them from any development of the property. As part of the agreement with the government, though, Mr. Zhang has promised jobs for 600 of the people at $2 a day to maintain the grounds, and a $45 monthly stipend for those deemed too old to work.

China is creating a class of super rich alongside a landless underclass. Estimates indicate that 10,000 Chinese have assets in excess of $10 million. Some of these individuals worked their way through poverty, and others found avenues through the Communist Party to achieve their wealth. The former residents of the land argue that even with the salaries they are paid, they are poorer than before. "We have to pay city prices for our food, but still live on farm income." They argue that they are being forced to live a feudal lifestyle, acting as serfs for those who have the means to live like Mr. Zhang.

In Mr. Zhang's mind, though, he has larger thoughts on his project. He says, "It is for all Beijing people, including the common people who do not have the opportunity to visit Europe themselves. I wanted everyone to get a taste of the finest world culture."

Questions
1.

Sketch out a Lorenz curve to indicate what is happening in the summary. How would the Lorenz curve change over time to coincide with what's happening in China?

2. Think about Europe's history of feudalism. In what ways does this article describe a society that mirrors an old European feudal system? In what ways are the systems different?
3. Is what is being described here inevitable in a market-based economy? As China moves further and further into market systems, will this problem get worse or better? Why?
Source Joseph Kahn. "China's Elite Learn to Flaunt it While the New Landless Weep." The New York Times, 25 December 2004.

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