By Branko Milanovic
China’s model of political capitalism has produced staggering growth and lifted millions from poverty—but not without widening the gap between the country’s rich and poor. Inequality has become the Chinese system’s Achilles’ heel, belying the government’s nominally socialist tenets and undermining the implicit contract between the rulers and the ruled. Inequality erodes the trust that Confucius thought even more essential for good government than food (or, in today’s terms, material prosperity).
Addressing this problem requires understanding its sources and its reach. In China, the task is not always a simple one. China’s inequality looks at first glance like the predictable product of rapid growth and urbanization. But aspects of the country’s distribution of wealth and income are more particular. They rise from the nexus of economic and political power within the Chinese system, and they suggest that the country’s leadership faces
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