In an August 1999 incident reminiscent of the Cultural Revolution, Chinese farmers rampaged through government offices and pillaged the homes of the rich in Jiangxi province. Two thousand People’s Armed Police called in to stomp out the rebellion confronted 20,000 peasants. Ironically, Jiangxi is the original home of Mao’s Chinese Communist Party (CCP), which once based its strength and legitimacy on the support of poor peasants by promising relief from the excessive taxation and corruption of the Kuomingtang. Yet, many of these same Chinese have now turned against the CCP, claiming they have been left behind in the nation’s recent economic development.

China has enjoyed tremendous economic growth in the past 20 years, but simultaneously, levels of inequality have risen to unprecedented levels. This is the result of an urban-biased development scheme that favors industry and foreign investment over agricultural development. This scheme increases CCP legitimacy in critical sectors, but at the cost of increasing urban-rural inequality.

The human response to such policies has been rural social unrest and mass migration to cities in search of jobs. Many other countries have faced similar dilemmas of human displacement in the course of their development, including the United States. But the peculiarities of China’s demography and history make the nation’s urban-rural divide a real source of acute social turmoil, whose potential will only increase with China’s entry into the World Trade Organization (WTO).

Growth in Phases

China’s economic history of the last 20 years is at the heart of the current situation in the nation’s countryside. Development has occurred in two phases, and although overall growth has been impressive, it has been highly sectoral. The first phase began in 1979, when Deng Xiaoping launched a series of reforms, including decollectivization of agriculture and a return to household farming. This liberalization initially stimulated agrarian production. However, beginning in 1985, agricultural output has experienced a steady decline due to subsidy cuts and rising costs of inputs.

Although agricultural output has been declining for the last 16 years, until 1993 the Chinese rural sector still experienced growth in overall rural output. This was due to the rise of town and village enterprises (TVEs): light manufacturing ventures in rural areas that soon out-competed the urban-centered state-owned enterprises (SOEs). The central government was giving local authorities more and more fiscal autonomy, and thus regions began diverting funds intended for agriculture into TVEs with higher returns.

Despite increasing inequality within the countryside, TVEs were quite effective in temporarily reducing overall urban-rural disparity. TVEs were based on high levels of inputs and human capital, not technology—a strategy typically not sustainable in the long run. Yet in the 1980s, they expanded rapidly and swallowed up a certain amount of agricultural unemployment. By 1987, TVEs already superseded agriculture as the primary source of income in the rural sector. Overall, the 1980s were a time of agricultural decline and industrial growth for China, but TVEs kept the rural sector’s economy strong.

From 1993 until the present, in the second phase of China’s growth, TVE growth virtually halted. Foreign-owned enterprises (FOEs) began entering China and replacing both SOEs and TVEs. FOEs were more efficient and technological, providing goods that Chinese consumers preferred over domestic goods of inferior quality. FOEs were naturally less input-oriented, however, and they tended to hire fewer people and use less equipment. Thus, during a period when SOEs were already being dismantled, FOEs, which were generally urban-centered, flattened rural output and employment. In 1997, TVE employment declined 4.8 percent; in 1998, it fell by 18.7 percent; and the trend has been continuing. The 1990s in China were a time of overall rural decline, while the urban economy boomed with foreign investment.

Rising Inequalities

From 1994 to the present, a tremendous growth in unemployment has turned many rural farmers into absolute economic losers. Meanwhile, the influx of foreign direct investment and the rise of industrial joint ventures have increased urban-rural disparity. With average urban real incomes now four times that of rural real incomes, China’s levels of inequality greatly surpass that of Eastern European transition economies, Western European industrialized nations, and other Asian developing nations such as India, Pakistan, and Indonesia.

The inequality we see in China is a result of an urban-biased development strategy. Like many other developing countries, China’s growth scheme of the last 20 years has focused on industrialization. A high percentage of agricultural output in the economy is seen as the mark of an “underdeveloped” country, and many nations attempt to leapfrog a reorganization of rural production. The erosion of agricultural investment, tariffs, and subsidies drives down food prices, and in turn, wages can be reduced. This is intended to attract foreign investment that will produce jobs that both satisfy urban workers and absorb the swelling agricultural unemployment. Yet in the last eight years, this growth has been “jobless” for China. Although, compared to the countryside, urban opportunities abound, a simultaneous growth in urban unemployment due to SOE downsizing has meant that urban centers are nowhere near being able to swallow up rural unemployment with industrial jobs.

Rural Discontent

In response to the persistent unemployment and poverty, and an inability to pay the exorbitant state, provincial, and local taxes, there has been great unrest in the Chinese countryside. In 1999, a farmer who could not pay taxes in central Hunan province killed himself when officials threatened to destroy his house. This resulted in a battle between 10,000 Hunan farmers and 1,000 police. In Northern Shaanxi province, 30,000 peasants signed a petition demanding the release of lawyer Ma Wenli, who had been sentenced to five years in prison after attempting to help peasants sue the government. In 1999, demonstrations and public protests numbered 110,000, a 70 percent increase from 1998.

Mobilized peasants in China generally find it difficult to gain political clout and have few avenues for influencing policy. The current unrest in China follows the Chinese historical tradition of peasant uprisings. Frequent victims of over-taxation and impressment, Chinese farmers have in the past been left little recourse but rebellion. Yet part of this legacy is also the leadership’s deliberate refusal to acknowledge such revolts. China’s expansive geography has meant that unrest is considered threatening solely when it takes place in urban areas. However, a novel phenomenon now emerging in China is throwing a wrench into traditional attitudes and creating new pressures on the government.