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China's leadership challenge in new era: douse "inequality volcano"

People walk in front of a screen showing propaganda displays near the Great Hall of the People at Beijing's Tiananmen Square, November 7, 20
People walk in front of a screen showing propaganda displays near the Great Hall of the People at Beijing's Tiananmen Square, November 7, 20

By James Pomfret

YANGCHANG, China (Reuters) - In the mountain village of Yangchang in the backwater province of Guizhou in southwestern China, the roof of the Yang family home is cracked and about to cave in, held upright only by a few rickety tree trunks.

Nearly penniless after quitting their jobs in a coastal city, Yang Hechun and her husband recently returned to the village to care for a sickly 71-year-old grandmother and two young children.

"We can hardly afford to eat, never mind mend our house," said Yang, over a meal of rice, chilli bean sprouts, peanuts and tofu. "We earn one yuan, then we spend one yuan."

As China prepares for its once in a decade leadership transition at the 18th Communist Party Congress, which begins on Thursday in Beijing, the outside world sees an inexorably rising economic power: Beijing is now the world's largest exporter, the second-biggest economy overall, and it controls over $3.2 trillion in foreign exchange reserves.

Yet the disconnect between those numbers and the lives of families like the Yangs lies at the core of the most vexing issues the country's incoming leadership will confront: sustaining economic growth, rooting out corruption, narrowing the wealth gap, and preserving the party's legitimacy in the face of mounting public grievances over decades of iron-fisted rule.

President Hu Jintao, in a speech at the opening of the party congress on Thursday, is expected to tout the country's economic advances over the past decade, while acknowledging that China still faces many difficulties.

Reforms, most economists agree, will be vital to avoid stagnation and bigger socio-economic disruptions. What's unclear is just how aggressively the incoming leadership will push new policies.

Though Yang Hechun acknowledges her family's life has improved over the past decade, their continuing daily struggles resonate in villages, cities, campuses and factory floors throughout China.

$1.25 A DAY

At a roundabout in Bijie, the region of Guizhou where the Yangs live, a towering billboard bedecked with flowers and adorned with an image of Hu Jintao proclaims: "Explore, develop and pioneer ... work hard to lift, reform and construct Bijie to a higher level."

The Yangs' village was designated an experimental zone for poverty alleviation policies and economic development in 1988, during president Hu Jintao's stint as party chief of Guizhou.

Development over the past few years has brought a two-lane highway and bridges to the once remote region, along with electricity.

But the Yangs still have no running water, and food, education and medical expenses swiftly erode their meager earnings from harvesting chilli peppers and corn on a tiny farm.

Thirteen percent of China's 1.3 billion people still live on less than $1.25 per day according to the United Nations Development Program and Guizhou has the poorest per capita income of any of the country's provinces.

Beijing set aside 415 billion yuan ($66.5 billion) over the past five years to fund minimum livelihood allowances for China's most needy, while welfare coverage -- including basic health insurance -- has broadened to include almost 95 percent of households, as have primary school fee waivers in more areas.

Yet, goodwill earned from those measures has been corroded by deeply held suspicions of corruption. Nationwide, over half a million grassroots officials were punished for graft and other so called "discipline violations" over the last five years.

The Yangs believe the failure to pave broken roads and build water pipes in their village is because of local corruption. Public works projects have been talked about for years but never built, even with state funding and contributions from residents.

WOLF FANGS

Across China, the perception of widespread corruption is intensifying grassroots demands for official accountability —demands that the party all too often ignores.

Shen Zhiyun is a crippled former farmer who lives in the nearby village of Guole. He and other villagers were told by village officials recently that hundreds of hectares of farmland would be flooded to form a reservoir serving a new industrial estate in a nearby town.

Despite the threat to local livelihoods, district cadres never consulted the villagers, and will soon build a dam.

"We oppose it, but we also can't oppose it. That's how things are in China," said Shen. "They eat the people and don't even spit out the bones ... those officials with wolf's fangs."

The sense of powerlessness Shen expresses is widespread, and poses, in the minds of some analysts, a broad threat to the party's cherished stability.

As vast as the income disparity is between the rich and poor -- Beijing hasn't published official inequality statistics for over a decade, but the United Nations estimates the gap has grown steadily wider over the last decade -- the maltreatment of ordinary Chinese citizens by officials may be the more dangerous flashpoint.

"The main challenge is not income inequality, it's power inequality, and it's much less easy to deal with," said Martin Whyte, a Harvard University sociologist and author of a book on China and its disparities.

"Keeping this power inequality volcano dormant may be much more difficult than keeping the income inequality volcano under control, since to do so would require not simply new programs and financial resources, but fundamental political reforms."

RISING EXPECTATIONS

Even in the more prosperous parts of China, the pressures on the government from the bottom up are no less relentless. Two years ago, in the factory town of Xiaolan in the Pearl River Delta -- China's factory for the world -- workers at a Honda Lock auto parts manufacturer went on strike, weary of their low-paid, grinding work.

Word of their action -- a rare, early instance of a strike that crippled production at a multinational corporation in China -- spread rapidly on social media. It inspired other factory workers across the country and forced many firms and local authorities to respond by raising minimum wages and benefits.

At Honda Lock, pay has increased 30 per cent since 2010, including increases in housing and transport subsidies.

Lin Wenwu is one of the workers who benefited from the strike. He makes about $560 a month now. A new desktop computer sits in the small one-room flat he and his wife rent, and he zips around Xiaolan on a newly purchased black motorcycle.

Still, Lin's not satisfied. He is one of China's army of migrant workers -- 150 million strong -- who largely remain second class citizens, denied welfare benefits that accrue to local city dwellers through a household registration (or "hukou") system, an outdated policy from the Mao era originally intended to control rural-urban drift.

The system means Lin's two children can't get free schooling in Xiaolan, so he leaves them behind in his home province of Guangxi, where they're cared for by relatives. He sees them roughly three times a year for several weeks.

"I miss them," he said. "We hope that after the (party congress) the leaders will do more to improve the livelihoods of people like us."

LOSING FAITH

Back in Guizhou, huddled around a stove, the Yangs have little faith in their political leaders. The family is wondering how to raise the 40,000 yuan needed to rebuild the roof, now propped up by bricks and sawed-off tree-trunks.

So far, local village officials have rebuffed requests for a construction subsidy of 5,000 yuan normally eligible to most villagers, unless the family first coughs up 1,000 yuan to facilitate the application.

"Several neighbors paid up last year, but they've haven't gotten any money back at all," said Yang.

"Sometimes I feel the poorest people get nothing, and the richest get everything. We can only rely on ourselves."

(Additional reporting by David Stanway in Beijing; Editing by Raju Gopalakrishnan)

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