Despite news of a prosperous China, economist have been troubled by the income gap and are struggling to define China economic status. With 1.4 billion population, China is the world second most populous nation and second largest economy. However, there remains a large economic divide between China’s urban and rural population.

In 2015, China set a goal of eradicating absolute poverty by 2020 and it was renewed by President Xi Jinping in 2017. Between 2012 and 2017, an estimated 68.53 million rural people were lifted out of poverty. Disposable income have rose at an annual rate of 10.4% in rural areas, after adjusting for inflation. However, an estimated 30 million household still remain below the line. The poverty line is currently defined by the government at an annual income of $350 per year.

China’s Invisible Crisis: How a Growing Urban-Rural Divide Could Sink the World’s Second-Largest Economy, a book published by Stanford economist Scott Rozelle states that only a third of China’s workforce has completed high school. As China transits from a manufacturing to a knowledge and service based economy, the army of cheap labor that had propelled China in the 1990s and 2000s are no longer capable of maintaining the track record. Poverty alleviation has been labelled as one of the top three ‘tough battles’ that the state government has listed out, alongside ‘risk prevention’ and ‘pollution control’.

Developed or Developing?

As China strives towards the building of a innovative and technological-driven nation, the underdeveloped regions struggles to catch up. Despite advancements in technologies such as mobile payment, high-speed rail, artificial intelligence and most recently blockchain, benefits have been concentrated mostly in first and second tier cities. U.S. President Donald Trump has repeatedly stated that ‘it is unfair’ for China to be labelled as a developing nation. Under several international organizations such as the World Trade Organizations and United Nations, a developing nation is entitled to special concessions such as transfer of technology and laxed regulatory guidelines in order to accelerate growth.

IMF, World Bank & WTO Defines China

By definition, China is a developing nation as a large number of people still live in poverty. According to International Monetary Fund 2017 report, China is ranked 72th in GDP (Nominal) per capita and 79th in GDP (PPP) per capita. China also fails to qualify for World’s Bank definition of a developed nation, which currently sets at a Gross National Income (GNI) of 12,055. However, it is worthy to note that beginning of 2019, countries will be categorized according to high, upper-middle, lower-middle and low. China will fall under upper-middle income group. The World Trade Organization also labels China as a ‘Developing Nation’, albeit it is more of a political label rather than a economic definition.

One can easily conclude that China is a strong economic powerhouse as well as one of the most innovative nation. However, the lack of an equal distribution of social progress meant that China will remain by definition, as a developing nation for the years to come. Before China could graduate to the status of a developed nation, huge amount of investments remains necessary to not only alleviate poverty but also equalize social progress. According to the Ministry of Finance, $13 billion will be dispensed in 2019 with the primary aim of alleviating poverty. Till then, only time will tell if President Xi will be able to achieve its goal of poverty eradication by 2020.

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