China's urban-rural wealth gap widens in 2008

BEIJING (Reuters) - China's yawning urban-rural wealth gap widened further in 2008 even as income growth slowed, lending statistical support to concerns that the economic slump and rising unemployment could spark social tensions.

Per-capita incomes of urban residents in all of 2008 reached 15,781 yuan ($2,307), showing inflation-adjusted growth of 8.4 percent from a year earlier, the National Bureau of Statistics said on Thursday.

For rural residents, per-capita incomes came to 4,761 yuan ($696) for the year as a whole, up 8.0 percent in real terms, marking the eleventh year in a row that real income growth in cities has outpaced that in villages.

Both growth rates were slower than in 2007.

Chris Spohr, a social sector economist with the Asian Development Bank in Beijing, said that while income growth remains strong in comparison to other countries, the slowdown in economic growth to 6.8 percent in the fourth quarter creates fresh challenges for policy makers keen to improve equality.

"The key issue looking ahead will be the extent to which those rapid increases in real per capita income can be maintained in the medium-term, ... in particular the incomes of rural-to-urban migrants," Spohr said.

A wave of factory shutdowns in the wake of falling exports left millions of rural migrant workers unemployed in the last few months of the year and put downward pressure on wages overall.

Falling prices for agricultural goods also weighed on farmers' incomes, and relatively high consumer inflation in the countryside -- 6.5 percent versus 5.6 percent in cities -- meant that more of their nominal income gains were eroded.

City dwellers' average incomes are now 3.31 times those of the average for the country's roughly 740 million farmers, compared with 2.47 times in 1997.

With many migrants returning home after losing their factory jobs, an important question in the months ahead will be whether they can gain access to social welfare services such as unemployment benefits and minimum living allowances for the poorest, Spohr said.

HEALTH CARE REFORM

Officials have warned about social instability with a large pool of unemployed migrants. Stagnating incomes would also work against the government's aim of increasing the role of domestic consumption in driving growth.

Faced with a shoddy social welfare system and high out-of-pocket expenses for health care and education, millions of families are forced to set aside precautionary savings rather than spend their earnings.

The resulting high savings rate saps the contribution of consumption to growth, something Beijing has said it will take steps to change.

In the latest initiative, the State Council, or cabinet, said on Wednesday that the government would spend about 850 billion yuan ($124 billion) on health-care reforms over the next three years to provide better, more affordable services.

But Ha Jiming, chief economist with China International Capital Corp in Beijing, said that the latest figures on income growth suggest consumption will be muted in the near term.

"We project that the slowing income growth of rural and urban residents will affect consumption, and real retail sales growth will fall to 11.6 percent in 2009 (from 14.9 percent in 2008)," Ha said.

($1=6.84 yuan)

(Additional reporting by Simon Rabinovitch and Langi Chiang; Editing by Nick Macfie)