Taiwan Shrinks Wealth Gap as Xi’s China Communists Struggle

Photographer: Lam Yik Fei/Bloomberg

A man walks past Taiwan's national flags on a bridge in Taipei. Close

A man walks past Taiwan's national flags on a bridge in Taipei.

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Photographer: Lam Yik Fei/Bloomberg

A man walks past Taiwan's national flags on a bridge in Taipei.

More than six decades after Mao Zedong’s Communists chased Chiang Kai Shek’s Kuomintang off the mainland pledging an egalitarian society, it’s the KMT on Taiwan that has crafted a more balanced wealth distribution.

As Chinese President Xi Jinping completes his nation’s leadership succession this week, Taiwan may offer a model for his campaign to bridge a wealth gap that threatens to undermine Communist Party legitimacy. Taiwan’s Gini coefficient, a measure of inequality, was 0.342 in 2011 compared with China’s 0.477 and the 0.4 level used as a predictor for social unrest.

Taiwan moved to introduce a national health-insurance program and greater political accountability as growth slowed to less than 10 percent two decades ago. China, which has similar gross domestic product per person to Taiwan in the late 1980s, is seeking to address grievances over land grabs and access to public services in a nation where 90 legislators have wealth of at least 1.8 billion yuan ($290 million).

“In Taiwan you had the slow and steady development of a wider social security system,” said Rana Mitter, a professor of modern Chinese history at Oxford University. “Taiwan and the mainland of China have gone in two different directions.”

Photographer: Lam Yik Fei/Bloomberg

Motorcycles and buses sit in traffic in the business district of Xinyi in Taipei. In Taiwan, the Gini coefficient hit 0.350 in 2001 and has since hovered around its current level of 0.342. Close

Motorcycles and buses sit in traffic in the business district of Xinyi in Taipei. In... Read More

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Photographer: Lam Yik Fei/Bloomberg

Motorcycles and buses sit in traffic in the business district of Xinyi in Taipei. In Taiwan, the Gini coefficient hit 0.350 in 2001 and has since hovered around its current level of 0.342.

Low-income households in Taiwan, an island of 23 million people, have had access to free or subsidized health care since the country enacted the National Health Insurance act in 1995. The program provides care financed via a payroll premium paid by companies and employees as well as by government subsidies.

‘Wonderful System’

“It’s a wonderful system,” said Peggy Lo, 34, as she left Taipei’s Cathay General Hospital after giving birth to her daughter prematurely 10 days before. Lo was carrying a receipt that showed she had paid the equivalent of $152 for 10 days of treatment in the neonatal intensive-care unit for her daughter. “Without it, we’d probably have to sell our apartment or get a loan,” Lo said.

Chinese officials, meanwhile, confronted more than 17,000 violent incidents in hospitals in 2010 over frustrations with medical care. Even those in the middle class struggle for access, with a survey by McKinsey & Co. of 1,000 people with annual incomes greater than 80,000 yuan showing that 31 percent found it difficult get help at public hospitals.

Strengthening the social safety net is one of the tasks bequeathed to Xi, who became party general secretary in November and took over as China’s president at a meeting of the National People’s Congress today. Party No. 2 Li Keqiang is expected to be appointed premier tomorrow.

Photographer: Lam Yik Fei/Bloomberg

Customers buy drinks at the Shilin market in Taipei. Close

Customers buy drinks at the Shilin market in Taipei.

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Photographer: Lam Yik Fei/Bloomberg

Customers buy drinks at the Shilin market in Taipei.

Outgoing Premier Wen Jiabao acknowledged the challenge when he gave his final work report as premier at the start of the NPC on March 5. He cited deficiencies in education, social security and medical care, as well as social unrest.

Many Difficulties

“We are keenly aware that we still face many difficulties and problems,” Wen said, including what he called unbalanced and unsustainable development. Social problems have “increased markedly,” he said.

In Taiwan, the Gini coefficient hit 0.350 in 2001 and has since hovered around its current level of 0.342. Its income gap is now lower than Hong Kong’s, which reached 0.537 in 2011, and Singapore’s figure of 0.482 that same year. In January, the head of China’s statistics bureau said the Chinese income gap narrowed for the fourth straight year in 2012, to 0.474 from 0.491 in 2008.

China this year will have per capita GDP of $6,644, compared with $6,785 in 1987 for Taiwan, according to data compiled by Bloomberg based on International Monetary Fund figures.

Double Spending

China plans to more than double spending in the health industry to 10 trillion yuan from 4 trillion yuan, Wang Hongguang, a researcher with the Ministry of Science and Technology, said at a health-care conference in Shanghai yesterday. That would lift outlays to 7 percent of GDP (TWGDPPC), up from 5.5 percent in 2010 and surpassing Taiwan’s 6 percent figure, according to McKinsey.

“This situation in mainland China is exactly the same as the situation in Taiwan 30 years ago,” said Cheng Shou-Hsia, Director of the Institute of Health Policy and Management at the National Taiwan University in Taipei. “At that time, the number of hospitals was quite limited.”

Taiwan has its own challenges to address. The island’s health-care system may be tested as its population ages, with the Council for Economic Planning and Development projecting the share of people 65 years old and above will rise to 20 percent by 2025 from the current 11 percent of total population, according to a Moody’s Investors Service Inc. report last month.

Prices Rise

Concern over higher housing prices may have kept couples from having more children, the National Policy Foundation, a Kuomintang-backed analysis group, said in January.

Barring reforms, pensions for the military may go bust by 2019 and those for public servants will face insolvency in 2031, President Ma Ying-jeou said in January.

“Income taxes are so low due to political pressure, and every president, when they are running for the job, says there will be no increases,” Cheng said. “The government’s financial situation is not good.”

Xi’s task dwarfs Taiwan’s given the size of the nation he now runs. Were he to get the Communist Party’s wish and bring Taiwan back under Beijing’s control, the island would rank 24th among Chinese provinces and municipalities in population. China has 1.3 billion people, 56 times the number of people in Taiwan.

Wealth Gap

Nonetheless, China’s priorities echo Taiwan’s beyond just the wealth gap. When Xi took over as Communist Party general secretary, he said the party must confront corruption, bribe- taking, and “being divorced from the people.”

In Taiwan, former President Chen Shui-bian is serving a 20- year jail term for bribery. Another former leader, Lee Teng-hui, faced embezzlement charges in 2011. Taiwan also introduced a luxury tax in 2011 that imposed a 10 percent sales levy on goods such as yachts and furs.

On March 12, Singapore’s Straits Times said Ma’s daughters sometimes wear the same dress to different events and are known for going without fast cars or “flashy parties.”

“All of us could learn from Taiwan, not just China,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “If China cannot clean up corruption, then a lot of your resources that you commit to expanding your social welfare restructuring will get squandered away at different levels and you find the society will not move forward.”

To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Chinmei Sung in Taipei at csung4@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Stephanie Phang at sphang@bloomberg.net

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