Labour productivity trends in Chinese manufacturing, 1980-1999

One of the puzzles of Chinese economic development is the persistence of poverty amidst sustained rapid growth of output. China has experienced very rapid growth for decades. Official Chinese figures put annual growth of output at around 10 percent since 1978 (see OECD, 2000; Wu, 2000). With population growth below 1.5 per cent since 1973, this would put per capita growth at around 8.5 per cent per year. The rule of thumb is that a country will double its per capita income in a period roughly equal to 70 divided by the annual average growth rate. According to this rule of thumb per capita incomes in China should have increased more than sixfold since 1978. If this is the case, why are so many Chinese households still living in poverty? According to a recent estimate (Chen and Wang, 2001), 49 per cent of the population of China in 1999 had an income of less than 2 dollars a day or less than 700 dollars per year (corrected for purchasing power parities). 17.4 per cent of the population was earning less than 1 dollar a day.1 How can this paradox be explained?