Ryan Pyle Blog: The Gap Between Rich & Poor

Hello.

For anyone out there who has had this conversation with me, they will know that I feel very strongly about the destabilizing force that the gap between rich and poor is creating in China. Those who have moved in to the cities in search of a better life has more or less found some version of it, those who have stayed behind in rural China have fallen even further behind. The question is why?

China's political leaders have, for the last 30 years, have focused entirely on developing China's cities. And, for the most part they have done a good job. But their focus on China's urban centers has left behind some 70% of the countries population (rural residents) who still have to deal with an often kleptocratic and corrupt local government. So if the gap between rich and poor is so great and the life quality between China's urban and rural residents so large, how does China keep it's 700 million farmers happy? What keeps them loyal to the system that consistently see's them losing out to urban residents? It's a question I have never been able to answer.

One of the most interesting developments in China over the last five years or so has been the media's aggressive push to publish corruption scandals in Chinese newspapers throughout the mainland. In the past year alone there have been several full page spreads about massive corruption at China's SOE's as well as within the government ranks. Leading me to ask the same question again, what keeps this current system afloat? Stability? Fear?

Earlier this year, while 700 million Chinese were living day-to-day, the world learned that the Chairman and CEO of China's High-speed Rail Network at embezzled over USD 100 million and held 18 mistresses; a life style and an amount of money that could never be comprehended in rural China. To top it off his position was mainly a political posting in a publicly traded State Owned Enterprise.

With the gap between rural and urban residents getting bigger, how much longer will people stand for this kind of rampant corruption that exists in China? Perhaps the bigger question, beyond corruption, is just the blatant stupidity shown on a weekly basis by China's privileged class. Below is an article by Reuters that indicates a Sinopec Executive has been disciplined for spending over USD 230,000 on alcohol for a lavish party. Many of the bottles of local alcohol cost USD 1,500 each, as much as 5 times the annual income of a farmer in rural China. Another example of insane decision making by a privileged member of China's SEO elite.

At some stage the political and economic elite in China are going to have to realize that their jobs and careers, and perhaps this country's stability, are at risk because of the corruption, embezzlement and impotent legal system that exists in China. Institutions need to be stronger than the men/women who hold positions of power. Corruption by government officials and SEO executives is a slap in the face to much of China's 1.3 billion people who are striving to create a better life for themselves and their families.

Also make note of the story below: where did the executive get the USD 230,000 for the alcohol purchase? Was the party a corporate sanction party or a personal party? Was the executive using ill gotten corporate money or personal money? Is there a corruption inquiry going on? There are a lot of unanswered questions here. My guess, knowing how things work in China, is that this guy bought the booze using company money and it was sanctioned by corporate bosses and the alcohol was used for corporate smoozing. The equivalent of a big weekend in Vegas. But once the purchase popped up in online chat rooms someone needed to "take the fall" to save the public reputation of the company.

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Original Story: http://www.reuters.com/article/2011/04/25/us-sinopec-drinks-idUSTRE73O3VX20110425

Copyright: Reuters

April 25th 2011

BEIJING (Reuters) - Chinese oil refining giant Sinopec has demoted a top executive who bought 1.6 million yuan ($245,900) of wine and spirits after details of the purchase leaked onto the Internet and sparked an uproar over extravagance at the state-owned firm.

Sinopec, which is Asia's top refiner, said Monday that it had demoted Lu Guangyu, who was general manager at the company's operations in the southern province of Guangdong, for "seriously harming Sinopec's image."

The company also fined Lu an unspecified sum and ordered him to pay back 130,000 yuan for alcohol he and his associates had already drunk, it said in a statement on its website (www.sinopecgroup.com).

His purchases included 480 bottles of Moutai, an expensive Chinese liquor traditionally drunk at state banquets, Sinopec said, adding it had re-sold bottles which had not already been drunk.

Some of the bottles cost almost 12,000 yuan each -- far more than the average Chinese earns in a month.

State media and China's spirited internet users said the purchase of the alcohol, which was meant for internal company use, was especially galling considering how much gasoline and diesel prices had risen recently.

Many Chinese are also struggling to make ends meet as inflation climbs. Consumer prices rose 5.4 percent in the year to March.

Sinopec Corp is the company's listed arm. ($1 = 6.507 Chinese Yuan)
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Ryan Pyle
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ryan@ryanpyle.com
Website: www.ryanpyle.com
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