`New poor' leave Chinese with an economic puzzle

When China's economy took off, stories were rife of the country's "new rich" - successful entrepreneurs grown wealthy under market reforms. With inflation now described by government officials as "a most acute problem", cities are home to a diffe rent social phenomenon: the urban "new poor".

A survey this month showed nearly 12 million city dwellers are living below the poverty line. In Peking "absolute poverty" was defined as living on an income of less than 143 yuan (£11) a month, less than a quarter of the official average. The report said two-thirds of poor families' dietary levels were "unsatisfactory and some even suffered from malnutrition".

These "new poor" are not the floating rural workers who come into the cities in search of jobs. They are found instead among official urban residents, and are mostly employees in moribund state enterprises and elderly people on fixed pensions. Their lives are far removed from the private entrepreneurs who, according to recent statistics from the State Planning Commission, can earn more than 7,500 yuan a month. Even a taxi driver can make more than 2,000 yuan. The fear of the government is that the widening gap between rich and poor is fast undermining social stability.

In a throw-back to the old days of socialist welfare, some provincial governments are introducing benefits for the really poor. In October in Chongqing, in the western province of Sichuan, officials started distributing grain coupons to lower-paid workers in loss-making state industries. Central Hubei province is issuing grain discount cards to poor urban residents so they can buy staple crops below market price. In the north-east city of Harbin, the government is distributing "special difficulty cards"

to exempt the poorest from certain fees and taxes.

The government regularly claims inflation - running at 27 per cent - is not causing hardship for those with jobs because wages, on average, are rising even faster. But millions work for loss-making state enterprises. When production slows, or grinds to ahalt, employees are often sent home "to rest" on reduced salaries, and can even find themselves paid with unsold factory products.

This practice is becoming far more prevalent. In Peking, according to the Municipal Labour Bureau, in the whole of 1993 there were 35 labour disputes provoked by enterprises deducting or failing to pay wages. In the first half of 1994, there were 137 such cases.

In practice, official urban poverty numbers are defined by an unrealistically low income threshold. Ms Wang, a full-time clerk in the general office of one of Peking's big knitting and weaving factories, earns 300 yuan a month, twice the threshold level for "absolute poverty", but can barely make ends meet. Her priorities are the traditional four basic necessities: "chai, mi, you, yan" (fuel, rice, oil, salt).

With temperatures well below freezing and snow on the ground, Ms Wang wore a green padded cotton army-style coat and old-fashioned padded cotton booties. In her late thirties, she is married to a machinery tool worker and has one son. She is resigned to the growing wealth gap that has left her and her colleagues behind. "We are helpless. Rich people can be capable," she said. But, she added with some resentment: "They also have lots of guanxi [influential connections]." She did not seem the type to exploit new business opportunities.

The textile industry is suffering particularly badly. At the Yungang factory of the General Company for Knitting and Weaving, situated in Peking's suburbs, the plant has been mothballed and employees sent home "to rest" on 150 yuan a month. Younger staffcan find casual work in new industries or become street hawkers. Older ones, set in their ways as state employees, simply stay at home.

The country's first Labour Law, a result of fears of unrest in the workforce, takes effect on 1 January, introducing, among other things, a "minimum wage". In Peking, this has been set at 210 yuan a month. Critics complain that is much less than any full-time job would pay, and of no relevance to those whose loss-making work units have no cash to pay them.

The government is in a dilemma; to cut inflation, it must restrict bank lending, a huge proportion of which props up the state sector. Under government pledges to restructure state industry, factories unable to stand on their own feet will no longer be bailed out. But that would push millions more into poverty, a risk the cadres cannot take.