China's Internal Dilemmas

{
  "authors": [
    "Yukon Huang"
  ],
  "type": "testimony",
  "centerAffiliationAll": "dc",
  "centers": [
    "Carnegie Endowment for International Peace"
  ],
  "collections": [],
  "englishNewsletterAll": "asia",
  "nonEnglishNewsletterAll": "",
  "primaryCenter": "Carnegie Endowment for International Peace",
  "programAffiliation": "AP",
  "programs": [
    "Asia"
  ],
  "projects": [],
  "regions": [
    "East Asia",
    "China"
  ],
  "topics": [
    "Economy"
  ]
}

Testimony

China's Internal Dilemmas

While China is now the world’s second largest economy, rising inequality poses serious risks to the country’s internal stability.

By Yukon Huang

Published on Feb 25, 2011

Source: February 25

While China has recently grown to become the world’s second largest economy, rising inequality poses serious risks to the country’s internal stability. The leadership has given greater priority to economic before political liberalization and assumed that rapid growth would be enough to maintain social balance. But the increasing incidence of protests and emerging tensions have raised concerns about the future. In testimony before the U.S.-China Economic and Security Review Commission, Yukon Huang describes the growing divide between coastal and inland, as well as urban and rural Chinese and outlines steps the Chinese leadership must take to avoid social unrest.

Policy Recommendations:

Resist the urge to "artificially" move production inland: China has benefited enormously from “unbalanced” growth that has favored coastal cities over isolated inland areas. Rather than trying to shift production to these underdeveloped regions, China should instead concentrate on improving their well-being through more regionally balanced social programs and improved infrastructure links that facilitate the movement of people and goods.

Oblige state corporations to pay higher dividends: China is unusual in that corporations have not been paying any significant share of their retained earnings to households or the government. Transfers to the budget through higher dividends stand to increase domestic consumption in social services, moderate growth in industrial investment, and help offset the bias in favor of exports.

Liberalize internal migration and the “hukou” system: A holdover from the days of central planning, the “hukou” system establishes a person’s official place of residency and determines access to social services and housing. Liberalizing the system would increase labor mobility and significantly reduce disparities between urban and rural Chinese by making it easier for the poor to access better jobs.

“Even with rapid growth, widening disparities are now threatening the fabric of society,” Huang writes. “How China handles this complex set of issues will have profound implications for internal security.”

About the Author

Yukon Huang

Senior Fellow, Asia Program

Huang is a senior fellow in the Carnegie Asia Program where his research focuses on China’s economy and its regional and global impact.

Recent Work

Commentary
Three Takeaways From the Biden-Xi Meeting
- Yukon Huang, Isaac B. Kardon, Matt Sheehan
Commentary
Europe Narrowly Navigates De-risking Between Washington and Beijing
- Yukon Huang, Genevieve Slosberg

Economy East Asia China

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

More Work from Carnegie Endowment for International Peace

Collection
The Iran War’s Global Reach
As the war between the United States, Israel, and Iran continues, Carnegie scholars contribute cutting-edge analysis on the events of the war and their wide-reaching implications. From the impact on Iran and its immediate neighbors to the responses from Gulf states to fuel and fertilizer shortages caused by the effective shutdown of the Strait of Hormuz, the war is reshaping Middle East alliances and creating shockwaves around the world. Carnegie experts analyze it all.
Commentary
China’s Energy Security Doesn’t Run Through Hormuz but Through the Electrification of Everything
Across Asia, China is better positioned to withstand energy shocks from the fallout of the Iran war. Its abundant coal capacity can ensure stability in the near term. Yet at the same time, the country’s energy transition away from coal will make it even less vulnerable during the next shock.

Damien Ma
Commentary
Southeast Asia’s Agency Amid the New Oil Crisis
There is no better time for the countries of Southeast Asia to reconsider their energy security than during this latest crisis.
Gita Wirjawan
Commentary
Fuel Crisis Forces Politically Perilous Trade-Offs in Indonesia
As conflict in the Middle East drives up fuel costs across Asia, Indonesia faces difficult policy trade-offs over subsidies, inflation, and fiscal credibility. President Prabowo’s personalized governance style may make these hard choices even harder to navigate.
Sana Jaffrey
Commentary
Emissary
In Its Iran War Debate, Washington Has Lost the Plot in Asia
The United States ignores the region’s lived experience—and the tough political and social trade-offs the war has produced—at its peril.
Evan A. Feigenbaum

More Work from Carnegie Endowment for International Peace

A machine gun of a Houthi soldier mounted on a police vehicle next to a billboard depicting the U.S. president Donald Trump and Mohammed Bin Salman, the Crown Prince and Prime Minister of Saudi Arabia, during a protest staged to show support to Iran against the U.S.-Israel war on March 27, 2026 in Sana'a, Yemen.

Collection

The Iran War’s Global Reach

As the war between the United States, Israel, and Iran continues, Carnegie scholars contribute cutting-edge analysis on the events of the war and their wide-reaching implications. From the impact on Iran and its immediate neighbors to the responses from Gulf states to fuel and fertilizer shortages caused by the effective shutdown of the Strait of Hormuz, the war is reshaping Middle East alliances and creating shockwaves around the world. Carnegie experts analyze it all.

Commentary

China’s Energy Security Doesn’t Run Through Hormuz but Through the Electrification of Everything

Across Asia, China is better positioned to withstand energy shocks from the fallout of the Iran war. Its abundant coal capacity can ensure stability in the near term. Yet at the same time, the country’s energy transition away from coal will make it even less vulnerable during the next shock.

Damien Ma

Commentary

Southeast Asia’s Agency Amid the New Oil Crisis

There is no better time for the countries of Southeast Asia to reconsider their energy security than during this latest crisis.

Gita Wirjawan

Commentary

Fuel Crisis Forces Politically Perilous Trade-Offs in Indonesia

As conflict in the Middle East drives up fuel costs across Asia, Indonesia faces difficult policy trade-offs over subsidies, inflation, and fiscal credibility. President Prabowo’s personalized governance style may make these hard choices even harder to navigate.

Sana Jaffrey

Commentary

Emissary

In Its Iran War Debate, Washington Has Lost the Plot in Asia

The United States ignores the region’s lived experience—and the tough political and social trade-offs the war has produced—at its peril.

Evan A. Feigenbaum