Huge economic and social security gap between urban and rural areas serves as important indicator of China's status

Despite the remarkable economic and social development it has achieved since reform and opening-up in 1978, China is still a developing nation, as indicated by both its per capita economic indices and its economic and social structure.

It is necessary to take into account a country's economic aggregate and its per capita output to accurately measure its real economic and social development levels. After more than six decades of rapid development since the founding of new China in 1949, China's gross domestic product (GDP) totaled $5.9 trillion in 2010, the world's second largest.

However, China's per capita output lags far behind developed countries. Statistics from the World Bank indicate that China's per capita GDP was only $3,744 in 2009, less than half the world's average of $8,598. It was less than one-tenth that of the United States, Japan and some other developed economies. The country's per capita consumption was $1,306 the same year, far below the world's $5,093 average and 4.0 percent that of the US and 5.5 percent of Japan.

In striking contrast to the balanced development in developed countries, China's economic development is unevenly distributed between urban and rural areas and among different regions. Its per capita disposable income and consumption outlay among rural residents, for instance, are less than one-third that of their urban counterparts. Compared with urban areas, a large number of rural residents are not covered by the country's pension network and their healthcare expenditure is also much lower than that of urban residents.

China's consumption of luxury articles has grown rapidly in recent years, which has been cited by some Westerners as showing China is a developed country. However, instead of being a symbol of its full prosperity, the growth of luxury consumption is supportive evidence of China's widening gap between the rich and poor. By 2009, the country still had 36 million people living in poverty according its own criteria. If calculated in line with the United Nations' standard the poverty-stricken population swells to 150 million and larger still under the criteria applied by developed countries.

The country's status as the world's largest exporter has also caused some people to overestimate China's position in the international labor division system. One of the important reasons why China has developed so rapidly into the world's largest exporter is its active participation in the global and East Asian manufacturing network.

However, the country's exports have long focused on labor-intensive products with low added value, which is in sharp contrast to the US, Germany, Japan and other developed nations whose exports are dominated by technology and knowledge-intensive products with much higher added value.

China's foreign reserves, which now exceed $3 trillion, are also considered by some to be evidence of its developed nation status. However, unlike developed economies, China's official foreign reserves cannot be regarded as its national wealth or fiscal revenues as many believe. Purchased by China's central bank via commercial banks or other channels, these foreign reserves have increased yuan liabilities while becoming the central bank's assets. However, this enormous volume of assets can be used neither as national wealth nor for financial outlay.

Compared with some developed countries, China's per capita foreign reserve is still at a low level, $2,140 in 2010, about a quarter that of Japan. In fact, for the US and Britain issuers of international currencies, the foreign reserves are not an index to reflect their national wealth. For example, the volume of dollars circulated within the US is more than the foreign reserves of all countries combined.

China's ever-bulging foreign reserves have also not changed its inadequate capability in outward investment. By 2009, the country's direct outbound investment value was $245.75 billion, only 1.3 percent of the world's total. However, the direct foreign inward investment to China during the same period was much larger, adding to its foreign reserves. The inadequate outward investment capability makes China a country only able to buy some low-return foreign national debts, compared with other developed countries that have benefited more from their direct large-scale outward investment.

China's economic scale is second only to the US and the gap between the two will further narrow considering China's current economic growth momentum and the dollar's continuous depreciation. But that will not change China's low per capita economic value and it will take time to improve people's livelihoods.

As its economic scale continues to expand, China will unavoidably undertake more international responsibilities and play a bigger role in international affairs. However, the increased responsibilities do not alter the country's current economic level as a developing nation and its national strength.

The author is deputy director of the Development Research Center of the State Council. The article first appeared in the latest issue of Qiushi magazine.