Rich-poor gap widening in East Asia: WB

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Rich-poor gap widening in East Asia: WB

TOKYO” East Asia’s economies, flying high a decade after the regional financial crisis, now face huge challenges to cope with a widening rich-poor gap, severe pollution and ever-more crowded cities, the World Bank said on Thursday.

Driven by powerhouse China, emerging East Asia’s output has doubled compared with a decade ago, while its income per person has soared by 75 per cent, the bank said in a report on the region 10 years after the 1997 crisis.

By 2010, more than nine in 10 East Asians will live in a middle income economy but countries face new challenges to avoid a “middle income trap” and make the complex transition to high income economies, it added.

While the number of people living below the two-dollar-a-day poverty line has fallen from 50 per cent of the population to 29 per cent over the past decade, wealth inequality has increased in much of the region, the bank warned. “East Asia traditionally has been extremely successful in terms of poverty reduction,” said Milan Brahmbhatt, the bank’s chief economist for East Asia.

“On the other hand, inequality has risen sharply in many countries in the region,” he told reporters. Many of the same forces that are driving the region’s rapid growth are also contributing to the growing social disparities seen since the traumatic 1997 crisis, sparked by a plunging Thai baht, the bank said.

Increased globalisation has driven up wages for skilled labour, one of the key factors behind the widening inequality, while rural areas often fail to reap the benefits of productivity growth and wealth creation.

Bert Hofman, the bank’s chief economist for China, said that wealth inequality there was “quite stark”. “China went from a country which was as equitable as Sweden to a country that is now as unequal as Argentina and is on its way to match Brazil,” he said.

Rapid urbanisation also poses a huge test for East Asia, with the urban population expected to jump by 65 per cent by 2025, “placing huge strains on already inadequate road, electricity, water and sanitation systems,” the bank said.

Over 30 per cent of the East Asian urban population - about 270 million people - already lives in slums and this number could increase by 90 million by 2030, the bank warned. “By 2025 the number of East Asians living in cities will increase by 500 million. This is fundamental to the process of development,” said Brahmbhatt.

“It’s going to be a hugely challenging process in terms of putting in all of the infrastructure, the social systems,” he said, but added that this should not deter governments from making it easier for people to move to cities.

Growth in the emerging economies of East Asia reached 8.1 per cent in 2006 - the strongest for 10 years - but is likely to slow modestly to 7.3 per cent in 2007 and to 7.0 per cent in 2008, the report said.

Chinese growth is set to cool to 9.6 per cent this year and 8.7 per cent next year, after a 10.7 per cent expansion in 2006.

“In China rapid growth has led to an accumulation of stresses and imbalances that could affect China’s onward development if left unchecked,” the World Bank warned, pointing to environmental concerns and the rural-urban income gap.

The bank said growth in Southeast Asia would accelerate from 5.4 per cent last year to 5.6 per cent this year and 5.7 per cent next year.

“East Asia must now confront a new wave of reforms, some of which will be at least as challenging as those enacted in the months after July 1997.”

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