Dr. Hongbin Li on the Relationship Between Social Status and Individual Well-Being in China

Professor Hongbin Li is the James Liang Chair, Co-Director of the Stanford Center on China’s Economy and Institutions (SCCEI), Senior Fellow of the Stanford Institute for Economic Policy Research and the Freeman Spogli Institute for International Studies, and Professor in the Department of Economics, in courtesy, Stanford University. He got Ph.D. in economics from Stanford in 2001. Before joining Stanford faculty, he was C.V. Starr Chair Professor of Economics in Tsinghua University and professor of economics in the Chinese University of Hong Kong. His research focuses on China’s development and transition, and he is one of the most cited economists in the world studying China. He is the co-editor of the Journal of Comparative Economics, a leading economics journal studying economic institutions and the transition to a market economy.
Celine X. Wang '26 interviewed Dr. Hongbin Li on November 20, 2023.
Photograph and biography courtesy of Dr. Hongbin Li.

In the Chinese context, what defines socio-economic status? Are there political factors unique to China that created the divide between low and high statuses?

China, in a sense is both similar to other countries and also has some unique features. For most societies in the word, income is the main indicator of socio-economic status. Because you can buy many things with income, whether it's housing, cars, or consumption goods. It also decides the kind of good you can buy— like the type of handbag you're carrying. Education is also a kind of socioeconomic status. Basically, it’s which school you go to, whether it’s liberal arts, private, or public. Of course, in China it’s all public universities. But universities are all ranked in China from top tier to lower tier like a pyramid. So, income and education are two important indicators China shares with other countries. But in China, there are also other dimensions, for example, the hukou or household registration system. People will have an urban or rural hukou from a specific place like Beijing, Shanghai, Gansu, or Shanxi—they're all different and they are all ranked. Another important dimension specific to China is the so-called state sector versus non-state sector. In Chinese it’s called within-system or outside-system. This is defined by the party or government. If you're within a system, in the so-called state sector, you enjoy a lot of the benefits that are related to the things I’ve mentioned. For example, if you’re an official, then you have high income, your friends and relatives can make a lot of money by having connections with you, you can have state-assigned housing, you have free healthcare, and your children can go to a good school. All these things combined defines one’s socio-economic status in China. It’s more complicated than other societies.

You mentioned that there’s a ranking of the hukou system, is the ranking something that's politically constructed or is it more so socially constructed?

The Hukou is an economic, social, and political concept.  It’s everything together and similar to a caste system although it is not really a caste. One difference between caste and hukou is that you can change hukou although changing it is really difficult. Initially, the hukou system was basically a household management system. You define each person, each household by a place where they can stay. When I was a kid, I couldn't go anywhere in the country.

Or if I go to another place, I need to have a written permission by the local management committee. They need to issue a statement so that a person can travel to a place to live there, or even buy a train ticket. So the hukou is a tool to manage people. You can only go to school or work where your hukous is registered. Hukou was relaxed after reform and people can move around in the country, but still, hukou is associated with all your benefits. Your kids can only go to school or take the college entrance exam where they have hukou, your medical insurance is provided by the localities where you have hukou.  That’s also where you can receive your pension. You can see that basically everything's linked to a Hukou. In the past, if you had a rural hukou, you could only work in agriculture. But if you had an urban hukou, you could work in the factories or for the government. So that defined your profession as well as where you could live. So Hukou is an economic concept and also a political tool because, for example, if your hukou is in Beijing or Shanghai it is much easier to test into a good college compared to other localities. But only people with a Beijing hukou are eligible to take the test in Beijing. Why do you think the government gives this kind of preferential treatment to Beijing? Because the people living there are the most important people in the country. So, they enjoy more privileges politically, socially, and economically. 

What trends do you see in terms of the relationship between socio economic status and individual wellbeing in China?

There was a very interesting study about this many years ago although this is a study not about China, but the United Kingdom. They found that, in a sample of all the bureaucrats in the UK, lower-level bureaucrats are more likely to be mentally ill, have more distress, less happy. So this applies to all humans, even to animals like monkeys because they also have a hierarchy. In the 70s, China started from a place where most people were equal. Of course, a few elites still enjoyed some privileges, but most people were quite equal. In the past 40 years, however, China’s economy grew rapidly and so did inequality in both the pecuniary and non-pecuniary aspects. Pecuniary referring to your income. Non-pecuniary referring to education, profession, public health, and all other dimensions. When a country experiences fast widening gaps in the society, of course people are not happy. Especially people at the bottom of the hierarchy. Another dimension to this is that in the past, people were not very mobile. They stayed where they are and they don’t know other people in the world. So, without seeing others, people are happy. But people are now more mobile. You are mixing people of different statuses, and they see each other. For example, if I'm a nanny, serving a household in Shanghai, I know that in my home village, people are really poor. And in this household, they have so many things I’ve never seen and could never enjoy. What would I feel? Of course, I wouldn’t be happy. So when we start to move and mix with other people, we start to see “oh, okay, there is a world there that’s different from mine. Why?” So both the widening gap and mixing people together will make people think differently about society and about where they stand. 

Beyond the physical materiality that comes with different levels of socio-economic status, it seems as if culturally, a lot socially constructed values like “occupational prestige” come to define how one perceives their socio-economic status. Do you believe that this impacts individual well-being or self-rated well-being?

Of course, yes. Traditionally, China is interesting in that the profession that is always on top is what’s called, the officials. So government officials were always on top of the society, followed by farmers, and with the business people at the bottom. So traditionally, the Chinese didn't like people who did business. They thought they were dishonest. But today is different. If I think about the ranking professions, I think the officials are still on top of society, followed by rich people, and then the state-sector employees, and then private-sector employees, and farmers. Of course, this is a subjective perception about professions, but you know that it is so hard to differentiate this from their income or their physical wellbeing because these things are highly correlated. Still, I think you're right that people may perceive certain jobs as being better, for example, like working in the state-sector. I have been conducting a survey of college students in China for a few years. In the survey questionnaire, we ask students to rank their preferences for both ownership of their employers, such as state-owned, foreign, or private-owned, and the type of occupation, whether that’s banker, bureaucrat, or a manager of a private firm. From the rankings, we can almost always see that the government jobs are listed on top. Roughly two thirds of all the college students in China put their first preference as working for the state. This really surprised me. In the US, you assume maybe only 2% prefer a state job. It’s really interesting to think about China and how after 40 years of reform, college graduates still prefer jobs in the state-sector. They also like banking, but many would choose to combine the two preferences and work for state banks. 

Through actions like expanding the social safety net, reforming tax regulations, it appears like China is taking action to try to lift up those with lower socio-economic statuses. Do you believe that these policies are actually effective? 

These policies cannot change anything overnight. Even if we gave poor people some cash, if they spend all cash on alcohol, cigarettes, their next generation will still have the same education attainment and jobs. This is a long-term battle that cannot be won overnight., To change this you'll need to have some fundamental reforms. For example, you need to remove the hukou system. You're born and have a hukou in one place and you cannot move around, you can only go to schools in the places with perhaps only bad schools. What can you do? You can’t change your fate. So this system needs to be changed. Next, for example, we just mentioned that state-related jobs are still highest on people's preference list. This is different from most countries in the world and it means that China still is not a market economy. A lot of the so-called welfare is assigned by the state, which grants its own employees with the highest status. So this also needs be reformed, but the people in charge are obviously going to be unwilling to do so. 

COVID-19 and China’s policies in response had a huge impact on Chinese society at large, but do you believe that the individual well-being of those with low socio-economic statuses were disproportionately affected? 

First of all, from what our common perception is, the place that was the least happy is Shanghai. But Shanghai is a very rich place, it’s as rich as every place in the US. The reason why Shanghai is perceived to have suffered the most is that Shanghai was shut down for a few weeks and people there could have their words heard by the outside world. For the majority of Chinese, we could never know what have happened to them during the pandemic. But I am sure they are the ones being hurt the most because while you shut down the whole country, you don’t have a lot of jobs. And people from the rural area are the ones who need jobs most badly. They need their daily wages to feed their family and to pay the tuition of their kids. So they must be hurt the most badly during the pandemic. If you think about the quarantine policy, people cannot go to a hospital in Shanghai. But in many rural areas, they don't even have a hospital. If they are quarantining in the village and they get sick, what could they do? They don't even have anything, medicine or doctor. We just don’t know what happened because their voice could not be heard by the outside world. Also, they have the least knowledge about the virus and about how to deal with it. So I think a lot of people may have died from it. We just don't know. To answer your question, they must have been hurt the most intuitively, but we don’t have direct evidence. And if we talk about learning, what happened to the education of the rural kids who do not even have access to internet or do not have a computer? How can they take classes during the three years of lockdown? So there must be a huge gap in learning during the pandemic. Another dimension is mental health, which can suffer when people are isolated from each other, when parents maybe even don’t know how to deal with it or are not even able to be present. Poor children’s parents might be currently in the factories, still working and quarantining and are unable to go home. What will happen to these kids? So this is a huge issue. These are all issues that we need to study, but I am not aware of studies that have been done on these issues. 

Celine X. Wang '26Student Journalist

Stomatapoll, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

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