China's Growing Inequality

Income inequality has been climbing fast in the US. The top 1 per cent of households accounted for 8.9 per cent of total national income in 1976. A bit over three decades later, that proportion rose to 23.5 per cent in 2007. John Paulson, the famous hedge fund manager who betted against the US housing market, netted $3.7 billion in 2007 -- 74,000 times bigger than the median household income. In 2013, The typical American household is worth a third less than it was in 2003. But even as the average American household’s wealth declined, the net worth of wealthy households increased substantially. The average wealth of the American household in the 95th percentile was $1,192,639 in 2003, and $1,364,834 ten years later, an increase of 14 percent.

 China has overtaken the US in terms of income disparity.

China’s Gini coefficient, a widely used gauge of inequality, rose from 0.3 in 1980 to 0.55 in 2010. A Gini coefficient is a measure of inequality, where a figure of 0 represents perfect equality while 1 indicates perfect inequality. A reading of 0.5 is regarded as ‘severe inequality’.

Not only has China overtaken the US, the level of inequality in the world’s second largest economy is also approaching that of highly inequitable Latin American countries like Brazil, Honduras and Mexico. China is now among the least equal 25 per cent of countries worldwide. Few Asian countries are in this group. According to research, previously reported by SOYMB, the top 1 per cent of households account for one third of total asset ownership in China. At the same time, the bottom 25 per cent of households only own 1 per cent of all assets in the country.

China’s widening inequality is not due to deterioration in income. However, the rising income inequality is due to the fact that income for rich groups is increasing much faster than poorer households. Income levels have been rising steadily in the country. Chinese migrant workers, who are usually from poor households in the countryside, have seen double-digit increases in their incomes recently.

For example, income for the poorest 10 per cent increased 50 per cent between 2002 and 2007, according to the China Household Income Project. However, during the same period, income for China’s top 20 per cent households nearly doubled. “As a consequence, the income gap between the richest and poorest deciles widened from 19:1 to 25:1

Another contributing factor to the income disparity is the proliferation of so-called ‘grey income’ for rich households. China’s hidden household income totalled 6.2 trillion yuan ($1.1 trillion) or 12 per cent of the country’s GDP.  The income for richest households is much higher than the official figure. For example, the income for top 10 per cent is 3.2 times higher than official statistics. China’s urban rich earn 21 times more than the rural poor.

China’s rural and urban divide is also one of the most important contributing factors to the rising inequality. Researchers estimate that the rural and urban gap contributes to as much as 51 per cent of inequality in China. The country operates a quasi-apartheid system where rural migrants are barred from moving from the countryside to cities on a permanent basis. This policy denies rural migrant workers many social benefits provided to urban residents such as health care and education. This partly contributes to the income disparity between rural and urban residents.

 China’s strong economic growth has for a long time masked the worst effects of social inequality, but considerably slower economic growth is likely to bring that deep tension to the surface.

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