Wealth Gap Worries China

Official reports may understate inequalities.
An analysis by Michael Lelyveld
2013-02-18
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Chinese migrant workers returning from the Lunar New Year holiday crowd around a bus station in Yunyang county, Chongqing, Feb. 17, 2013.
Imaginechina

China's government has promised to narrow the gap between rich and poor, but differing measures of income may make progress hard to gauge.

In January, the government raised expectations of major policy changes after the National Bureau of Statistics (NBS) released calculations of income disparity for the first time since 2005.

Using an international index known as the Gini coefficient, NBS director Ma Jiantang said inequality has
dropped gradually from a peak in 2008 but remained above a warning level set by the United Nations, state media reported.

The official English-language China Daily called the 0.474 reading for last year's Gini index "alarming." The findings mean that China "must accelerate its income distribution reform to narrow the rich-poor gap," Ma was quoted as saying.

The index devised by the Italian statistician Corrado Gini a century ago is widely seen as an indicator of social stresses and risks.

By measuring equality as 0 and absolute inequality as 1, the NBS estimate would make China's wealth gap only slightly wider than that of the United States, The New York Times said.

But China Daily cited a much higher reading of 0.61 by Southwestern University of Finance and Economics in the Sichuan provincial capital Chengdu. That estimate would put China near South Africa, which has the highest income inequality in the world, according to euromonitor.com.

Experts voiced doubts about the accuracy of the NBS data.

"I wouldn't believe any statistic which has them currently about the same as the United States," said Gary Hufbauer, senior fellow at the Institute for International Economics in Washington. "That doesn't sound plausible to me."

The World Bank's last published Gini figure for China was 0.425 in 2005, Reuters reported. That was before much of the investment-led economic boom, which favored the rich.

The New York Times cited economists as saying that China's Gini index is "actually much higher, when illicit and poorly reported sources of wealth are taken into account."

Complicating data

China's official accounting of income growth may also complicate comparisons, both between rich and poor and with industrialized economies.

For years, the NBS has reported income growth rates for urban and rural residents using dissimilar measures.

In 2012, the average per capita disposable income of city dwellers rose 9.6 percent to 24,565 yuan (U.S. $3,940), the bureau said. At the same time, average rural per capita net income increased 10.7 percent to 7,917 yuan (U.S. $1,269). Both growth rates were adjusted for inflation, it said.

While the numbers suggest that rural residents enjoyed faster growth than those in cities, their net incomes remain disturbingly low at less than 670 yuan ($U.S. 107) a month.

The government has promised to double per capita incomes of all citizens by 2020 from 2010 levels. But comparing net income for the rural poor with disposable net income for more affluent urbanites may cloud the extent of inequality.

"The methods are all over the map and they do yield very different results for the same country at the same time," Hufbauer said. "It's all kind of shaky."

Little choice

Derek Scissors, senior research fellow in Asian studies at the Heritage Foundation in Washington, said China may have little choice in its use of separate measurements.

"They're just not in a position to be using the same measure for growth," he said.

One reason is that the net income of farmers includes the food they grow to feed themselves. Without that allowance, there might be little income left to report.

"Rural disposable income could be negative," said Scissors.

Alternately, rural disposable income figures could be so low that relatively small changes would produce wide swings in growth rates, making trends impossible track.

The NBS may overstate the non-monetary value of food in farmers' net incomes or underestimate the benefits like access to services that urban residents get.

The result may make income growth rate comparisons look more favorable for the poor than they actually are.

But measurement disparities are not the main problem, Scissors argued.

City dwellers have reaped huge income gains from government stimulus programs, infrastructure investment and property development, opportunities unavailable to the rural poor.

To address that, the government would have to give farmers real property rights and protections so they can resist the advances of developers or demand fair prices for their land, he said.

"What's driving inequality now is some people have the ability to make money and others don't," said Scissors.

Wide disparity

Disparity is especially wide between the politically- connected and those without power, he said. Investment opportunities for the privileged have created fortunes for the few that may not even be captured by NBS surveys.

"What we should really be talking about is Communist Party members versus everyone else," Scissors said. "All the wealth creation in China in the past five years is among Communist Party members."

The problems of political connections and corruption cut across urban-rural dividing lines, making measurements and policy solutions even more problematic.

"Getting at real inequality in China is actually very straightforward conceptually, but we're never going to get measurements on that," Scissors said.

Gary Hufbauer agrees that the NBS reports are unlikely to reflect the real extent of the disparities that may be most destabilizing for China.

"They're not very good at saying anything about the really rich people at the top, which is where the political concern resides," Hufbauer said.

"There's a feeling that people at the top are just getting away like gangbusters. These indexes don't really capture that," he said.

Whether or not its figures are accurate, China's government has grown increasingly concerned about the implications for stability.

On Feb. 5, the State Council announced a package of steps to help close the wealth gap including requirements for pay caps at state-owned enterprises, income disclosures for government officials and expansion of experimental property taxes, the official Xinhua news agency said.