What's new

Bridging China's Income Gap

TaiShang

ELITE MEMBER
Apr 30, 2014
26,206
70
93,459
Country
China
Location
Taiwan, Province Of China
A New Starting Point

Beijing Review

At a recent press conference in Beijing, the National Bureau of Statistics (NBS), China's highest authoritative agency in charge of collecting and analyzing data concerning national economic and social development, disclosed for the first time since 2000 the country's Gini coefficient between 2003 and 2012. Also known as the Gini index, the figure is commonly used to measure the disparity of wealth among a country's citizens.

The NBS statistics show that the Gini coefficient averaged 0.482 during the past decade, hitting 0.491 at its highest point in 2008 and last year's figure standing at 0.474, higher than the global average of 0.44 published by the World Bank for 2010, and well above the warning threshold of 0.4 set by the UN. The finding serves as yet another confirmation that income inequality is on the rise in the country.

Admittedly, along with China's booming economic development, widening wealth disparities have emerged between different regions and industries, as well as among various groups of the social stratum. The NBS data suggest that the urban income level is generally three times higher than that of rural areas, while the gap between individual citizens in the highest paid positions and their lowest earning counterparts shows another stark difference, with as much as four times greater wealth. Such a scenario will not only affect the overall healthy development of the nation, but also deviates from a "fundamental principle of socialism with Chinese characteristics" as laid down at the 18th Communist Party of China (CPC) National Congress last November—the pursuit of common prosperity for all Chinese.

The NBS announcement of the disheartening Gini coefficient does offer one piece of good news for the country of over 1.3 billion people: At the very least, it has once again sounded the alarm about the widening wealth divide in China, while demonstrating that the ruling CPC is paying appropriate attention to this critical issue. More importantly, the publicized data may be taken as a new starting point for the long overdue reform of a nationwide income distribution system, as they will form the basis of consensus and help bring out the reform scheme as soon as possible.



What's the Real Income Gap
Gini coefficient figures arouse calls for reforming the income distribution system
By Lan Xinzhen
Share

(ZHU HUIQING)

"A journalist called me asking for comment on the macroeconomic figures released today. Am I crazy to say anything based on false facts? For the Gini coefficient, even fairy tales dare not be so bold."

This statement was written on January 18 by Xu Xiaonian, a famous Chinese economist and professor with the Shanghai-based China Europe International Business School, via Weibo, a Twitter-like microblog website. On that day, the National Bureau of Statistics (NBS) released various figures on the country's economic operations in 2012.

Xu has more than 5.5 million followers online, many of whom are media insiders who quickly forwarded and shared his post. "Even fairy tales dare not be so bold" also became a popular phrase for scoffing at the authenticity of statistics.

This is the first time the NBS has released Gini coefficient figures since 2000. For years beforehand, it regularly revealed such information, but subsequently stopped because the "Gini coefficient is said to be unsuited to the conditions in China."

At a press conference on January 18, in addition to the Gini coefficient information for 2012, the NBS also released annual figures from as far back as 2003. Ma Jiantang, Commissioner of the NBS, provided no reason for the move, causing widespread queries. Whether the figures truly reflect income inequality among Chinese residents has become the focus of much argument.

Government figures

According to the NBS, China's Gini coefficient reached its highest level in 2008, standing at 0.491, but began to drop after that. In 2012, the coefficient reached 0.474.

Ma says that to calculate the Gini coefficient, China previously only had figures related to the per-capita net income of rural residents and the per-capita disposable earnings of those in urban areas, but no information based on comparable indicators.

Thus, for the past two years, the NBS has made reforms to the statistical system on resident income. As of December 2012, 400,000 households in both urban and rural areas are incorporated into a new scheme by which salaries are registered in uniform comparable standards. Accordingly, household earning figures have been recalculated to yield China's Gini coefficient from 2003 to 2011.

According to Ma, after the 2008 global financial crisis, local governments at various levels adopted powerful measures to improve people's livelihood, which serves as the major reason for the drop in the country's Gini coefficient from 0.491.

Anticipating that the figures might cause dispute, Ma emphasizes that World Bank and NBS figures correlate, with the latter's information even a bit higher. He adds that the Gini coefficient figures from 2003 to 2012 were calculated in accordance with new standards, but based on old statistics, making further revision likely.

Arousing dispute

Besides Xu, some other reputable economists and research institutes have voiced skepticism about the NBS Gini coefficient figures, arguing that it cannot fully reflect the reality of China's massive income inequality.

According to a report released on December 9, 2012, by China Household Finance Survey and Research Center, affiliated with the Southwestern University of Finance and Economics (SWUFE) located in Chengdu, Sichuan Province, in 2010 the Gini coefficient based on China's household income was 0.61, which is in clear contrast to the figure of 0.481 recently released by the NBS.

At present, Chinese prefer to believe the SWUFE figure. According to NBS figures, in 2012 the per-capita disposable income of urban residents was 24,565 yuan ($3,911.62), which was 3.1 folds of the per-capita net earnings among rural residents of 7,917 yuan ($1,260.67). For the 20 percent of urban residents with the highest incomes, per-capita income came to 51,456 yuan ($8,193.63), while for the 20 percent with the lowest incomes, per-capita income was only 10,354 yuan ($1,648.73).

Why is the SWUFE figure so much higher than that of the NBS? According to Ma, a standard non-governmental survey could be an important and valuable supplement to government information, based on a scientific statistical system and sampling method, a proper number of samples and a prudent attitude to release results.

Ma adds that urban incomes grew faster than the GDP, and that the earnings of rural residents outpaced that of their city counterparts in 2012. Such changes lead to the Gini coefficient drop.

However, public support for the NBS version of Gini coefficient findings does exist. "The NBS says the income gap has narrowed in recent years and that the Gini coefficient is reducing. Why do some claim it's not true? To those who hire housekeepers, is your salary or your housekeepers' salary growing faster? Most low-income groups get higher salaries, but since the global financial crisis, how many large employers are powerful enough to significantly up earnings? The news that China's Gini coefficient is falling seems to make some people unhappy, but can't the country turn better?" said Hu Xijin, editor in chief of Global Times, after reading Xu's Weibo post.

Yu Bin, Director of Macroeconomic Research at the State Council Development Center, thinks that in recent years, income growth among rural residents has been higher than in cities while the income gap is shrinking, creating good conditions for the decline of the Gini coefficient. From this point of view, the NBS figures could be true.

Since 2009, the Central Government has strengthened aid to urban low-income groups and farmers, raising minimum wages, increasing pensions for corporate retirees, upping the individual income tax cutoff point, exempting agricultural taxes, expanding input in rural education and expanding healthcare support. The annual growth of farmer incomes has been higher than that of urban residents for three consecutive years.

However, "middle-class" earnings across cities have shown little improvement. For this group, besides wages, income is derived from stock and real estate market investments. A continuing bear market, coupled with the government's control of real estate, has consumed most middle-class investments. In contrast, the earnings of low-income groups have risen remarkably, narrowing the Gini coefficient.

Liu Huan, a professor with Central University of Finance and Economics in Beijing, says calculating the country's Gini coefficient is a very complicated task. With a large population and a huge number of households, it is hard to get concise statistics on the distribution of income via census. Therefore, most countries adopt a sampling method by which surveyors ensure coverage and representation. This relies on a major amount of manpower and material input, as well as cooperation, making the process difficult. Even international organizations such as the United Nations and World Bank have insufficient channels and capabilities to independently calculate China's Gini coefficient. SWUFE's China Household Finance Survey claims to have analyzed 8,438 samples from 80 counties in 25 provinces. It is never easy to carry out such a survey, which is simply not enough to illustrate the Gini coefficient of a country with a population of 1.35 billion.

Liu thinks the accuracy of calculations by both government and non-state institutions needs to be further demonstrated, perhaps relying more on calculation methods.

A progress

China's income gap has been a concern to many people. Each time figures are released, arguments ensue. In 2007, famous economist Li Yining said that according to his calculations, the country's Gini coefficient was lower than 0.2 and drew the conclusion that there was no polarization between the rich and the poor. The findings were subject to scathing censure, and his few supporters were submerged in criticism. During 2010, the resident income project group of the Chinese Academy of Social Sciences revealed that China's Gini coefficient was 0.382 in 1988, 0.455 in 1995, 0.454 in 2002 and 0.48 in 2007. The findings, which reflected an enlarged income gap, were widely accepted as accurate.

Subsequently, SWUFE's China Household Finance Survey and Research Center issued its own research report in last December, saying that in 2010 the country's Gini coefficient reached 0.61. Many people chose to believe the shocking figure.

However, conclusions drawn by scholars and non-governmental institutions lack authority. Therefore, some Chinese people prefer government figures on equal income, such as those given the NBS data.

"Putting aside arguments over the authenticity of figures, releasing Gini coefficient information illustrates the Chinese Government's concern over the issue," Yu said.

System reform

According to Yu, releasing NBS figures offers a powerful argument for the reform of income distribution. "It is time for China's income system to be adjusted."

Having established a market economy adaptive to globalization, the warning line of 0.4, based on the compensation system, income structure and social welfare in developed countries, is also applicable to China.

The NBS figures show the national Gini coefficient reached between 0.47 and 0.49 in the past 10 years. "This requires the government to acknowledge and solve the problem of income inequality," said Yu. Both governmental and independent information prove that China has indisputably exceeded the internationally accepted warning line.

Ma agrees. "The Gini coefficient reflects China's large income gap, indicating the urgency to accelerate reform," he said at the press conference on January 18.

The scheme of income distribution reform was initially drafted in 2004. Since the issue involves livelihoods as well as economic and social development, the draft remains incomplete.

The Gini coefficient is just as important as the GDP. If the latter reflects the size of the cake, the former reveals ways in which it is distributed. China's GDP has now exceeded 50 trillion yuan ($7.96 trillion). If the country cannot properly distribute wealth, the Gini coefficient will continue to rise, threatening the sustainability of China's economic development and making the country fall into the "middle income trap."

According to Ma, the government should be rational in analyzing China's income inequality and formulate a proper scheme for reform, focusing on the relationship between the market and the efficiency of development as well as wealth distribution.

Su Hainan, Deputy Director of the China Association for Labor Studies, thinks the NBS data will serve as an assessment standard to deepen the reform of income distribution and highlight the government's resolution to address inequality.

Reform must entail not only the raising of wages, but also make up for the shortfall in housing, education, healthcare and pension funds, alongside readjusting unreasonable property distribution.

Su also believes in "upping low incomes" while "controlling high earnings." The former refers to realizing full social security coverage, properly raising the minimum wage, upping salaries in labor-intensive industries and further increasing farmer incomes. Moreover, the government will offer more low-rent and affordable homes to low-income groups while helping depositors and individual stock investors enjoy reasonable interests and yields.

To "control high earnings," the government will keep tabs on the excessively high salaries associated with senior company management and monopolistic industries. On the other hand, the state will gradually change the unreasonable distribution of property proceeds. Based on such measures, China will also improve the collection of individual income tax, accelerate property tax reform and launch the estate tax at the proper time, strengthen management of the stock and real estate market as well as better manage the resource allocation system to ensure fairness.

"Only by making efforts along the above lines can the country gradually lower its Gini coefficient and realize common prosperity," Su said.

The target for reform remains unchanged—enlarge the middle class.

"As the most difficult task in China's development, progress in income distribution reform is expected," he added.

Email us at: lanxinzhen@bjreview.com

Gini Coefficient

The Gini coefficient measures income inequality. It is a number between 0 and 1, where 0 corresponds to perfect income equality, and 1 to perfect inequality. The internationally recognized warning line of income inequality is 0.4. The higher the Gini coefficient, the greater the inequality.
 

Kolaps

FULL MEMBER
Dec 18, 2012
1,571
2
563
Country
Taiwan, Province Of China
Location
Taiwan, Province Of China
I don't know how they calculate China GINI...

SOE vs common people?
 

Users Who Are Viewing This Thread (Total: 1, Members: 0, Guests: 1)

Top