Rich-poor gap widens: study

By Yang Jingjie Source:Global Times Published: 2014-4-30 0:58:02

A new study by American scholars suggests that income inequality in China has surpassed that in the US by a large margin and is among the highest in the world.

Although the government has shown it is serious in dealing with the issue, observers warn that the severe inequality is undermining China's economic development and risks triggering more social unrest.

Xie Yu and Zhou Xiang, two scholars from the University of Michigan in the US, calculated China's Gini coefficient, a gauge of income gap, based on surveys conducted by five universities in China. According to their paper, China's income inequality since 2005 has reached very high levels, with the Gini coefficient in the range of 0.53-0.55. In 2010, China's Gini coefficient was about 0.55, while the figure in the US was 0.45.

A reading above 0.4 usually marks strong inequality, which could be an indicator of social unrest.

However, China's official Gini coefficient was 0.481 in 2010, already higher than the US level, according to the National Bureau of Statistics (NBS).

A study by the Southwestern University of Finance and Economics in Chengdu, Sichuan Province, put the Gini coefficient for family income in 2010 at 0.61.

Li Shi, director of the Institute for Income Distribution and Poverty Studies at Beijing Normal University, told the Global Times that most experts agree that China's Gini coefficient is about 0.5.

Experts say while Africa and Latin America have the highest level of income disparity, China's Gini coefficient is among the highest in Asia.

Economists believe severe income inequality is taking a toll on the Chinese economy, which has been experiencing slower growth.

Wang Xiaolu, an economist at the Beijing-based China Reform Foundation, told news portal in January that data in the past three decades showed that whenever the Gini coefficient rises by 0.01 point, the savings rate climbs by 0.76 percentage points.

Zhuang Jian, an economist at the Asian Development Bank, told the Global Times that the income disparity goes against China's efforts to shift its economic growth model to a consumption-driven one.

"The rich use the majority of their wealth for investment, and only a limited proportion for consumption. This is not conducive to the expansion of consumption if a large amount of wealth is in the hands of only a small number of people," Zhuang said.

A 2010 World Bank report said that China's richest 1 percent of households retain 41.4 percent of the national wealth.

The severe disparity has been triggering social instability, a challenge that governments at various levels have devoted enormous resources to contain.

In recent years, the country has seen a wave of strikes, mostly due to workers becoming aware of disparity. In the latest case, a strike broke out at a shoe factory in Dongguan, Guangdong Province, later spreading to another plant in neighboring Jiangxi Province, after workers complained they had not been provided with adequate social security benefits.

Although people may have a variety of outward reasons why they are staging mass protests, income inequality is a major motivation behind their behavior, said Li.

"Widening income inequality will bring down people's approval of society. Therefore, if there is a specific incident, people will be more prone to take to the streets," he said.

The US study attributed the severe inequality to the rural-urban gap and regional disparities.

Du Xiaoshan, an economist at the Rural Development Institute of the Chinese Academy of Social Sciences, said that the government has already been tackling the situation by stressing a strategy of integrated development of rural and urban areas.

Du told the Global Times that it has already seen some initial results, as the ratio of rural-urban income narrowed to 1:3.03 in 2013 in comparison to 2009's ratio of 1:3.33.

The official readings for the Gini coefficient also witnessed a mild decline in the past five years, according to data from the NBS.

Last year, the central government released a reform scheme for income distribution. However, specific rules are yet to be unveiled.

Zhuang noted that while the role of redistribution was stressed in the past, measures to ensure equality in the primary distribution of national income should be given equal importance.

Du shared a similar sentiment, noting that income distribution was tilted toward the owners of capital, not workers.

"Laborers' income should no longer be kept low, and the market shouldn't stress efficiency over equality," he said.

At a time of growing public discontent toward the huge wealth held by China's elite, the central government has stepped up its anti-corruption campaign.

Li said that at the same time as they reform the income distribution regime, authorities should distinguish those who earn their income through legal means and those who accumulate corrupt wealth.

To deal with the latter group, Li noted that this will require further political reform. 

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