The richest 10 percent of urban Chinese earn 21 times more than the 10 percent at the bottom, putting the nation among the most unequal societies on earth.
That was the finding of a study by the China Society of Economic Reform led by a scholar named Wang Xiaolu. Tracking the ‘gray (undeclared) income’ of 5,344 households in 18 provinces and cities in 2011, it found a gap of 6.2 trillion yuan between what they actually earned and what was in official surveys of their income. That is 12 percent of GDP.
Using the official figures, China reported that its Gini co-efficient in 2012 was 0.474, down from a peak of 0.491 in 2008. This is the most common measure of income inequality: zero represents perfect equality and one means that one person takes everything.
The 0.474 figure puts China as less equal than the United States, 0.45, and Sweden with 0.24, but more equal than Nigeria, Brazil and South Africa, which is the most unequal in the world with 0.62. If Wang’s figures were used, China’s 2011 Gini co-efficient would be 0.496.
Gray income includes allowances and expenses paid by companies and institutions to their employees, gifts, profits earned from insider trading, smuggling, bribes and income not declared to the tax man.
The study found that the richest 20 percent possessed 72 percent of the gray income. Of those earning up to 20,000 yuan a year, wages accounted for about 80 percent of their income. Of those earning 20,000-50,000 yuan, the middle class, wages accounted for 70 percent of their income. But, of those earning over one million yuan a year, the percentage was only 11 percent, with the rest coming from financial investments and their own businesses.
The richer you are, the more properties you own. Of all the people surveyed, 13.6 percent had two properties or more. Rents and profits from buying and selling properties are an important source of income.
The rich and middle class benefit from the existing medical system: only half have to pay their own medical bills, compared to 72 percent of those who earn less than 10,000 yuan a year. This latter group received an average of just 73 yuan during 2011 in repayments for medical care, compared to an average of 1,545 yuan for those earning between 300,000 yuan to one million yuan a year.
What this means is that, the richer you are, the more likely you are to have your own medical insurance or work in a company that provides it; the large majority of the poor, on the other hand, have no medical insurance or work in companies that do not provide it.
The study found that, in investing, it was the poor and middle class who lose at the expense of the rich. “China’s property and capital markets seriously lack regulations. In terms of distribution of income, this means that they serve to take the money from the pockets of the poor and put it into the pockets of the rich.”
Ask any urban Chinese and he will give you stories of gray income – bribes that have to be paid to public officials, tips about listed companies that enable its employees to profit from trading their stock and generous allowances that people in state and private companies award to themselves.
Why do thousands of mainlanders come every month to buy electronic goods and luxury items in Hong Kong that are 30-40 percent cheaper than at home? Some will be sold at home; many will be given as gifts to business clients and civil servants.
Gray income was debated in March this year during meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference. But all mention of it was deleted from the final government work report; some delegates argued that the figures were not ‘scientific’.
These statistics have a strong political meaning. They confirm the widespread suspicions among the public that the wealth gap is widening every year and that the system is heavily biased in favor of the rich and powerful.
“But no one can deny that gray income exists and is increasing, widening income disparity,” said an editorial in Caixin magazine in September. “Household income levels on the mainland are seriously under-reported.”
It said that loopholes in the tax system, a lack of transparency and poor supervision have led to failure to track this money. “Hidden income gravely distorts income distribution, encouraging the rich to be ever more extravagant, while the poor struggle to survive, and leads to a misallocation of resources. Such abuse and imbalance inevitably lead to a loss of faith in the country’s future.”
When the party leaders meet for their third plenary session in November, this item should be on the agenda.
Mark O’Neill, a Hong Kong-based journalist and author, writes on Greater China. He has worked as a correspondent for the South China Morning Post in Beijing and Shanghai.