China’s personal income not as high as national income suggests

July 04, 2019 11:41
China's relatively low disposable income per capita suggests that citizens face a heavy tax burden. Photo: Bloomberg

China's per-capita gross national income (GNI) soared over 10 percent to US$9,732 last year, higher than that of middle-income countries, according to data from the National Statistics Bureau. The nation ranks 60th among 180 countries and regions, putting it close to the status of developed economies.

Meanwhile, China's disposable income per capita stood only at US$4,105 last year, which means its GNI is 1.3 times more than the disposable income per capita. It implies that Chinese residents face a heavy tax burden.

GNI is derived by adding GDP and overseas income earned by citizens and businesses less income remitted by foreigners living in the country back to their home countries.

However, there is no clear formula to calculate disposable personal income (DPI). Most governments just deduct corporate profit and gross tax revenue from GNI to arrive at the number.

Even if two nations have a similar level of GNI, their DPI could differ a lot.

Generally speaking, the narrower the gap between GNI and DPI, the smaller the wealth gap; it may also imply a more efficient government.

For example, the DPI per capita in the United States was US$43,800 last year, or around 30 percent less than the GNI per capita of US$62,800.

In China’s case, the large gap is probably due to the heavy tax burden.

China’s tax burden is the second highest in the world, according to Forbes' Tax Misery Report.

The total tax burden accounts for 51 percent of the nation’s GDP, while corporate and personal disposable incomes account for only 21 percent and 28 percent respectively.

China has more than 80 million public servants, staff members of official organizations, public school teachers, etc. Government expense is understandably high.

But looking at the situation positively, it also means China has a huge room for further reform.

The government can further cut taxes to stimulate economic growth. The tax cut package announced earlier this year is expected to reduce fiscal revenue by 2 trillion yuan (US$291 billion), representing 7.7 percent of the 2018 revenue. This is a step in the right direction.

This article appeared in the Hong Kong Economic Journal on July 3

Translation by Julie Zhu

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Hong Kong Economic Journal columnist