China’s wealth gap exceeds globally recognized warning level

05/22/2010

On May 10, 2010, China’s official Xinhua News Agency published a news story titled, “China’s wealth gap approaches society’s tolerance limit.” The news immediately received widespread attention on the Internet, attracting comments from thousands of readers. Numerous comments pointed out that the corruption of government officials and poorly-designed regulations contribute to the growing disparity of wealth distribution in China.

High income families’ hidden income close to 5 trillion yuan ($714 billion USD)

According to Wang Xiaolu, Deputy Director at the National Economic Research Institute, China Reform Foundation, they conducted a study on the incomes of 2,000 families from various levels of society. The study showed that a portion of the high income residents have large amounts of hidden income. This unaccounted income was estimated to be as high as 4.8 trillion yuan ($686 billion USD), of which 75% is owned by 10% of high wealth families in cities. The small number of families having immense incomes is staggering. Because hidden income and illegal income are not part of the government’s statistics, experts believe that China’s real wealth gap is much larger than reported.

Majority of the rich are government officials; corruption is already an “unspoken rule”

The paper Formosa Weekly reported in February 2010 that a large proportion of China’s rich are children of high-ranking government officials. There are 3,220 individuals with net wealth over 100 million yuan ($14 million USD), of which 2932 are children of high-ranking officials. The main source of their wealth is derived from their family backgrounds. According to the Supreme People’s Procuratorate, there were 18,191 cases of significant corruption and bribery in 2009. Readers pointed out that income disparity is not due to ability or diligence, it is due to the rank of an individual and the Communist system that allows this to happen.

China’s wealth gap exceeds globally recognized warning level

China’s Academy of Social Sciences published the Annual Report of China’s Social Development at the end of 2009. It estimated that China’s Gini Coefficient had reached 0.496, drastically above the World Bank’s recognized warning level of 0.4. The Gini Coefficient is the most commonly used measure of wealth inequality in the world. Its values range between 0 and 1, with 1 representing the widest wealth gap possible.

A reader wrote, “The Academy’s report uses numbers and facts to refute those so-called ‘experts’, who claim that China does not have any issues with wealth inequality. It is the Chinese Communist government that deliberately conceals the truth to deceive the public in order to create a fake harmonious society.”

China Galaxy Securities economist, Yuan Dejun, also expressed, “We can feel the widening wealth gap in our everyday lives. It has reached the pinnacle of the last few decades.”