Numbers About China’s Social Inequality Don’t Add Up

Official data widely seen as attempt to hide growing potential for social unrest

China’s National Bureau of Statistics recently published Gini coefficients for 2003 through 2012 after a decade of silence on this topic. The data shows the coefficient peaked in 2008 at 0.491 but has gradually dropped since then. According to the official statistics, in 2012 it stood at 0.474.

However, the numbers have been widely questioned. Most college-educated Chinese know that the Gini coefficient is an index measuring inequality, and a Gini coefficient of 0.4 and above may lead to social unrest.

Doubt Over Government’s Credibility

Hu Jintao and Wen Jiabao’s 10-year rule not only exhausted China’s environment and overdrew its financial power (with local governments deeply in debt), but what’s worse, it expended the government’s credibility. In particular, the fact that million-dollar households in China amounted to 670,000—the third highest in the world and next to only the United States and Japan—has irritated the public the most.

At the same time, with housing prices soaring and unemployment and income inequality worsening, those in the lower class find moving up increasingly difficult, while those in the middle class can easily slip down.

In the midst of intensifying social polarization and social degeneration, the tidbits of information that have made it through tight censorship have given ordinary Chinese occasional peeks into how China’s wealth has been centralized in the hands of a few.

According to a set of Chinese Ministry of Finance data widely quoted since 2010, the wealthiest 10 percent of households possesses 45 percent of wealth in urban areas, while the poorest 10 percent of households owns only 1.4 percent.

Many Chinese also know that 64.3 percent of the Chinese population falls into the low and mid-low income groups. As recently as 2005, 19 percent of the population, or 254 million, lived below the international poverty line of a $1.25 per day.

The propaganda of the Chinese communist regime claims the United States has the highest concentration of wealth and highest income inequality in the world. But according to the World Bank, 5 percent of Americans controls 60 percent of the country’s total wealth, while in China 1 percent households owns 41.4 percent.

This means the concentration of wealth in China has far exceeded that in the United States, and China has become the most polarized country in the world.

While the Bureau of Statistics had kept the nation’s Gini coefficient as a secret for a decade, other research institutes have publicized their own findings.

The United Nations estimated that the number for China was over 0.52 in 2010, fourth highest in the world, and would go above 0.55 in 2011 while remaining fourth highest.

Among the more than 190 countries in the United Nations, about 150 have complete statistics, and less than 10 have Gini coefficients higher than 0.49. China’s number is only slightly lower than the world’s three most impoverished countries.

In December 2012, the Chinese Household Finance Survey Center of Chengdu’s Southwestern University of Finance and Economics cited a 0.61 Gini coefficient based on a 2010 survey of 8,438 Chinese households. The report also said that such an enormous income gap as exists in today’s China is a rarity in the world.

China’s Bureau of Statistics publicized its version of a decade’s worth of Gini numbers soon after the Southwestern University report was released, probably in an attempt to neutralize its effect. But the wide gap between the official numbers and other organizations’ statistics has been widely questioned.

Some bloggers said mockingly that there’s nothing you can do about income polarization, so you just change the Gini coefficient.

Blind Spot: Gray Income

A large portion of China’s social wealth is distributed in the form of gray income—the significant portion of urban residents’ income that is outside of state supervision and control.

While officials and the rich can easily obtain a large amount of gray income, ordinary Chinese rarely have such opportunities. The National Bureau of Statistics was not able to take into consideration the income from corruption in its Gini calculation, so the Bureau’s number cannot accurately reflect China’s real income gap.

The exact size of China’ gray income is impossible to know, but official data published in May 2012 gives some clue. In the past 30 years, 4.2 million Party officials were involved in corruption, including 90 provincial or ministry-level officials who were investigated and punished.

Although Chinese authorities have been conservative about making corruption cases public, many cases reported by the media involved embezzlement of tens or hundreds of millions of dollars.

The highest publicized record is held by Zhang Shuguang, the former director of the Transportation Bureau at the Ministry of Railways. He was sacked and accused of funneling US$2.8 billion into his offshore bank account.

In addition, corrupt officials often own tens of houses. For example, Chinese media recently reported that a former housing administration official was arrested because his immediate family members own 31 houses.

But what has been exposed is only a very small portion of the actual corruption in China. About 80 percent to 95 percent of corruption cases remain unpublicized or unpunished.

Most Chinese do not have the privilege of hearing a “state secret.” The red aristocrats, however, have used their powers to amass huge fortunes, and the sources, size, and whereabouts of their money are well-kept secrets. That’s why the state-run media could rebuke foreign dictators’ extravagance without feeling embarrassed.

But in 2012 a crack appeared in the official stonewalling about the wealth of the top regime figures. Political factions leaked confidential information their antagonists’ wealth to the world’s media in order to get the upper hand in a fierce power struggle. Reporters from the New York Times and Bloomberg exposed the tip of the iceberg of the red aristocrats’ wealth.

Though these media reports were censored in China, the stories have been widely spread through word-of-mouth.

A higher Gini coefficient means a greater income gap. As unemployment among new college graduates rises and the pathway to higher social status is blocked, poverty is passed down to the next generation in the impoverished population. If a society has more and more poor who can’t see a brighter future, hatred will build up and become unsolvable.

This translation first appeared here.

Accounting Firms’ Gold Rush Puts US Credibility on the Line

By He Qinglian on December 24, 2012.
Translated by Cao Yaxue on January 23, 2012.

The Securities and Exchange Commission in December charged the Chinese affiliates of five big accounting firms Deloitte, Ernst & Young, KPMG and PwC and BDO for failing to comply with laws requiring access to the work papers of their audit on Chinese companies. The SEC was supposed to make a decision at the end of the December, including the possibility of delisting all Chinese companies in the US exchange. But the “deadline” has long passed and we haven’t heard the outcome of the suit. I am afraid it has probably disappeared into the black box called “diplomatic solutions.”

Xi Jinping: Guardian of the Red Regime

By He Qinglian on January 14, 2013.

Many people persistently make remarks that Xi Jinping might or has to initiate political reform. The story that appeared on January 13 in Ming pao should serve to somewhat cool down the wishful thinking of these observers.

Tocqueville and China's political predicament

By He Qinglian in December 2012.

[Partially abridged translation].

To this day, China's politics is still determined by those at the high level. The hobbies and interests of those people, including the books they read, therefore, become wind vanes that people use to guess what would happen next in politics. Wang Qishan's recommendation that people read L’Ancien Régime et la Révolution (The Old Regime and the Revolution), a classic book on the French Revolution by the 19th century French historian Alexis de Tocqueville, has helped make it a bestseller.

China in a state of Zero-Sum Game

By He Qinglian on December 30, 2012

On December 26, 2012, the Bloomberg published a story about the fortune of the Red families of China. Some of the data made me realize that China has already entered the stage of zero-sum game. 

Zero-Sum Game: what the winner gains is what the loser loses

That data is: “Three children alone—General Wang’s son, Wang Jun; Deng’s son-in-law, He Ping; and Chen Yuan, the son of Mao’s economic tsar—headed or still run state-owned companies with combined assets of about $1.6 trillion in 2011. That is equivalent to more than a fifth of China’s annual economic output”. By “annual economic output” it means GDP. China's GDP ranks second in the world.