Widening Chinese Income Gap ‘Alarming’

The gap between China’s rich and the poor has reached an alarming level less than 30 years after China introduced market reforms to its economy, according to media reports. Against this backdrop, the Chinese government has declared the “reduction of the gap between the rich and the poor” as its top priority this year.

But economists point out, “It will take at least five to 10 years to resolve the problem of the gap between the rich and the poor.”

Widening Gulf Between Rich and Poor-

Chinese media outlets reported yesterday that Gini’s Coefficient of the Chinese urban population stood at around 0.4.

Gini’s Coefficient is an index between 0 and 1 which measures the inequality of income. A Gini’s Coefficient that exceeds 0.4 means “considerable inequality” and one that exceeds 0.6 represents “great inequality.”

According to the State Development and Reform Commission (SDRC) of China, which studied the Gini’s Coefficient, those in the bottom 20 percent of income represent 2.75 percent of the national income, which is a mere 4.6 percent of those in the top 20 percent of income. This means that the top 20 percent earn 21.7 times the income of the bottom 20 percent.

Also, the assets of the top 10 percent of urban population accounts for 45 percent of total assets, while the bottom 10 percent comprises just 1.4 percent.

The income gap is widening between companies and positions. The average annual income of employees in large corporations reaches $7,444, while that of an average company stands at $1,800, a fourth of that of large corporations. Even in the same companies, there is a 20-fold gap between the salary of management and the rank-and-file employee.

There is also a large gap of income among regions. China’s National Bureau of Statistics said that the per capita gross domestic product of Shanghai citizens was $5,697 in 2003, 13 times that of Guizhou residents ($439).

Cause of Social Instability and Obstacle to Sustained Growth-

China’s income gap per the Gini’s Coefficient is smaller than Brazil (0.6) and Mexico (0.55), which are infamous for their large gap between the rich and the poor. But it is near that of the U.S. (0.45) which has more than 200 years of capitalist history.

Under these circumstances, the Chinese government predicts that anti-wealth sentiment and social instability, such as increase in crimes, will emerge and that a sustained rapid growth would be difficult.

Based on such expectation, the Chinese government decided to make resolution of distribution inequality as its top priority during the 11th round of five-year planning period (2006 through 2010) and to have a focused discussion on that in the fourth plenary session of the 10th National People’s Congress and the fourth session of the 10th Chinese People’s Political Consultative Conference to be held on March 5 in Beijing.

But the gulf between rich and poor is expected to be hard to resolve.

A sociology professor of Renmin University of China who drove the study on income gap said in a press conference with Chinese media outlets, “There are numerous tasks to be dealt with to reduce the gap between the rich and the poor, including resolution of unemployment and the securing of social security net.”

He also said, “Reducing the income gap must not have an impact on the country’s rapid growth.”

Jong-Dae Ha orionha@donga.com