Monday, 23 September 2013

An Even Bigger Income Gap

We still don't know exactly where the money comes from, but we now know that "grey income" totalled 6.2 trillion yuan in 2011, accounting for 12 percent of China's GDP.

The results were released by the National Economic Research Institute in Beijing and published in Caixin magazine on Monday.

The study surveyed 5,300 households in 18 provinces and 66 cities. It found most of this money, from undocumented sources, was held by only a few people, where the urban rich make almost 21 times the poorest people -- an income gap which is many times more than the official figure of 8.6 times.

It also estimated that the per capita income of China's richest 10 percent in urban areas last year had an income of 188,000 yuan, 3.2 times the official number.

"Grey income", which is also known as hidden income, can come from various sources, from outright bribery, to under the table transactions, and gifts, say from parents to teachers.

So much for sporting a super expensive watch many times your salary, or ditto that Chanel bag... which is perhaps why the super rich are now preferring subtle hints of luxury than large designer logos that instantly label them as nouveaux riche.

What's really interesting is how people were willing to be interviewed for the survey, and what this small sample size tells us about the financial situation in China. The study is backed by the China Reform Foundation, an institution affiliated with the National Development and Reform Commission.

Wang Xiaolu is the senior researcher who led the study and has said in previous interviews that official figures were determined by those who volunteered information.

However, these studies compared alleged consumption with legitimate income, where researchers used a sophisticated algorithm to calculate the gap between income and consumption.

As a result this shows the Gini coefficient, which reveals income disparity, is much higher in China than the 0.5 figure released by the National Bureau of Statistics in January. The number 0 reflects perfect equality, while 1 is perfect inequality. A reading above 0.4 is considered a serious warning sign.

Seems like the Chinese government is fudging its numbers again, or is in complete denial about the ginormous income gap that seems to be getting bigger and bigger. Since these figures are somewhat government endorsed, what does this say about the Chinese leadership in its bid to crackdown on corruption as well as the beneficiaries of this "grey income"?

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