Monday, February 03, 2014

Real gap 'may be even greater'

IT SHOULD have been a proud moment for China. On Jan 20, Beijing announced that its rich-poor gap had narrowed last year to the lowest level in a decade.
On top of this, farmers' incomes were growing faster those of city-dwellers, while the relatively undeveloped central and western areas of the country were catching up with prosperous eastern regions, senior official Ma Jiantang disclosed at a press briefing on China's 2013 economic performance.

But the good news couldn't mask the fact that - still - the "urban-rural gap in China is greater than in any country in the world", World Bank economist Branko Milanovic wrote in a post on Harvard Business Review Blog Network.
Farmers' median incomes last year were less than a third of their urban counterparts', even after climbing 12.7 per cent to 7,907 yuan (S$1,650) last year. Urban incomes rose 10 per cent to 24,200 yuan.
Last year, China's Gini coefficient - a measure of inequality on a scale of 0 to 1 where 1 represents complete inequality - was 0.473.
This was down slightly from 0.474 in 2012, when China was No.29 on the world rankings, with Lesotho being the most inequitable country in 2012 with a score of 0.632, according to the CIA World Factbook. Only three economies in Asia ranked higher than China: Singapore, at No. 26 with 0.478, Hong Kong, at No. 11 with 0.537; Thailand was at No. 12 with 0.536 in 2009.
A 0.4 score marks the threshold above which social tensions start to rise, according to the United Nations.
So it is no surprise that President Xi Jinping has pushed with great fanfare reforms to tackle inequality across many fronts, from rolling back state monopolies to curbing overheated property prices to raising taxes on the rich and increasing welfare services for the poor. Corruption, which exacerbates the problem, is also one of his targets.
Given the lessons from the fall of imperial dynasties throughout China's 5,000-year history, the country's top leaders would be well aware of the dangers of letting inequality fester.
To be sure, the widening wealth gap is happening across the region. The Gini coefficient for the region as a whole has widened over the past two decades from 0.39 to 0.46.
What's troubling about China is that its score might be much higher, given the hidden grey income of many households - especially officials. According to the Samsung Institute, China's real Gini reading could be as high as 0.6 in 2012, putting it on par with Latin America.
Professor Wang Xiaolu of the China Reform Foundation found in 2012 that grey income could amount to 6.2 trillion yuan - roughly the size of Australia's economy.
And the richest 10 per cent of Chinese households had an annual income 21 times that of the lowest 10 per cent. This was significantly higher than the official estimate of 8.6 times.
A key reason for China's inequality is the dominant role of the government in allocating resources - and keeping the biggest slice of the cake for itself, say analysts.
In particular, in 2009 and 2010, a chunk of the government's 4 trillion yuan stimulus was converted into grey income, due to inadequate checks which allowed "state money to be easily channelled out into private purses", noted Prof Wang.
State-owned firms also enjoy unfair advantages over private firms such as "access to cheap loans and land and dominant positions in lucrative markets", said Beijing-based social welfare researcher Zhang Yiqin.
Property ownership today has become a key symbol of the disparity. Land grabs and property disputes were a key reason behind the estimated 180,000 "mass incidents" such as demonstrations and riots that erupted in 2010, when part of China's stimulus was funnelled into speculative real estate investments, leading to a gross overheating of the property market.
Now Mr Xi's administration has pledged to make the country more equal. It won't be easy.
"Implementing the reforms will be difficult amid opposition from vested interests", said Mr Zhang.