The rules of the race have changed/Wealth is now the starting line/People focus on wealth more than talent/If you have no money, take your place at the lowest level/Competitors are ready to race/But how difficult it is to leap over hurdles/There are many unspoken rules/It is impossible to get more pay for more work/Wealth grows as competition intensifies/Poor children have little to smile about/Wealth disparity is a real problem/Social justice is unbiased/Opportunities should be equal for all/People’s lives will change through hard work!

(Cartoon by Gou Ben; Poem by Long Yuan)

 

 

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A recent series of photos shared online by a foreign photographer attracted widespread attention. The photos showcase a complicated Beijing, featuring not only high-rise buildings and large mansions but also run-down urban villages and children from low-income families. Although these scenes are common in Beijing and even nationwide, they nevertheless have triggered sober reflection on the gap between the rich and poor in China.

Current situation ‘unavoidable’
Li Shi, a professor from the Business School at Beijing Normal University, said that the gap between the rich and poor has gradually widened amid rapid economic development and improving of people’s livelihoods throughout the course of reform and opening-up.

“The Gini coefficient is a measure of statistical dispersion intended to represent the income distribution of a nation’s people. It is the most commonly used measure of inequality,” said Li, adding that a score of 1 on the index reflects maximum inequality and 0 reflects perfect equality. However, the practical value is usually between 0 and 1, noted Li.

So, how does China rank on the Gini coefficient? According to data released by the National Bureau of Statistics (NBS), China’s Gini coefficient index for 2014 was 0.469, lower than the 2008 peak of 0.491, but still above the “international alert” level of 0.4.
 

By comparison, it was around 0.3 in the early 1980s. “An index of nearly 0.5 is considerably high,” said Li, adding that only 10 percent of countries surpass 0.5 and most developed economies range between 0.24 and 0.36.
 

Liu Yuanchun, director of the National Academy of Development and Strategy at Renmin University of China, claimed that China’s index of between 0.47 and 0.49 reflects its income inequality, especially in urban areas and between urban and rural areas.
 

In addition to its widening income gap, Li noted China faces serious wealth disparity. The latter is a significant index of measuring the gap between the rich and poor, added Li.
 

According to data over the past decade, China’s wealth disparity has far surpassed its income gap, and few individuals rapidly amassed great fortunes. The national annual growth rate of wealth per capita has reached 22 percent, with property values at 25 percent. By contrast, the annual growth rate of wealth per capita in rural areas is 11 percent, or half the national level.
 

China Family Panel Studies 2014, a report by the Institute of Social Sciences Survey at Peking University, revealed that the Gini coefficient for household net wealth was 0.45 in 1995, 0.55 in 2002 and 0.73 in 2012, reflecting the growing disparity in wealth distribution. In addition, the inequality of household wealth possesses two characteristics: families with members working in government agencies or public institutions are on average richer than others; and the growth of mid-income families’ fortunes is faster than those of low- and high-income families. 

Li said that China’s income gap may continue to widen over the next few years, estimating the Gini coefficient index would range from 0.45 to 0.50.
 

Complicated reasons for disparity
So, what factors are driving the widening gap between China’s rich and poor?
 

Li emphasized the importance of understanding the disparity between the rich and poor and the income gap. “In the context of the planned economy, equalitarianism was stressed. Following the rise of the market economy, it is rational to emphasize distribution according to work and allow the income gap to form within different industries, areas and groups,” said Li.
 

Liu attributed China’s wealth gap to historical reasons, noting the country’s large population, rural demographics and weak economic foundation play influential roles. Since its founding in 1949, the People’s Republic of China has always carried out policies giving preference to development of agriculture and heavy industry as well as investment in rural areas, particularly central and western regions. However, eastern-western and urban-rural gaps still loom large due to the different pace and conditions of development.

“Minimum wages, public housing funds and social insurance premiums are totally different for civil servants in eastern and western regions, which inevitably contributes to the income gap,” said Liu.
Some experts claimed that China’s gap between the rich and poor has widened significantly due to insufficient reforms during the country’s transition from a planned economy to a market economy.

There are also suggestions that the government’s interference in the markets has widened the wealth gap. For example, employees in monopoly enterprises, especially senior executives, earn far more than their counterparts at other enterprises. Furthermore, some people have opportunities to get rich quickly that are elusive to many others.
 

 “It is rational to have an income gap between different groups of people based on the premise of honest labor and a fair market, which means those with higher education earn more money than those with lower education. However, people cannot accept the income gap driven by the social hierarchical system and unequal access to social resources,” said Liu.

Influence of social differentiation
Incomes have steadily grown in China over the past five years, said Liu. China’s Gini coefficient slowed down after peaking in 2008 mainly due to a series of government measures to spur economic growth after the global financial crisis, including a stimulus package worth an estimated 4 trillion yuan (about $570 billion). The package was used to finance projects related to low-income housing, rural infrastructure, water, electricity, transportation, the environment, technological innovation and natural disaster recovery.

According to the latest data by the NBS, the Gini coefficient stood at 0.469 in 2014, down from 0.473 in 2013. The index has dropped for six consecutive years since reaching 0.491 in 2008. Per capita disposal income rose 8 percent to 20,167 yuan  (about $3,224) in 2014, with average incomes up 9.2 percent and 6.8 percent for rural and urban residents respectively.

Li noted that since its reform and opening-up, China’s economy has grown at a rapid pace and incomes of the lowest earners have steadily risen. While the gap between the rich and poor is continuously widening, he said social stability remains steady.
 

However, some experts stressed further study is needed into the growing gap between the rich and poor as China’s economic development enters its “new normal” period.
 

“The new situation that favors high-quality economic growth with a better structure and relies largely on capital- and technology-driven innovation will significantly influence labor-intensive industries, further affecting the employment and salaries of non-technical workers with low education,” said Li, warning that in the next few years low-end labor force salaries could even decline. If the country does not accelerate reforms in employment, social insurance and income distribution, Li predicted that the income gap would increasingly widen.
 

Liu noted that skyrocketing housing prices in urban areas are also worth careful consideration when analyzing China’s wealth disparity. “Previously, the gap between urban and rural areas was the main area of focus. However, since 2006 the income gap among urban residents has gradually appeared largely due to soaring housing prices,” said Liu, noting that it has become easier to earn money through assets rather than work.
 

In addition, the gap between the rich and poor has steadied as some of the poor slide from temporary to chronic or intergenerational poverty. Once the gap between the rich and poor becomes truly entrenched and institutionalized, movement between social classes risks becoming severely hampered.
 

Research indicates that the excessively widening income gap will reduce China’s average prosperity, leading to a slowdown of economic growth and affecting the accumulation of human capital among the disadvantaged. Trust between different social groups, especially the rich and the poor, is difficult to improve due to the income gap. More importantly, institutions and policies geared at equal opportunity will be unavailable, threatening social and economic stability.
 

“If the problem isn’t solved, China could risk falling into the ‘middle-income trap,’ a term used to describe the situation in which a country becomes stuck at a certain growth level while transitioning to a developed economy,” said Li.