China’s wealthiest 100 individuals have more wealth than the poorest two-fifths of the country’s population combined.
According to Forbes China Rich Lists, in 2018 the wealthiest 100 persons in China have accumulated an incredible wealth of US$643 billion. In comparison, the bottom 40 percent of Chinese households (or around 425 million adults) collectively own just around US$637 billion worth of assets.
The majority of China’s ultra-rich made their money from industries where they possess considerable monopoly power. A large chunk of them made their fortunes from real estate. In contrast, only a tiny percentage of High-Tech entrepreneurs made it to the top 100 rich lists.
Since the opening up of China, the country has made tremendous progress in improving the living standards of its citizens and lifted millions out of extreme poverty. Much of China’s population has experienced rising real incomes from 1978 to 2015. During this period, the real income of the bottom 50 percent of Chinese households have increased by about five times on average. While the real income of its wealthiest 0.001 percent have increased by almost 40 times. This extraordinary growth at the top end of the income distributions has transformed China into one of the world’s most unequal countries.
Measured in terms of the Gini coefficient (ranging from 0 to 100, with higher scores meaning more income inequality), China reached a score of 49.1 in 2008. Since the GFC, its Gini coefficient has experienced a slight decline. According to an IMF working paper, the decline was mainly due to a drop in the income share of its top 20 percent, rather than an increase in income shares of its poorest households.
To put it into perspective, China today still has a larger income gap between rich and poor than the United States. And as far as income distribution goes, China is more unequal than some of the world’s poorest nations such as Malawi, Burundi and South Sudan.
What caused China’s growing gap between the rich and poor? The IMF found the differences between urban and rural areas to be a key driver behind the country’s rising income inequality.
The country’s rural population is also lagging behind the urban population in tertiary education and skills. With the fast technology advancement in China, the demand for high-skilled labour rose rapidly while the demand for low-skilled labour has fallen. Machines and automation are replacing more and more routine jobs in China, and those without a good education are left further behind.
To make matters worse, the Hukou (local household registration) system in China prevents rural and urban migrants from accessing the same level of social benefits and education as people with local Hukou status. An earlier article from Zhongguo Institute – ‘New Semester, No Schools’ looked at the difficulties faced by migrant children in getting basic education. Many of those migrant children don’t even finish middle school, let alone obtain a tertiary education.
The Chinese government has recognised the country’s rising inequality, and has implemented a series of policies to curb this problem. Those policies include personal income tax reform, minimum wage increases and the abolition of agriculture taxes. The country also introduced the Dibao (minimum income guarantee) and Yibao (medical care coverage) systems, and it is in the progress of extending 9-year free education to 15-year in selected central and western regions (to include preschool and senior high school)..
Recent analyses suggest that those policies have achieved moderate success, and there are some encouraging signs that the rural-urban income gap in China is narrowing. On average, urban households in China had 2.7 times the disposable income of rural households in 2016, compared to 3.3 times in 2007. However, this ratio is still much higher than other emerging countries.
(Source: World Bank)
A more equitable society has better long-term growth prospects. And China still has a long way to go before it can truly close the great urban-rural divide. There is an important role for the government to play in implementing appropriate fiscal policies and well-designed wealth transfer programs. The country, however, also needs to offer equal social benefits and educational opportunities for all of its citizens. Otherwise it is hard to imagine that the problem of inequality can really be solved.