Wealth Inequality in China

Income inequality in China has surpassed that of the United States, even though the U.S. still has greater wealth inequality than China. Why is that so? Professor Yu Xie offers his interpretation.

Wealth is a relatively new phenomenon in China compared to the United States. In the past, under Mao’s rule, access to state bureaucracy (connections to important party cadres) was the main cause of inequality in terms of an individual’s job quality, residence, allotted goods and services, and standard of living. During Deng’s reform and opening up era from 1979 to1998, income was the main cause of inequality. Most recently, however, with the housing reform in 2009 that freed the housing market from danwei assignment, low-income individuals could no longer afford housing once simply allocated to them, and those who held property could rent or sell them at market prices. The previously low correlation between income and wealth has been eclipsed and now, asset-rich individuals stand to use money to make money. Housing assets and financial assets, which are the main sources of wealth accumulation, determine the level of wealth inequality in China.

In this new state of affairs, there is a trend of choufu, or hating the rich. Professor Xie explained that the negative emotions arise if these rich people attained their wealth unfairly. Another typical response is to not hate the rich, but simply complain ‘why not me?’

Multiple studies using data from the Chinese Household Finance Survey (CHFS), China Labor Force Dynamics Survey (CLDS), and Professor Xie’s own China Family Panel Survey show that the Chinese government’s figure for the country’s Gini coefficient have been too low (less than 0.5) when independent sources have their most conservative estimates in the range of 0.54 to 0.61. The Chinese government’s figures show that inequality has decreased since peaking in 2007 whereas the aforementioned study instead describes a sustained, and even faster rate of increase since 2007.

Why is this an issue of concern?

In a recent ranking of social issues according to severity as perceived by Chinese citizens, economic inequality ranked first, ahead of government corruption and employment. Whereas the US, Taiwan and Hong Kong’s graphs of gini against time shows a U-shaped curve, China’s graph is more of a Nike tick, with inequality rising very quickly in recent years. The structural forces at work, such as coast areas being decidedly richer than inland areas, rural residents/ migrants being poorer than urbanites in terms of wealth (not necessarily income, especially for the migrants), race and ethnicity, level of education etc, imply that this upward trend has no signs of abating. Lastly, in a Gansu survey in 2007 asking respondents what affects their economic well being in general, the central Government is listed as first, followed by the local government. If the government was held responsible to provide economically for the people, and empirical research has shown that satisfaction with one’s wealth and income is relative, there is a possibility that inequality will become an issue of political legitimacy as well and find its way to become one of the top issues in the CCP’s domestic agenda.

However, there is one strong constraining factor against inequality being seen as unfair in and of itself. Professor Xie’s research show that the Chinese citizenry seem to have an implicit model in their minds that inequality is an inevitable consequence of economic growth, and poverty exists where equality is pursued, harkening back to the Mao era. This explains the fact that many are not angry at inequality if the wealth and income of the rich were achieved fairly. They are more angry at themselves for not being that rich person.

Seen in this way, it is unlikely that China will intentionally embark on overtly socialist and equality-promoting campaigns, at least to the level that Communism mandates, in the near future.


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