China's Inequality Gini Coefficient
In December last year, the China Household Finance Survey Center released a report, showing China's Gini coefficient an index measuring income inequality reached 0.61 in 2010, much higher than 0.481 announced by the National Bureau of Statistics (NBS) of China, thus it led to wide arguments and questioning.
For better understanding of this survey, SIFL invited Prof. Gan Li, leader of the report and president of the School of Economics of Southwestern University of Finance and Economics, to analyze in details of the release of these data and the investigation process. SIFL’s Fu Weigang moderated the event.
Gan Li pointed out, though their Gini coefficient much higher than NBS, there are huge difference between the low-income group and the high-income group. He said, “If the sample of 0.5% of the lowest income is got rid of, our Gini coefficient is 0.60; if the sample of 0.5% of the highest income is got rid of, the Gini coefficient is 0.54. This reflects that the difference of Gini coefficient mainly derives from the high-income class.”
China’s wealth gap is astounding. Prof. Gan described scenes that impressed interviewers most: In the mountain areas of Yunnan province, people in some families may eat cabbage boiled in salt water in all seasons of a year. Among them, one interviewee said that he had no bank account, and called a plastic bag with full of small changes as his own bank.
“For a country like Germany with rather homogeneous population structure, urban-rural gap and educational level, the Gini coefficient in primary distribution is around 0.5, for a country like China with so huge difference, the Gini coefficient is below 0.5. Isn’t it worthy of suspicion?” Gan emphasized.
Prof. Gan further pointed out that the data of NBS have homogeneity, and its book entry method is not always scientific, “for 90% of the investigation in the world, the book entry method is not applied.” Gan estimated that the investigation of NBS may even not accurately collect the data of the poorest and richest families.
However, Gan stated that monopolized industries are not the important reason that leads to high Gini coefficient, “even a monopolized industry is wiped off, the Gini coefficient of China is still very high”. In Gan’s opinion, China’s wealth gap is so prevalent between regions, sectors, and urban and rural that it’s impossible to see a meaningful decline in the Gini coefficient in the short term.
Facing such high Gini coefficient, Prof. Gan emphasized, “It is normal during a country’s rapid economic development process. And it is opportunity inequality instead of income inequality that results in dissatisfaction.”
How to reduce China’s inequality Gini? Prof. Gan said “depending on market forces alone can’t resolve the gap and China must change the structure of income distribution and rely on massive fiscal transfers to narrow such a yawning disparity.” For example, the Gini coefficient of Brazil once reached the peak of 0.63, and after the percentage of fiscal transfer raising from 8.5% to 13.4%, the Gini coefficient dropped immediately.
“China’s government is rich enough to carry out the large-scale fiscal transfer,” Gan Li acknowledged. According to statistics, China’s gross fiscal revenue exceeded 11.7 trillion yuan in 2012, increasing 1.35 trillion yuan than that of last year, and there were over 2 trillion yuan realized profits of the state-owned enterprises. At the same time, China’s fiscal deficit is 1.6% of GDP, only occupying 8% of the tax revenue.
