What is shown from high wealth Gini coefficient?
A recent academic report on wealth inequality in China shows that the top one percent of households holds one-third of total assets, while the bottom fourth holds only one percent.
The report, published by a research institute in Peking University, says the Gini coefficient, better known for its application in income distributions, shows that the gap in wealth between households in the country has considerably widened. The Gini coefficient has increased from 0.45 in 1995 to 0.73 in 2013.
Then, how to treat the alarmingly high wealth inequality? In fact, there are two ways to measure the country’s wealth gap: one is income; the other is asset. The former calculate income flow, such as salary and dividends; the latter uses stock variable, referring to the net assets of a family by deducting the liabilities from all assets including cash, deposit, real estate, equity and so on. The Gini coefficient measuring income inequality has been familiar with the public several years ago. Previously, the data from China Household Finance Survey Center of Southwestern University of Finance and Economics indicate that the Gini coefficient of domestic household income was 0.61 in 2010, which is significantly higher than global average level of 0.44. Considering the unacceptable Gini coefficient of family income with 0.61, it would be even more amazing when the Gini coefficient of wealth is 0.73. The problem is: is it really incredible for the Gini coefficient of wealth to be as high as 0.73? It is not necessarily being so.
Firstly, wealth inequality is not uncommon all over the world. Taking America as an example, from 1922 to 2007, 1% families possessed more than 30% wealth of the whole society in America; and this proportion reached even 44.2% in 1929. Even in most of the time, even distribution of wealth is not a good thing. At China’s initial stage for reform and opening-up, it was much lower than now no matter from income Gini coefficient or from wealth Gini coefficient. However, we live much better lives today than those seemingly fair days.
Even, some inequality is integral to the effective functioning of a market economy. Under the competition mechanism of market economy, the winner will earn a huge sum of wealth. More than 100 years ago, Rockefeller became the richest man of America thanks to his excellent business ability. Then can we say Rockefeller’s wealth should be condemned? Obviously not. During the decades when Rockefeller ruled the petroleum industry, he lowered about 80% of the daily oil price. He wrote in a letter to one of his partners in 1885: keep trying. We should always remember we provide oil for the poor and the oil should be cheap and good.
In fact, there are also a large number of billionaires serving grass-roots currently in China. Taking 2013 Forbes Rich List newly unveiled, there are nearly a half of billionaires ranking top 10 serving low and middle-income class, including Zong Qinghou, Li Yanhong, Ma Huateng, Yang Huiyan and Ma Yun. Can we say that these billionaires obtain their wealth not through their outstanding commercial ability? When a company has customers all around the country, it certainly has reason to obtain a huge sum of wealth, because these wealth, in fact, is the reward given by the customers, rather than obtained through a variety of usurpations. Such kind of wealth is a driving force of social progress, rather than embodiment of social hatred.
Secondly, if we had taken into account of the fact that real estate is the main representation of China’s household assets, we would not have been surprised at the Gini coefficient. Earlier, there were data from China’s household finance survey indicating that real estate was an important part of China’s household assets. National family financial assets accounted for 8.1%, and non-financial assets for 91.9%. In constitution of non-financial assets, the real estate accounts for a large proportion; in non-financial assets of top 5% families, the real estate accounts for 61.1%, and 42.2% in top 1% families. In non-financial assets of national families, the real estate accounts for as high as 71.1%. Since real estate is an important part of household assets, it is not amazing for household wealth Gini coefficient to be as high as 0.73 for the fact that there exists such a great disparity in housing prices at different places.
Take June 2014 just past by as an example. The ranking list of housing price in national one hundred cities released by National Housing Market Data Center indicates Beijing ranks top in the whole country by average housing price of 37,249yuan/m2, while Kashgar of Xinjiang ranks bottom by 3,557yuan/m2, which is less than one tenth of that of Beijing. Supposing a Beijing resident has about the same area of real estate as a Kashgar resident, the family wealth of the former will be more than 10 times of that of the latter. In such case, it is not surprising for the family wealth Gini coefficient to be as high as 0.73.
If we take into account of the development trend of urban real estate in recent years, we will better understand why the wealth Gini coefficient increases from 0.45 to 0.73 of 2012 since 1995. As we all know, China’s real estate market began to rise in 1998 before when housing price is almost the same in national different places, because the main factor influencing housing price is cost of land. However, along with marketization, housing price of different cities assumes a polarization trend.
Since uneven distribution of social wealth is not originally a specially unexpected thing, why the family wealth Gini coefficient of 0.73 this time has triggered strong reactions from the public? One possible reason is that traditional Chinese “fear no scarcity but unevenness”. At the same time, we should also take into account of another factor that many people became rich through improper means, such as bribery, during past more than thirty years of development, therefore, in many people’s eyes, wealth is not a noun to be proud of, but a mark of shame.
To some extent, many rich men all have various problems. But it should be noted that this kind of so-called “original sin”, to some degree, is the “sin” of the system then, and we shouldn’t ascribe to efforts of individuals to break through such kind of system – just like “speculation” bashed in those days which actually is reflection of entrepreneur spirit.
More attention should be drawn to the fact that although many media say it is “wealth inequality” when the Gini coefficient is as high as 0.73, in my opinion, it is really absurd to describe “uneven distribution of family assets” with “equality”. When we say citizen is equal before law, we refer to that the country should treat all citizens equal and be impartial to everyone. But what does “wealth equality” mean? Should everyone possess the same wealth? In my opinion, it is in fact very dangerous to describe wealth with equality: no one should obtain the same wealth as others when he is born, and he can obtain a wealth matching his painful efforts through his excellent ability. If we insist on saying “wealth equality”, then it should be more “equal” before 1978. However, it is obviously a worse society.
We could even say to some extent those who complain wealth inequality all the day, in fact, desire to profit by other people’s toil. This is probably a more dangerous trend than the high wealth Gini coefficient of 0.73.
Published on China Times | 2014-7-30
