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New data from a Chinese think tank suggests that the government has succeeded in tamping down on inequality, flying in the face of academic evidence and sparking fresh controversy over the divide between China's haves and have-nots.|
The calculation by the International Institute for Urban Development in Beijing puts China's Gini coefficient a widely used measure of inequality at 0.438 in 2010. That means China is fractionally more unequal than in 2005, when the Gini coefficient came in at 0.425 according to data from the World Bank.
The Gini coefficient is a measure of income distribution. A score of 0 would represent perfect equality, a score of 1 would mean one individual controlled 100% of income. South Africa, with a score of 0.631 and Colombia at 0.559 are amongst the most unequal societies in the world according to World Bank data. The Unites States has a gini coefficient of 0.408 in 2000, according to the World Bank.
Zhu Yinghui, a researcher at the institute, said that China's wealth gap raised concerns about China's development path. 'The income gap between urban and rural, between communities, and lack of middle class are factors that could affect social stability,' she said.
Gauging China's level of inequality is made more difficult by uncertainty about household income. Calculations based on National Bureau of Statistics data show the top 10% of households control around 32% of income. But China's statisticians acknowledge that difficulty collecting data on the income of the rich introduces uncertainty into the official numbers.
An academic survey of more than 8000 households across China conducted in 2011 suggests a much greater level of inequality, with the top 10% controlling 56% of income. 'That makes China more unequal than the United States and even more unequal than African societies' said Gan Li a Professor at China's South Western University of Finance and Economics and Texas A&M University in the U.S. who led the survey.
The CIA also publishes a calculation of the Gini coefficient, which it puts at 0.48 in China in 2009 substantially higher than the institute's calculation for 2010. The CIA put the Gini coefficient for the U.S. at 0.45 in 2007.
Growing inequality reflects a combination of factors. 'China started out thirty years ago with everyone equally poor, as incomes rise it is natural that inequality should as well,' said Louis Kuijs, China economist at RBS. 'But that benign inequality has been accentuated by policies that benefited factory owners, not the mass of workers,' he added.
A growing divide between have and have-nots has far reaching implications for China's future growth. 'The main conclusion is that redistribution of income is the key to raising China's consumption,' said Texas A&M's Mr. Gan. That's because low-income households spend a higher share of their income than rich households.
Household consumption in China came in at just 34.9% of gross domestic product in 2011, down from 46.0% in 2000 and substantially below the 70% rate in the U.S. With investment producing diminishing returns and export growth falling close to zero in July and August, raising consumption has become crucial to keeping growth on track.
Inequality in the distribution of income also raises fears of social instability. But Martin Whyte, a professor at Harvard who has conducted extensive survey work on social attitudes in China, said the link was not straightforward. 'It is subjective popular perceptions of fairness or unfairness, not objective income and wealth trends that contribute to instability,' he said. 'Its cases like Bo Xilai that call attention to corrupt gains that get ordinary Chinese people angry about social injustice.'