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China’s average incomes are higher than the official data suggest, according to Mr. Gan’s findings. His survey puts disposable income per capita in 2010 at 22,196 yuan ($3,563) for urban households, 16.2% higher than the official total of 19,109 yuan.
That points in the same direction as a separate 2008 study by Professor Wang Xiaolu of the China Reform Foundation, which found China’s urban incomes were understated by an even greater margin – 90%.
Taken together, those results offer a slightly more optimistic view of China’s economic imbalances. Based on the official data, in 2010 household income was equal to about 45% of China’s gross domestic product. If household income is understated by as much as Mr. Gan’s research suggests it could be around 50% of GDP (assuming the hidden household income is misclassified in the official data rather than uncounted).
China might be richer than previously thought, but the gap between China’s haves and have nots is extremely wide, perhaps the widest of any country in the world. The survey shows that China’s top 20% command 68.4% of income, and the bottom 20% just 0.5%.
That makes China one of the most unequal societies in the world. In the U.S., the top 20% have 50.3% of income, and the bottom 3.4% according to the U.S. Census Bureau.
The Gini coefficient is a widely used measure of income inequality. A score of 1 means perfect inequality, with one person controlling all a country’s income, a score of 0 means perfect equality. Mr. Gan’s results put China’s Gini coefficient at 0.61. That’s significantly higher than an estimate of 0.44 by a Chinese NGO based on the official household income data.
That massive inequality in China’s income distribution helps explain one of the main puzzles in the world economy – China’s super high savings rate. The conventional wisdom is that it’s China’s industrious poor squirreling away resources for a rainy day that are the reason for the high savings rate.
The survey turns that on its head.
More than half of Chinese households have such low income that they saved virtually nothing in 2011. China’s top 10%, in contrast, earned so much that even with a lavish lifestyle they were still putting significant money in the bank.
The survey puts the savings rate for China’s households at 19%, considerably lower than the 30% for urban households suggested by the official data. But it’s rich households that are responsible for all the thrift. The top 10% save 60% of their income and account for 74% of total saving.
Everyone else is scraping by, spending almost everything they earn. That has far reaching implications for Beijing’s efforts to address the country’s savings glut and deficient consumption. Mr. Gan says that the government’s top priority should be income redistribution, putting more spending money in the hands of the mass of China’s households.
– Tom Orlik, with contributions from MinJung Kim