China’s Burgeoning ‘Gray Income’ Economy

September 14, 2010 8:33 pm Last Updated: September 16, 2010 1:52 am

[xtypo_dropcap]L[/xtypo_dropcap]eading economists recently reported that China’s so-called gray income economy—or income that is outside of official business practices and obtained from questionable and often illegal sources—could swell to the equivalent of 30 percent of its national GDP.

Early July, Wang Xiaolu, deputy director of the National Economic Research Institute in Beijing, and his team published a research on China’s gray income, showing that gray income from China’s top 20 percent of income earners make up more than 80 percent of China’s total gray income.

The research revealed out that in 2008, gray income from urban residents in China—which is not included in any official statistics—reached 9.26 trillion yuan (US$1.36 trillion), which is equivalent to approximately 30 percent of China’s 2008 GDP.

Wang and his team found that the reported annual salaries of Chinese Communist Party (CCP) officials are not very high, but the sum of their “gray income” could be much more significant. Their gray income is also outside income tax authorities. Such gray income could come from bribes, embezzlements of public funds, or as favors from businesses and industries, etc.
Sore Spot for the Regime

Experts held that the icebreaking research touched upon a sore spot of the CCP.

China's national statistics authorities published three articles last month in a rare stand to refute the gray income data revealed by the economists.

In response to the investigation, China's National Statistics Bureau (NSB) published a series of three articles refuting such data. The articles asserted that Wang’s gray income estimation was problematic as the gray income was actually normal income. The rebuttal also claimed “as the source of gray income is extremely complex and well hidden, no matter who conducts the statistic research, it’s tough to obtain the true information.”

In 2007, Wang's team published its very first report about China's gray income, documenting that the gray income totaled 4.85 trillion yuan (US$0.72 trillion) in 2005. Wang expanded his survey sampling this time and found that in the past three years gray income increased at a more rapid rate than Chinese GDP.

This could be due to a widening income gap among the Chinese—as gray income is only attributable to wealthy individuals and government officials.

In contrast, income earned by the average working class seemed to be dwindling. In March, China's National Federation of Trade Unions published an investigative report revealing that in the past 5 years, over 20 percent of Chinese employees never received a wage rise.
Gray Income Significance

“China’s wealth gap, trading money for power, inflation, serious mismatch of housing prices and income have been evidenced by most people who live in China and those who have a certain degree of understanding on China,” said Dr. Ding Xueliang, professor at Hong Kong School of Humanities and Social Science who does research in the same academic field, told VOA News.

Ding said that Wang used modern social science to collect survey samples on a large population, which statistically captured the common people’s feelings of unevenly distributed wealth and gray income.

“It is a challenging topic. Many people including myself have tried (to collect gray income data) but cannot continue the research. Wang’s research has icebreaking significance in China.”

Ding held that Wang’s research was independent and did not rely on Chinese authorities’ statistics. The fact that the NSB published a few articles to disprove Wang’s research seems to be an indication that the result may have some significance.

“You have to use a very big and detailed number to support a concept,” Ding said. “Yet this number is so large that scared people, it takes up 30 percent of China’s GDP. The huge, brutal, sensational impact cannot be tolerated by people who currently have power and those interest groups. So they try all they can to ‘disinfect’ it.”

He continued, “Chinese people, scientific research personnel in China, including many government officials who have social status, all know China’s statistic is the one of the most unreliable statistics in the world.”
China’s Admission

Chinese Premier Wen Jiabao said in a government work report for the People’s Congress in March, “Strike resolutely and clamp down on illegal income, regulate gray income, gradually form a publicized, transparent, fair and reasonable procedure to distribute income. Reverse the trend of expending income gap.”

This was the first time that gray income was recognized in any government work report.

Some observers said that any measure to reduce the widening gap between the rich and poor in China could trigger harsh resistance from different interest groups.