China's Wealth Inequality Coefficient Surpasses International Warning Level

By Xi Wang, Radio Free Asia
July 20, 2005 12:00 am Last Updated: July 20, 2005 12:00 am

According to the most recent data released by National Bureau of Statistics of China (NBSC), China's income disparity measured by the Gini coefficient [1] has reached 0.465, higher than the internationally accepted warning level of 0.4. China's wealth inequality is an extremely serious issue.

According to the Guangdong newspaper Yangcheng Wanbao, a recent survey held by NBSC revealed that similar to the large gap in incomes between the country&#039s urban and rural areas, a sharp gap in incomes among urban citizens now also exists. The highest-income group in cities earns 10.7 times more than those at the other end of the scale.

The survey conducted on 54,000 urban residents nationwide shows that in 2003 the richest 20 percent of households had a per capita income of 17,472 yuan (US$2,111). In contrast, the poorest 20 percent of urban households had only a per capita income of 3,295 yuan ($398), which is nearly six times smaller than that of the richest.

Some experts pointed out that the increasing number of job layoffs and unemployment in the cities has resulted in relatively impoverished community in urban areas. This causes the income gap among urbanites to expand at an accelerating rate, much faster than that between urban and rural residents.

Regarding the rapid increasing income disparity among urbanities, Dr. Zheng Zhuyuan, an economist at Ball State University, Indiana, said, "Reaching an equal wealth distribution has to rely on taxation system. High-income people would have to pay a higher percentage of their income in taxes and low-income people would be free of taxation. We can also implement inheritance taxation, which allows government takes 50 to 60 percent from the value of property when a person passes away. Another approach is to execute a welfare system, having the rich aid the poor. On one hand, through taxation the government can collect some portions of incomes from high-income people for public ownership. On the other hand, the collected money must be used to subsidize the poor people. "

The report also quotes Cai Fang, the director of Institute of Population and Labor Economics, Chinese Academy of Social Sciences, as saying China's Gini coefficient has surpassed the warning level of 0.4. At present, China&#039s income disparity has already reached a high level, and the situation is rather severe.

Cai Fang believes that alleviating the income disparity between the rich and poor can begin from two aspects. One is to allow the income redistribution policy and raise taxes for the rich people. The other aspect is to maximize employment opportunities so as to help as many people as possible obtain a relative stable income. Currently, statistics indicate that the richest 10 percent of households own 45 percent of urban wealth.

[1] The Gini coefficient standard was set up as a warning system for the study of the wealth inequality by global economists and sociologists. It is a universally accepted gauge to measure whether the gap between the rich and poor is tolerable. The warning level of the system is 0.4.