How Dickensian is China?

WIT IS HIS fast trains, super apps, digital payments and techno-surveillance, China may appear to be a vision of the future. But for some researchers, like Yuen Yuen Ang of the University of Michigan, it also brings to mind the past. Its accumulation of wealth and elaborate choreography of corruption is reminiscent of America’s golden age of the late 19th century, an era named after a novel by Mark Twain and Charles Warner.

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China, including Hong Kong and Macao, now has 698 billionaires, according to Forbes, almost as many as America (724). The habits of the nouveau riche might fill a romance in Twain’s mind. Even non-fiction accounts are weird. A billionaire, according to the book “Red Roulette” by Desmond Shum, gave the author’s well-connected woman a million dollar ring as a gift. When she refused, he bought two anyway. A businessman pointed out to Ms Ang that her neighbor’s dog would only drink Evian. Meanwhile, more than 28% of China’s 286 million migrant workers do not have their own toilets. And in parts of rural China, 16 to 27 percent of students suffer from anemia, according to a 2016 study, because they lack vitamins and iron.

None of this makes Xi Jinping, the Chinese leader, happy. According to a story leaked by a professor who grew up with him, he is “pushed back by the global commercialization of Chinese society, with its retinue of the nouveau riche”. Mr. Xi began to speak more frequently of “common prosperity.” In January, he said that “we cannot allow the gap between the rich and the poor to continue to widen … We cannot allow the wealth gap to become an insurmountable chasm.”

Measuring China’s gaps and chasms is tricky. The most common indicator of income inequality is the Gini coefficient, which has become popular although it is difficult to interpret. One way to make sense of it is with thought experiment. Suppose two people in a country meet at random. What will be the expected income gap between the two? If you know everyone’s income in the country, you can guess it by calculating the average deviation of each possible match. This expected difference can be expressed as a percentage of the company’s average income. Reduce this percentage by half (to get a number between 0 and 100) and you get the Gini coefficient. China’s official Gini is 46.5%, which means that the expected spread will be 93% (i.e. twice the Gini) of China’s average disposable income. Given that the average disposable income was 30,733 yuan ($ 4,449) in 2019, the expected difference would be around $ 4,138.

China’s official Gini is higher than that of many advanced countries, including America and Britain. An alternative calculated by the World Bank seems better (38.5% in 2016), because it takes into account the cheaper prices in rural areas. Another source, the World Inequality Database overseen by Thomas Piketty and colleagues, reports higher numbers, because they look at pre-tax income and because they go the extra mile to unearth the unreported income of the rich. But, as Georgetown University’s Martin Ravallion points out, poor people can also have unreported resources, which can be large compared to their paltry reported incomes.

Although the level of inequality differs between these measures, they all agree on one striking point. Inequality in China today is not as bad as it was a decade ago. Indeed, some researchers have noticed the “great reversal of Chinese inequalities”.

Why then has concern about inequality arisen, even as inequality itself has been reversed? Twain can offer an answer. One of the protagonists of “The Golden Age” takes comfort in thinking that even if he and his wife must “eat scabs in toil and poverty”, his children “will live like the princes of the Earth”. Likewise, many Chinese people can tolerate life in the lower echelons of society, if they believe that they or their children can climb the ladder.

But this type of social mobility seems to be slowing down. Yi Fan and Junjian Yi of the National University of Singapore and Junsen Zhang of Zhejiang University attempted to calculate the persistence of income from one generation to the next. Chinese born in the 1970s inherited about 39% of any economic advantage their parents enjoyed. People born in the 1980s inherited more than 44%. In other words, if you knew that a group of parents was 1% richer than an otherwise similar group of parents, you would expect their children to earn 0.44% more in their own careers than the children of the other parents.

Inequality may also be more obvious than it used to be. As Mr. Ravallion and Shaohua Chen of Xiamen University have pointed out, China’s decline in inequality since 2008 does not reflect softer divisions within cities. Rather, it is the result of a narrower gap between urban and rural China. People tend to be more aware of the social fault lines within a city than they are of the disparities between one remote location and another.

The guilty age

Mr Ravallion suggests another reason why the great turnaround in inequality in China has gone unnoticed: People don’t think in Ginis or percentages but in yuan and fen, dollars and cents. The expected income gap between two random Chinese may have narrowed from 98% of average income at the peak of inequality in 2008 to 93% today. But as the average income has increased during this period, the expected yuan spread is even larger. The per capita income of the top fifth of households was 10.7 times that of the bottom fifth in 2014. This ratio has since declined somewhat. But the yuan gap fell from 46,221 yuan in 2014 to 69,021 yuan in 2019.

Professor who grew up with Xi speculated that if he were to become a leader, Xi would “aggressively” tackle China’s golden decay, even “at the expense of the new money class.” . Xi has intimidated some billionaires in public acts of philanthropy in the past. Gestures will do little to shift the Gini coefficient. But they will make the redistribution more visible. Deng Xiaoping, one of Xi’s predecessors, said he doesn’t care whether cats are white or black as long as they catch mice. Mr. Xi’s main opinion about cats is that he doesn’t like them big. â– 

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This article appeared in the Finance & Economics section of the print edition under the title “Black cat, white cat, fat cat, thin cat”

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