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hina’s income inequality in the globalontext�

in Han ∗, Qingxia Zhao, Mengnan Zhang

hijiazhuang University of Economics, Shijiazhuang, China

eceived 12 October 2015; accepted 11 November 2015vailable online 12 December 2015

KEYWORDSInequality in China;Gini coefficient;Polarization betweenthe rich and poor;Socialist

Summary Although China’s GDP has become the world’s second largest, China’s long-termeconomic growth with high speed and long-lasting ‘‘efficiency first’’ policy guidance, hasbrought China into a complicated situation, therein serious inequality exists in China and ithas become one of the most serious problems in China nowadays. This paper focuses on China’sinequality issues in the context of the world, especially on comparison between China and theEuropean countries, concerning of our common pursuit for socialist values.

Comparative method is widely used in the paper. Gini Coefficient and Percentage of TotalIncome of National Population by Income Quintile are utilized as main indicators, and the tworesults just mutually verify each other. We find that the huge inequality in China does not fit

into the title of socialist country and its socialist extent is far less than the European’s, eveninferior to typical capitalist countries. Finally, we make a ladder target of the Gini coefficientstandards for Chinese government to keep constraint by oneself.© 2016 Published by Elsevier GmbH. This is an open access article under the CC BY-NC-ND license

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hina — the world’s most populous nation — has enjoyedemarkable economic growth and gained a second largeconomy in terms of GDP in the world. At the same time the

� This article is part of a special issue entitled ‘‘Proceedings ofhe 1st Czech-China Scientific Conference 2015’’.∗ Corresponding author at: Shijiazhuang University of Economics,36 East HuaiAn Road, Shijiazhuang, Hebei 050031, China.el.: +86 13191887898.

E-mail addresses: hanjin99@126.com, 275080274@qq.comJ. Han), 51481591@qq.com (Q. Zhao), 602327576@qq.comM. Zhang).

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ttp://dx.doi.org/10.1016/j.pisc.2015.11.006213-0209/© 2016 Published by Elsevier GmbH. This is anhttp://creativecommons.org/licenses/by-nc-nd/4.0/).

icenses/by-nc-nd/4.0/).

iving standard of many Chinese people has also increasedignificantly. Yet these economic gains have not been spread-ng across all people. The disparities in rural, urban areas,egions and population groups have reached to the extreme,lthough most indicators show weakening trends after 2010.owever, ‘‘policy and institutions leading to income inequal-

ty have not changed radically, and the widening gap ofealth is further enlarging the income gap, so we could not

ay that the basic pattern of income distribution in Chinaas been shift fundamentally’’, said by Li (2015), the famousxpert on income distribution study, economic professor of

eijing Normal University.

At present, accompanying with polarization between theich and poor, there exist many kinds of complication, suchs a wide range of poor areas and poor population, low and

open access article under the CC BY-NC-ND license

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China’s income inequality in the global context

poor public service, and a wide spread phenomena of hol-low village and abandoned land in the vast rural areas andremote mountainous area. Meanwhile, definitely low levelof governance of local governments and bureaucracy hasinevitably caused the degradation of ecological environmentand serious waste of natural resources. All above are poten-tial adverse factors to the society, which to an extent, mayfoster social and political unrest and eventually revolutionwhen people get it worse after having got it better, accord-ing to Østerud (2014), Professor in political science at theUniversity of Oslo. China’s economy has currently entered‘‘the new normal’’ characteristics of lower growth rate, wehave to be more careful to maintain the society in safety.

Inspired by Piketty (2014), the famous French economist,and professor of Paris school of economics, who predictsthat in future 10 years, the inequality in China will becomeincreasingly prominent, for the economic growth will even-tually slow down; an ideal social economic system remains tobe established. What kind of system should be established?In consideration of the current economic power of China,in the duration of economic adjustment, it might be a goodopportunity to recall social equity, as the social nature ofChina.

In this paper, we are to make a thorough study on China’sincome inequality in the context of the world, especiallyto compare China and the European countries, concerningof our common pursuit for socialist values; And accordingto the results of comparisons, we make a ladder target ofthe Gini coefficient standards for Chinese government tokeep constraint by oneself, and some principled approachesnecessarily to obey.

Materials and methods

In China, the biggest income gap has been being betweenurban and rural areas, and income gaps among the admin-istrative areas and industrial inequality of personal income

are next following (Li, 2010; Li and Li, 2010a,b). As availablematerials show, most of the literature on China’s inequalityare of domestic, and further the most are about the gap ofurban and rural areas.

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Graph 3.1 Average Gini CoeSource of Data: Wind Information.

25

In this paper, the core task is to measure and judge ifhere is polarization between the rich and poor and how it is.he measurement is mainly to see China’s inequality profile

n the world. Hence comparative method is widely used inhe paper. The Gini Coefficient, a comprehensive index pre-ailing in the world showing the inequality degree of incomeistribution, is the main indicator used widely in the paper.n theory, there is a warning line, which is the maximum 0.4mpirically, beyond 0.4, the society would be not in har-ony, such as regional unbalance, rural and remote poverty,iscrimination, hostility, crime, environmental degradation,tc. exist, just as China’s current states. And also a dan-erous line (0.5) is seemingly appeared to exist; reachingo 0.5, the society would probably be unrest, such as massisturbance, vandalism, even rebellion, etc. may happen,s it is in Latin countries. Meanwhile, Percentage of Totalncome of National Population by Income Quintile is utilizeds well, and the Top/Bottom Ratio as an indicator is goodor verifying results mutually with the Gini Coefficient.

About Gini coefficient, some scholars argue that China’sini coefficient was over-valued or the data is not accu-

ate, or the indicator itself has major defects, and so on.Zhang, 2005; Li, 2006; Qu, 2007; Dong and Yang, 2010) Bute advocate that Gini coefficient is the most authoritativend appropriate indicator to measure social inequality, espe-ially in the global context. (Ge, 1996, 2001; Zhao, 2002).ven Wang (2010) points out that China’s Gini coefficient isrobably under-valued, and originally put forward an extraart, — ‘‘Grey income’’.

Data using in the text are mostly from National Bureauf Statistics of China (NBSC, http://data.stats.gov.cn) andind Information (data mostly origin from NBSC). The data

rom one official source make things simpler and more com-arable.

hina’s inequality level in internationalontext

his is the major part of the paper. We take China in theontext of the world, to measure and judge whether China’snequality is a serious problem or not.

fficient of China VS EU.

26 J. Han et al.

Graph 3.2 Gini Coefficient of China VS Overseas (2010). Note: Data of Gini of continents are average level calculated from maincS ata.s

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ountries of each continent.ource of Data: National Bureau of Statistics of China (http://d

ini coefficient

n Graph 3.1, Europe is treated as the main reference oftudying Chinese inequality, because Europeans’ popularalue pursuit, ‘‘born equal’’, and its market socialism modes quite similar with the final pursuit of ‘‘equality’’ of China’socialist system of market economy.

China and the European Union’s (EU) data are during004—2013, some individual countries in the EU countriesre the average of recent nine years, the rest are also 10ears average from 2004 to 2013.

China’s average Gini coefficient of recent 10 years is.482, while that of the EU 27 countries is 0.305. This meanshat China’s Gini coefficient is 58% higher than that of theU. Furthermore, China’s Gini coefficient is 67% higher thanermany’s, the most typical market socialist country.

We choose five representative countries from north-rn Europe, western Europe, southern Europe and easternurope and find that the Gini coefficient in northern andestern European countries is generally below the EU aver-ge of 0.305, except Britain under the Anglo-American

odel (0.326). However, in the southern and eastern Euro-ean countries the Gini coefficients are higher than the EUverage, except for the Czech Republic and Hungary. Thezech Republic (0.251) is equivalent to the lowest level of

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Graph 3.3 Gini Coefficient of Nationwiource of Data: Wind information.

tats.gov.cn).

orthern Europe, Hungary (0.269) is equivalent to the low-st level in western Europe, but are much lower than China’sverage level of inequality (0.482).

Shi Li wrote (2010), ‘‘the characteristics of the Gini coef-cient is decreasing. When the income gap is not big, theini coefficient is more sensitive to reflect, such as twoersons’ income gap from 2 times to 3 times, on the Ginioefficient is changed from 0.17 to 0.25; and when theirncome gap from 10 times to expand to 15 times, a reflec-ion of the Gini coefficient is 0.41—0.44. So although it seems

little change from 0.48 to 0.50, but it reflects the actualncome inequality may be 30—50 times.’’ So that China’sini coefficient level in 2010 is roughly equivalent to thectual income gap about 30 times.

To see China’s inequality more globally, Graph 3.2 showshat China’s Gini coefficient is slightly low and close to theatin American average Gini coefficient (0.4864), but higherhan several other continents. That means China’s Gini coef-cient (0.481) belongs to a handful of countries with top

nequality in the world, not only higher than that of westerneveloped countries, but also above Asia’s average (0.3513).

his situation does not conform to the nature of socialismnd higher than market capitalism countries (0.374) in Northmerica, and even more unequal than the most typical mar-et capitalism country — the United States (0.4112).

de Residents in China (2003—2014).

China’s income inequality in the global context 27

ssed

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RdmTother with the comparison results of Graph 3.2.

Graph 3.4 Proportions in Total Income Posse

Wang (2010) finds that the ‘‘invisible income’’ of Chineseresidents is 9.3 trillion yuan, and the ‘‘gray income’’ is 5.4trillion yuan. China’s top 10% households’ income is 65 timesmore than the lowest 10% households. If we take the cor-rupt officials’ illegal income into account, the gap betweenthe rich and poor in China could reach 100 times, so it isawful.

Graph 3.3 shows the general trend of China’s Gini coeffi-cient in recent 12 years. The Gini coefficient peaked to 0.491in 2008, began to decline since 2010, and reached to 0.469in 2014. Though falling fast, the current Gini coefficient isstill higher than 0.4, the warning line of inequality. The mostserious is we have a long distance (0.06) away from Amer-ica, the most typical market capitalist country. According to

the pace achieved through 5 years 0.02 (0.49—0.47 between2009 and 2014), we need 15 years to chase America by Ginicoefficient.

re

Table 1 Proportions in Total Income possessed by 5 Population G

Top to bottom income group equally divided: China and overseas (

Group/indicator Asia2010

Europe2010

Low to 20% population posseses theproportion in total income

7.69 7.14

The 4th 20% population posseses theproportion in total income

21.65 22.82

The 3rd 20% population posseses theproportion in total income

15.78 17.13

The 2nd 20% population posseses theproportion in total income

11.68 12.74

Up to 20% population posseses theproportion in total income

43.2 40.17

Top/bottom ratio 5.62 5.63

Source of Data: National Bureau of Statistics of China (http://data.sta

by 5 Population Groups: China and overseas.

ncome proportion of 5 group population equallyivided

oth Graph 3.4 and Table 1 show that data of all continentsre average of some major countries on the continent, andata available in 2010; Compared with China in 2014, theatest data; meanwhile data of the city and the country in013.

The indicator for level comparison we use is Top/Bottomatio, which is the income share of the highest income groupivided by the income share of the lowest income group,eaning income inequality between two extreme groups.he purpose of this comparison is to mutually verify each

The contrast results of Graph 3.4 is quite similar to theesults of Graph 3.2, the only difference is that the differ-nce of extreme income in Europe is higher than in Asia,

roups and Top/Bottom Ratio.

%)

NorthA2010

LatinA2010

China2014

Rural2013

Urban2013

5.9 4.17 4.27 5.31 7.98

22.92 20.58 9.79 11.33 12.90

16.28 13.13 15.86 16.31 17.12

11.39 8.43 24.23 23.36 22.63

43.50 53.69 45.85 43.69 39.37

7.37 12.88 10.74 8.23 4.93

ts.gov.cn).

28 J. Han et al.

Table 2 Gini coefficient target for China.

China 2009 China 2014 Gap for cutting Warning line (Theory) Warning line (China)

5 year 0.49 0.47 0.02 0.40 0.30US 2010 (1) 0.41 0.06UK 2010 (2) 0.33 0.08Germany 2010 (3) 0.29 0.04EU average 0.31

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hereas the results of the Gini coefficient comparison inraph 3.2, is on the contrary, i.e. Asia is higher than Europe.nd from Graph 3.4, Top/Bottom Ratios of China’s urban andural areas are both lower than China’s national averagend the internal extreme difference of countryside (8.23)s much greater than that of cities (4.93).

indings

) The average Gini coefficient of China in recent decade(2004—2013) is 0.482, which close to the dangerous line0.5. Average level of the European Union’s 27 countriesis just over 0.3, a reasonable level grade. Northern andwestern Europe is below 0.3, as the equal level grade.Also as reasonable level grade is the southern and east-ern Europe. Among them, some countries in easternEurope, such as the Czech republic and Hungary, whichGini coefficients are equal to the lowest level of northand western Europe.

) From global perspective, all data in 2010, China’s Ginicoefficient (0.481), is slightly low and close to LatinAmerica’s 0.4864, but higher than in several other con-tinents which is not only higher than that of westerndeveloped countries, but also is above Asia’s average(0.3513). This does not conform to the nature of social-ism, and higher than market capitalism countries (0.374)in North America.

) The changing trend of China’s Gini coefficient: The Ginicoefficient peaked to 0.491 in 2008, began to declinesince 2010, to 0.469 by 2014. Though falling fast, thecurrent Gini coefficient is still much higher than 0.4, thewarning line of inequality.

) The most serious is we have a long distance 0.06 awayfrom America, the most typical market capitalist coun-try. The Gini coefficient of the United States is 0.4112in 2010. According to the pace achieved through 5 years0.02 (0.49—0.47; 2009—2014), we need 15 years to chaseAmerica by Gini coefficient.

) The level of the Gini coefficient in China (2010), roughlyequivalent to about 30 times actual income gap. Ifconsidering the invisible income and officials’ illegalincome, the gap between rich and poor in China mightreach to 100 times by the actual income gap.

) In general, for countries or larger regions, the more

developed, the more equal; the more socialist, the moreequal; the more humanist, the more equal. But Chinais an exception, which probably caused by China’s long-lasting ‘‘efficiency first’’ policy guidance.

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iscussion and conclusions

rom the above, Serious Inequality exists in China and it haseen one of the most important problems in China nowa-ays. Polarization between the rich and poor is not likely tolose automatically without policy to adjust or reform of theystem (Wang, 2006). So to reduce the inequality should ben urgent mission of the deepening comprehensive reformor Chinese government.

A declining trend of Gini Coefficient since 2010, reflectshat the effects of policies conducted by the govern-ent in recent years are effective. By following the same

pproaches and paces achieved through recent 5 years, thennother three 5-years to catch up with America, the mostypical market capitalist country (shown in Table 2).

There exists co-relationship between income distributionnd economic growth, which relation has been discussedy many scholars. (Zeng, 2003; Hu, 2013; etc.) Commononclusions seem generally that there is a Two-way causal-ty between income gap and economic growth, but theirausing factors are multiple and complicated; China is devel-ping big country during its transforming stage, all kinds ofrregular and illegal incomes should be eliminated by law;owever, on the adjustment or reform of normal institu-ions and policies, there are so large differences, and evenpposing views. And the mainstream is to fully recognizehe positive effect of the widening gap between rich andhe poor, employment is the most important, and for theini coefficient, Trying by not Trying. That is the thoughtf ‘‘primary accumulation’’, which seems overwhelming, isven more harmful to form a modern socialist country.

Anyhow, it is certain necessity for China set a target toeduce the inequality in terms of the unequal degree andor the sake of social harmony, no matter China’s socialistature. Then is in what degree and step to cut the inequal-ty; Table 2 contains a target plan of ‘‘cutting’’ for theovernment to follow.

From the perspective of China’s socialist nature, wehould set the EU average as a reference warning line forhina, around 0.3. To pursue a goal of inequality reductionurrently in China, we have three steps to go: (1) to surpassS; (2) to chase UK; (3) to pursue Germany (see Table 2).

Considering further solutions, the principles in generalight be followed:

1) To be fair, do not affect efficiency;2) Generally beneficial policy is superior to the preferen-

tial policy;

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China’s income inequality in the global context

(3) Regional policy is better than policy to a village and ahousehold;

(4) Badly damaged rural environment should be paid closestattentions;

(5) Promoting public service in rural and remote mountain-ous areas should be a trigger.

Conflict of interest

The authors declare that there is no conflict of interest.

Funds

On the ecological compensation mechanism for Beijing—Tianjin—Hebei mountainous region under the backgroundof regional governance, Research project of Social Sci-ence Foundation China (Serial number: HB15LJ002), fundedby Hebei Office for Programming Philosophy and SocialScience.

On the mechanism of integration governance of theBeijing—Tianjin—Hebei mountainous region based on itsecological function, Research project of Soft Science Foun-dation China (2016), funded by Hebei Bureau of Science andTechnology.

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in Han has two bachelor degrees in Economics and Geologicalcience from Hebei College of Geology. She also has a Ph.D. inconomics from the Renmin University of China. She is now Profes-or in economics in Shijiazhuang University of Economics. Her mainesearch aim is to promote sustainable development in the poorural areas in China, focusing on promoting Rural Urban, Agriculturalndustrial and Inter Regional Balanced Sustainable Development inhina. HJ made an outline of the paper, and carried out the data

nformation and its calculation and utilisation, then worked out theaper and made all the affiliates done.ingxia Zhao is currently a lecturer in statistics in Shijiazhuangniversity of Economics, and has Master degree in statistics fromhe Renmin University of China. She contributed her time with dataomputing and some literature reviews.engnan Zhang is a first year graduate in Population, Resources and

nvironment Economics in Shijiazhuang University of Economics,er contribution for the paper, who took a lot of time to list theeference of Chinese literature and make it an English draft, andlear up most of the data.