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China Survey Shows Wealth Gap Soaring as Xi Pledges Help

China’s wealth gap is now 50 percent higher than a risk level for social unrest, according to a central bank-backed survey, underscoring new Communist Party chief Xi Jinping’s warning that corruption may endanger its rule.

The Gini coefficient, an index measuring income inequality, was 0.61 in 2010, based on a survey of 8,438 households by the Survey and Research Center for China Household Finance, a body set up by the Finance Research Institute of the People’s Bank of China and Southwestern University of Finance and Economics. The survey also estimated the urban jobless rate in July 2012 was 8.05 percent, almost double the official figure.

The ruling Communist Party pledged during a once-a-decade power transition last month to narrow the gap between rich and poor and address corruption that’s fueling discontent in the world’s second-biggest economy. Reducing inequality is one of the main challenges facing China, the World Bank said in a February report that outlined policies to help the nation make the transition to a high-income country.

“China’s wealth gap is so prevalent between regions, sectors, and urban and rural that it’s impossible to see a meaningful decline in the Gini coefficient in the short term,” Gan Li, director of the Chengdu-based center and a professor at Texas A&M University in College Station, Texas, said at a briefing in Beijing today. “Depending on market forces alone can’t resolve the gap and China must change the structure of income distribution and rely on massive fiscal transfers to narrow such a yawning disparity.”

Income Redistribution

Higher fiscal revenue and a bigger share of state-owned enterprises’ profits could give the government about 3.8 trillion yuan ($610 billion) a year to spend on income redistribution, said Gan, who has a doctorate in economics from the University of California at Berkeley. In the long run “China needs to beef up funding for education and reduce inequality of opportunity to lower the income gap,” he said.

The widening inequality reflected in the Gini reading may exacerbate concerns that the benefits of economic growth averaging 10.6 percent a year over the past decade are going mainly to the rich, fanning protests against corruption and injustice. Vice Premier Wang Qishan was appointed as the party’s new discipline chief as part of a once-a-decade power transition last month, tasked with cracking down on corruption.

So-called mass incidents, including strikes, riots and other disturbances, doubled to at least 180,000 in 2010 from 2006, according to Sun Liping, a sociology professor at Beijing’s Tsinghua University.

Social Disturbances

China’s Gini coefficient has risen more than any other Asian economy’s in the last two decades, Murtaza Syed, the International Monetary Fund’s resident representative in Beijing, said in February.

The index ranges from 0, which represents perfect equality, to 1, which implies perfect inequality. Readings above 0.4 are used by analysts as a gauge of the potential for social disturbances. The index is also measured on a scale of 0 to 100.

The World Bank put China’s Gini index at 42.48 for 2005, the last year it published a figure for the country.

The government hasn’t published a national number since 2000 when the figure was 0.412. Bo Xilai, the ousted former Communist Party secretary of Chongqing, said in March it had exceeded 0.46.

China isn’t deliberately hiding its Gini coefficient, and will release the data once it improves its survey methodology, Ma Jiantang, head of the statistics bureau, said in March.

‘Dangerously’ High

The center’s household survey, first conducted last year, is one of the largest polls of its kind in China and is being carried out every quarter, Gan said today. The Gini reading may not be directly comparable with the statistics bureau’s number due to differences in sample size and methodology, he said.

The Chinese Academy of Social Sciences, a state research institute, found a Gini figure of 0.54 in 2008, Li Wei, from the organization’s sociology institute, said at today’s briefing.

Li Shi, executive dean of Beijing Normal University’s China Institute of Income Distribution, who compiled his own Gini survey in 2007, told Bloomberg News in September that a poll of 20,000 households gave an index of 0.48.

Li, who helped draft a government plan on income distribution that’s due to be released by the end of the year, said at the time the income gap will persist at a “dangerously” high level over the coming decade.

Migrant Workers

In its report today, the Survey and Research Center for China Household Finance estimated China’s urban jobless rate had risen from 8 percent in July 2011 while unemployment among migrant rural workers had almost doubled to 6 percent in July 2012 from 3.4 percent a year earlier.

China’s urban registered jobless rate, the only official measure of unemployment, was 4.1 percent at the end of September, unchanged from the previous eight quarters. The rate rose to a more than eight-year high of 4.3 percent in 2009 during the global financial crisis.

The official data understate unemployment because they exclude millions of rural workers who migrate from one province to another to find jobs. The government set a target of keeping the urban jobless rate under 4.6 percent this year.

--Zheng Lifei. Editors: Nerys Avery, Scott Lanman

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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