Crackdown on illegal sources of cash will help in rational wage distribution

China's Gini coefficient index declined for the fifth consecutive year in 2013 to reach 0.473, according to statistics provided by the National Bureau of Statistics.

The result is based on 400,000 households surveyed throughout the country.

The Gini coefficient index, as defined by the World Bank, measures the extent to which the distribution of income or spending among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality and an index of 1 represents perfect inequality.

The latest figure prompted different views. Some considered it lower than expected. Yang Weixiao, a senior analyst specializing in macroeconomics and fixed income with Lianxun Securities Beijing, said the figure based on a national average is very likely to be "under-reported".

"First of all, it is widely perceived by the general public that the income gap is widening. In addition, any calculation on property income or off-payroll income is not included in this research. The calculation of farmers' incomes is not researched proportionately. Therefore, it is hard to say whether it truly reflects the big picture," Yang says.

Chen Yanli, a mid-level administrator at a multinational company in Shanghai, has a salary about 12,000 yuan ($1,960; 1,465 euros) a month. She is happy with her current income, saying she has "no ambition to compare her income with that of the so-called rich second generation". But she has also sensed a huge income disparity, especially between those who perform simple manual work and the super rich who spend lavishly.

"It is really the workers living on the bottom rung of the social hierarchy who are likely to call for an immediate income distribution revolution. They earn so little and work for such a long time. They are simply too tired to spend."

Ma Jiantang, chief of the statistics bureau, reiterated the importance of deepening the income distribution revolution as well as increasing the wage of low and medium-income people. He also says it is crucial to regulate legal income and crack down on illegal sources of cash to ensure a more rational income distribution.

However, Ma says a reading above 0.4 still indicates much room for improvement regarding income distribution according to World Bank standards.

Yiping Huang, chief economist of emerging Asia at Barclays Capital, says it is "not in a position to judge the accuracy of the estimated Gini coefficients". But it has noticed a steady improvement since 2008.

"The trend of the coefficients provided by the statistics bureau looks reasonable to us (although we will have to wait and see if declining inequality has become a new trend). In fact, we believe these data constitute evidence of a largely under-appreciated trend of structural improvement in recent years. Such improvements include, among others, improvements in income distribution, increases in the share of household income within the national income and the share of consumption of gross domestic product, a narrowing of the current account surpluses and the declining energy intensity of the economy," says Huang.

Economists at Barclays Capital have also noticed rapid wage growth in recent years, which, they say, was probably also behind the recent improvements in income distribution highlighted by the statistics bureau, because low-income households rely more on wage income and high-income households rely on investment returns or corporate profits.

"If the past trend was households subsidizing corporations, then the new trend is redistribution of income from corporations to households as rising labor costs increase wage incomes but squeeze corporate profits," Huang says.

shijing@chinadaily.com.cn

(China Daily European Weekly 01/24/2014 page15)