Index predicts social unrest in China over income disparity

Index predicts social unrest in China over income disparity. December. 11, 2012 04:44. koh@donga.com.

A think tank says China’s Gini index, which measures the level of income inequality from 0 to 1, has exceeded 0.6. If the figure exceeds 0.4, societal insecurity could ensue, and if more than 0.5, extreme social conflict such as riots could erupt.

According to Shanghai Securities News on Monday, the Chinese Household Financial Research Center, which was co-founded by Southwestern University of Finance and Economics in Chengdu, Sichuan province and the financial think tank of the central Bank of China, said the country`s Gini coefficient was 0.61 in 2010.

The index increased from 0.32 in 1978 to 0.41 in 2000, and China’s Statistics Bureau has not released a figure since then. The body merely mentioned that the index in 2010 slightly surpassed the level of 2000 in a report on the "construction of a wealthy country" last year.

The survey took a sample of 8,400 households in 320 towns, 80 counties, and 25 provinces. Experts simply guessed that the index must have passed 0.5 in 2010.

The sample and survey methods were probably different from those used by the statistics body, but experts say an index exceeding 0.6 shows serious income inequality and society reaching a very dangerous level. The household finance institute said in a report, “China’s income gap is rarely seen globally.” The Gini index is 0.23 in Sweden (as of 2005), 0.31 in Korea (2011), and 0.38 in Japan (2008). Namibia is known to have the world`s highest with 0.71 (2003).

The think tank blamed educational disparity for China`s income inequality. In rural areas, the income gap is triggered by a breadwinner’s ill health that leads to lack of working ability and excessive medical spending, not to mention weak social security programs.

The state-run People’s Daily said on Nov. 6, “The most urgent matter is to deter corrupt income and exclusive gains and address inequality,” adding that the top 10 percent of households represented 57 percent of the wealth as of May. The ratio of earned income to GDP was just 8 percent in 2009, much lower than those of the U.S. (58 percent) and Korea (44 percent). China`s state-run Xinhua News Agency also said in November, “More than hundreds of millions of people are living below the poverty line as set by the United Nations (daily expense of 1.25 dollars per person).”

Voices in China have urged that income inequality be corrected. The People’s Daily said in an editorial, “The government needs to show a strong will to come up with a policy” and Beijing said it will announce measures to alleviate income inequality, which has been dragged on since 2004.

New Chinese President Xi Jinping said in Shenzhen, Guangdong province, over the weekend that his government will rev up the growth engine through continuous opening and reform at the same time. Whether China can kill two birds –- distribution and growth –- with one stone remains to be seen.