"At the top of the income ladder there's a large quantity of unrecorded income that is causing income disparity in China to grow. Urban families at the top ten percent of the income bracket are now making 31 times more than those at the bottom ten percent, and not the nine times that statistics previously indicated. In the rural areas the multiplier can reach 55, contradicting current statistics that put it at 21. China's actual income disparity far outstretches what current statistics show. Because data is insufficient, it's then hard to calculate the Gini coefficient, but it is clearly beyond the World Bank's calculation of 0.45."
This is one main conclusion from a report published by Caijing on May 28. It focused on grey income and income disparity, and the full text will be published in July's issue of Compare. The moment it was published by Caijing, it caused an uproar.
The night that Tengxun Network reprinted Caijing's summary online, it was viewed 20,000 times and received comments from 4,000 people.
"I read basically all of the comments," says Wang Xiaolu, author of the report. "The overwhelming majority approved of it, and had faith in the findings. They also were very dissatisfied with the income distribution gap and corruption. Some even felt the report didn't go far enough. Only a few disagreed, saying things like 'why are you bothering with this, it's worthless.' There were also those who swore, and even those who said that government corruption advances society. But the moment things like that appeared, many would immediately stand up against it."
Other websites successively reprinted the summary. The next day, commentators had varying opinions-- some attacked the report, some analyzed it. Some reputable scholars like Lang Xianping and Yi Xianrong copied the abstract onto their own personal websites or wrote responding articles. After Xiao Wanglu posted the abstract on his blog, the hits broke ten thousand in one day. For a scholar's blog, this something seldom seen.
Such an overwhelming response could not have come from something born easily. Regarding the difficulty involved in the report's preparation, Wang says, "It's like you're trying to be the National Bureau of Statistics, doing research according to a sampling pool in the tens of thousands. But if people don't report their illegal income to them, why would they tell you?" According to conventional standards, this kind of research was un-doable.
"Because it's so hard to approach this kind of problem, should we just tip-toe around it and pretend it doesn't exist?" Wang refused-- he was determined to try. "Why resign out of fear of being imprecise? Anything is better than nothing."
Wang borrowed methods used by sociologists, letting surveyors ask their close relatives and friends. They didn't ask what income was legal and what wasn't-- they simply asked what the yearly family income was and what they consumed, and then according to various income levels, calculated their consumption levels.
One of the main consumption indicators is the Engel's Coefficient, which measures the proportion of income spent on food. "I only had just over two thousand samples, so I clearly couldn't extrapolate the data to the whole nation. But as long as these figures are relatively reliable, it doesn't matter that there are only two thousand. They can still be tested against the available data."
The results of the investigation were fascinating. The National Bureau of Statistic's and Wang's data were identical for the bottom ten percent, but as one climbs the income ladder, the discrepancies grew. At the top, they were massive.
In the report, Wang writes, "for the top ten percent of urban families-- 19 million, with 50 million total family members-- disposable income is 97,000 yuan, three times higher than the under 29,000 yuan previously thought. Figures for upper-middle income families are also higher than the public figures. Rural residents make a gross income of 13.5 trillion yuan, and not 8.3 trillion. Unaccounted urban income for the whole nation could be as much as 4.8 trillion yuan, accounting for 26 percent of GDP.
But Are these figures reliable?
Wang Xiaolu says, "I've used various methods to verify my data, for example, we would ask how many people have cars, how many live in commercial housing... we knew what income levels can support these kinds of consumption habits, and compared that to how their bank loans were distributed. From these, we calculated their income levels ourselves. The end result was that the data was all reconcilable. Of course, the next step in verification should be taken, and future research may discover mine to have ended with slightly higher or lower figures."
When asked if both were possible, Wang says yes. The 4.8trillion yuan that he believes to be unreported income remains to be confirmed, but with a larger data pool, it can be. But his figure likely to be more conservative than anything else.
Wang Xiaolu believes that there are five main sources of grey income: government financial organs, the universal nature of financial corruption, administration of licenses and permits, the loss of land value, and monopolized industry income. He adds, "the reason for the wide income distribution gap does not lie in the freeing of the market. It is a systemic problem. This leads to corruption and grey income."
