China’s Dangerous Income Gap

This is Part 3 of a series exploring themes found in essays written by Sichuan University students in a graduate writing course. The previous posts were “Modern Chinese Youth and Filial Piety” and “Love and Marriage in China

In case you haven’t heard, there are two sides to every coin. This is no more evident than in the case of China’s current financial situation. Although the nation can now boast more than a million millionaires, the bulk of the population lives a decidedly different reality.

In the countryside, where the majority of Chinese live, per household income is under $1,000 a year, while the urban regions boast a much-higher $3,000 a year average. In fact, it’s hard to know precisely how large the income gap is because so much income at the top is unreported. But according to one income distribution measurement, the wealth differential in China is now at a point to be considered “potentially socially destabilizing.”

Two essays that I initially rejected provided some insight into how all of this is playing out among the college crowd at Sichuan University.

VIPs Versus Everyone Else

The original assignment that I gave called for students to write essays on topic of ethical interests. Quite frankly, I failed to see the inherent moral content of parking at the Beijing airport and wedding receptions at high-end hotels. But since I prefer to let students write on subjects of their own choosing, I gave the authors of these proposals the green light, and braced for the worst. In fact, a stunningly similar cautionary tale emerged in each of these cases.

Parking LotFirst, the parking lot problem. It seems that a bank located at the Beijing International Airport would not allow regular customers to park in its VIP lot despite the latter’s being nearly empty while the former lacked any open spaces. Far from being an isolated incident, the student-writer saw this as indicative of a trend in China: “It is not at all unusual,” he lamented, “to close a street for two hours for some unknown VIP, or for the wealthy or famous to openly violate the one-child policy.”

The sentiment was echoed in an essay about a practice recently implemented at several of the higher end hotels. In China, there are “auspicious” days for weddings. For example, a wedding on the ninth day of the ninth month is an especially prized event. (Indeed, anyone wanting to know how seriously Chinese take lucky numbers need look no further than the starting time of the Beijing Olympics: August 8th, 2008 at 8:08 p.m.) Not surprisingly, booking a place for a reception on auspicious wedding days can be an especially difficult task. Wishing to take advantage of the situation, several of the ritzier hotels in China have decided to hold auctions for these dates, awarding the right to book the reception and pay the additional outrageous price to the highest bidder.

This drew the ire of at least one of the essayists and her classmates as well, since the end result would be that “only the wealthy would be able to reserve the auspicious dates.” To be sure, before this new development a couple of average means could afford to hold a reception at one of these hotels only if they were willing to blow a hole in the already massive budget for a typical Chinese wedding. But whereas under the old system it would have been unwise, with this new method it would be impossible for a less than wealthy couple to reserve a first-rate hotel on these special days.

A Society of Privilege

Chinese manOne sparrow does not a spring make, said Aristotle, and two instances of privilege run amok does not necessarily expose a trend. Except when it does, as in this case. Indeed, anyone who knows China will know that these students are correct in calling out a larger social trend. And even if they weren’t right (and they are), what is important is that this is how these students perceive their situation.

Indeed, the issue of privilege occurred again and again in essays seemingly unrelated to the issue of income distribution. For instance, on a paper about whether China should begin to limit the purchase of automobiles due to the immense pollution and traffic problems, a student wrote: “The current Chinese society is a stratified one in which a large amount of wealth and extreme power are in the hands of the privileged class. This invisible class mainly consists of government officials and well-to-do businessmen.”

As a result, “the restriction on car purchases will have no impact on them; on the contrary, they can abuse their power to purchase as many cars as they want, or they may help those who offer bribes to own a car. Consequently, limiting car ownership undermines social fairness and equality.”

Warning From the Past

But it was a paper on the role that the study of Chinese classics that issued the warning that Chinese one-percenters would do well to heed.

MenciusQuoting the Chinese philosopher Mencius’s statement that “Jie and Zhou’s losing the throne arose from their losing the people, and to lose the people means to lose their hearts,” the student added: “During its economic development, China should not disregard common people’s interest and happiness, for globalization accelerates the course of industrialization, giving rise to the increasing disparities in wealth, which is not consistent with the idea of a harmonious society.”

True that.

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About Peter Vernezze

Peter Vernezze came to Chengdu in 2006 and is an educational consultant, philosophical counselor and academic. Peter is the author of "Socrates in Sichuan: Chinese Students Search for Truth, Justice and the Chinese Way."

21 Responses to “China’s Dangerous Income Gap”

  1. Ever since I have been in China I have heard that the biggest problem is the gap between rich and poor. And that gap just keeps getting bigger.

    Western countries should do thorough checks on any monies being paid into their banks from certain Chinese citizens.

    I’m pretty sure most of this money ain’t clean. Western countries/banks should make it their business to determine if it’s clean or not.

  2. Great post, this is a fascinating topic of increasing importance.

    Your students are very perceptive, Peter. The one who pointed out that restricting car purchases undermines social equality is right, because laws in China only apply to those without the means to circumvent them. Which then raises the question, what is the solution to the problem?

    The automobile ownership analogy is a good one since we’re at the point of convergence between the widespread economic means of automobile ownership and the institutionalized mindset of car ownership aspirations. The meeting point of these two things is chaos. A country like China with 60+ cities with over 1 million population and a handful of cities with 10+ million (Chengdu-sized mega-cities) won’t be able to take it. In my opinion, and that of a lot of people that I speak to, the auto traffic situation in Chengdu is perhaps chief among the growing threats to Chengdu’s famous livability.

    I know the income disparity between rural and urban China is enormous, but costs have been rising so quickly in urban China that I’m surprised to see such low figures on urban per capita income. My roommate lives very frugally (and has for years), yet I don’t think even he could survive on $3k USD per year, which is about 1,500 yuan per month. That’s 50 yuan per day including rent! I would be surprised if I even know anyone in Chengdu living that frugally. I suppose that statement alone goes to show the enormous gulf between your average expat and your average local in Chengdu.

    • Yes, the income figures for both the urban and rural population seemed very low to me, and after a moment’s though I realise that this is because they are. So much in China is paid in cash and year end bonuses and similar to avoid both employer and employee taxation that these income figures are a indicator at best, just plain wrong at worst. That is not to say China does not have a huge problem with income disparity; it does, beyond a doubt.

      But the main problem with regards to privilege isn’t really the monetary income itself; it’s the mentality behind it.

      More and more people are making decent money, but they have yet to realise what this can allow them to do, both with their own lives and in society as a whole.

  3. Hi Charlie
    With income figures (or any statistics) you have to be careful with your sources and then how you interpret them. The best source, really, is the National Bureau of Statistics of China – the English pages are at http://www.stats.gov.cn/english/. (Scroll through ‘More’ and you will find more than most people can digest.)
    The figures Peter quotes come from a site that I wouldn’t recommend (CNNMoney) but at face value they are reasonable, with the exception of the savings rate which they quote at 20%. The World Bank figure is higher than 50%, but I am sure you would find the authoritative figure from the government website.
    The main thing to be aware of (apart from such things as means and medians) is that this per capita figure is derived from total population including all of the kiddies, old people, people that don’t work etc. The household figure is around 3 times the per capita figure – but even the comparison drawn with your flatmate of one is inaccurate because you should be looking at an average for the working population.
    The next thing to be aware of is that these figures are after payment of social insurances and tax.
    Note that in a society where the average savings rate of over 50% – on AVERAGE people are doing okay, particularly as high savings rates would skew to the less well off (self-insuring against catastrophe).
    Finally, yes there is a big difference between urban and rural incomes (and between Shanghai and Lanzhou), but the cost of living varies in proportion to income. My personal feeling is that I would FEEL better off in Kunming than Shanghai (even if I doubled my salary in Shanghai) after I take account of cost of living and urban amenity. This argument may be extended to rural/urban comparisons but it gets messy because of issues of quality of services, availability of insurance etc. (I won’t say I would rather live in the rural areas.)

    • Hi David,

      Thanks for providing some commentary and perspective. I don’t submit the case of my roommate as anything but anecdotal evidence, but I think it is telling of what is common in Chengdu. Examining national figures is useful for getting a birds eye view of the situation but I also put high value upon on-the-street first-hand analysis of situations unfolding in Chengdu, and this site in general is very much about sharing those stories.

      • Hi Charlie
        Point taken .. I am actually all for anecdotal evidence. My point (hidden in there) is that your ‘I don’t think even he could survive on $3k USD per year, which is about 1,500 yuan per month’ comment does not use the figure provided by Peter correctly. That’s all. Peter’s figures reflect the official figures, that’s fine, but they do not apply to people of working age – you have to adjust them.

  4. This is such a tightly crafted informative post. The students are very perceptive and have insights into basic, daily issues of inequality that we can only generalize about.

    As for per capita income, it has always amazed me how people who supposedly make 1-2k per month manage to live – and be content – in Chengdu. Let a lone Shanghai. But there are lot of anecdotal things that i have seen:

    - Scoffing at using any form of temperature control other than adding/removing clothing
    - consistent, unwavering adherence to eating frugally and at home, coupled with serious grocery shopping
    - fixing things, as per David’s post: Fixing Everything in China
    - Saving saving saving

    but at the same time, when it comes to gifts, big meals or ceremonial occasions, I have seen what I thought were poor people pull out a LOT of money. Savings? Clan cash?

    But all that belongs to a generation past. Kids these days aren’t trying to knit their own socks and watch a VIP cruise by in a BMW with no plates.

  5. Hey I love the article Peter, and endorse the comments above. As Sascha says, there are some mysteries about how Chinese people manage their money. I have a number of times been taken aback by the inconsistencies in the individual – on the one hand going to great lengths to save a kuai here and there, and on the other hand seeming so profligate, paying over the odds. In the latter case face does seem to explain most of the behaviour.
    ‘there are two sides to every coin’
    I can’t help a comment here – the bane of every native English speaker but I feel for the teachers in particular. I recently came across the culprit – someone told me that it is in the CET tests that used to be mandatory for students – they are actually compelled to model this phrase, in hope of a higher mark. It’s an expression that can actually be used to effect, so it is amazing how much it makes us cringe in the wrong hands.

  6. I would just point that the point is not the objective existence of the income gap. As Mark Twain would have pointed out, figures don’t lie, but liars sure do use figures. So the level of the gap can certainly be debated. The focus of this article is the student perceptions of the income gap by these Chinese students. And it is undeniable that the students in this class had a strong sense that the economic situation is not only unjust. But unsustainable.

    Regarding “two sides to every coin,” when I teach writing I emphasize George Orwell’s caution about dying metaphors and recommend his advice that if you are used to seeing a metaphor in print, don’t use it.

    • Peter – I understand that your article is about the Chinese student perceptions of the income gap, yet every comment here is about getting behind the perceptions and finding the REAL story (that’s our non-Chinese culture). All the comments are about data … such is life.

      The perceptions are interesting, don’t get me wrong, but I could take the same data and write a completely different story. That might be, for example, let’s look at how poor countries (as a group) and rich countries (as a group) perform in terms of the GINI coefficient. I might also write one about the ‘before taxes and transfers’ GINI that catches everyone’s attention with the ‘after taxes and transfers’ GINI.

      Our society wants to tear the data apart (we are ALL about the level of the gap) and FIX the situation, whatever that is.

      So here’s a perception question: amongst the foreigners you know here, how would they rate the United States against China in terms of the difference between the rich and the poor (without looking up the GINI coefficient data). How would American students in the US react to the question? How would Chinese students in China react?

      You probably know where I am going here, and I’m trying to avoid bashing the US, but it is interesting to look at impact of the tax system (or what governments are doing about the problem). Most rich countries convert a high GINI into a low GINI with taxes and transfers. The US GINI remains about the same. The US performs the worst among rich countries, and China performs surprisingly well amongst poor countries (note to those who may consider China ‘rich’: it is 94th on the world league tables of per capita wealth.)
      But I realise that this won’t ignite the interest of Chinese students – even my quantitative/enquiring minds of economics majors are seemingly unimpressed by data (or receive no training in how to manage and respond to it.)

  7. Ray

    Chinese authorities have refused to publish the Gini co-efficient figures for the last 10 years. This says a lot about the situation….

  8. Think that working class Chinese have to see the opportunities available in China. Migrant workers have been propelling China forward through their factory work. With time, think that the creation of unions will help these people secure higher wages and hopefully lessen the income gap.

    Are there unions in China for factory workers?

    China is just going through a unique transition right now, and hopefully the income gap can lessen as more and more regulations will be put in place to protect the working class.

    • No, I don’t believe there are unions in China for factory workers. The situation for workers in China in general is quite rough compared to other countries which have protective systems in place to protect the little guys. What I mean by that is that the labor force in China is so large that employers are more or less free to treat them in whatever fashion they see fit, lest the problematic employees be replaced with someone else.

      I have seen a lot of companies in China operate under these conditions, where there’s an unspoken edict of sorts: “If you’re not willing to work under these conditions, we will replace you with someone who will.”

      • Hi Charlie
        The current Atlantic Monthly has a story about the workplace in China and mentions some limited history of enterprise bargaining (key words ‘Salvador’s, Li Ming). Might be interesting to check it out. Not unions as we know them. The union in China is more about worker welfare and holidays.

        • yeah that story is pretty interesting. Sal’s has been open for a long time and they hired strictly poor ethnic minorities for a while. Now taking it to the next level and making a difference through enterprise.

  9. There are just basic facts, we dont have to beat around the economic bush. After tax and transfers yoi have your disposable income. Now China has a rep of having a bad gini coefficient,almost as bad as South Africas.

    Now, of course, if the average is a million a year and price of pepsi is still three dollars a can, the guy that makes fifty grand a year will be dirt poor in terms of gini coefficent but not in terms of price power parity.

    Now, in terms of ppp, and GC or Gini Coeffocient, how unequal is the US and does it matter? Do we feel the sting? Do poor Chinese feel the sting?

    Tge wedding is a strange example, because it doesnt really indicate inequality.

    Eating and staying warm does, holidays do and cars.

    So where are we? Do the students feel that they are uneqjal in more than just ability to flout rules and choose wedding days?

    Yes they do. It relates to guanxi. They achieve high scores but do not have rich family provenance, so they fail the high paying jobs, which are reserved for connected people, a metaphor for the rich,mostly.

    That annoys them. Tge rest is a bit fancy pansy.

  10. Ben Brown

    Great article, Peter. I find all of those insights to be chillingly on the mark.

    China’s changes over the past century prove truly unique when paired up against world history. At the end of WWII, the country went from a class system to attempting to impose a “classless” culture that first worshiped communist idealism and then later Mao. The main focus during these three decades was on the labor force, the working class, and an idealistic supply-side economic model attached to a “government as mother, government as church” approach.

    In 1979 the economy opened up and things slowly started to change. By the time 1997 rolled around people were much less likely to espouse the glory of the government, choosing instead to pay homage to the almighty dollar. It escalated to what we see today.

    Don’t get me wrong. The China we see now is decidedly better off than what we could have experienced in the mid 80s. People, even the lowest and poorest, have it better than they did in the past. That is why we don’t see daily uprisings and the world doesn’t view China as on the verge of collapse. It’s because all people, not just the wealthiest, have experienced growth.

    But China needs to be very careful of how it re-distributes its wealth. We can talk all day about PPP and Cost of Living. What it boils down to in my opinion is the re-emergence of classes in a country with a very recent history of railing against them. 30-something men in Bentleys feeling justified in castigating elderly women for crossing the street too slowly due to billfold fatness screams capitalist greed. The fact that the Bentley guy doesn’t see his very public actions as losing face (or he doesn’t care how he looks to the common class) is serious cause for concern.

    The examples above, including the quote at the end about losing the people, indicate raised ire at being forced back into a system of classes. China needs more entrepreneurs, and it’s not doing enough to create them.

    Every year the IMF publishes a report on the ease of doing business. This report ranks countries from 1 to 185 on how easy it is to start, operate, conduct and close a business. The US ranks 4th. China ranks 91st. It has not changed much for years. In the US, if I have a little bit of cash and a dream (and I mean, like 100 bucks) I can register my business and hang a sign on a store, a tent, or around my neck stating what I do as “Ben Brown Sardine Skinning Company” or whatever.

    In China it is a LOT more complicated. This prevents people from rising on their own. It keeps GDP growth and wealth in the control of the wealthiest. It makes independent, organic growth more challenging to achieve.

    In the 1980s, China’s goal was to bring farmers out of poverty. To do this they quietly allowed cooperative lending institutions to form outside of regulatory boundaries so rural area residents could start their own businesses. Many did. One of the first successful Chinese companies started State-Assistance-Free was a company called Idiot’s Seeds. A farmer who grew sunflower seeds started his own business and flourished. The reason for the curious name came from his pronouncement that he new nothing about doing business. He was just a simple dude growing great sunflower seeds. Sounds pretty Western, huh?

    In the early 90s this changed. The easy access to seed money dried up and migratory labor became a huge trend. While this helped get China’s economy off the ground, I believe it’s now time to go back to that 1980s model (at least from a financial perspective). China needs to grow its domestic economy, organically, by making it easier to do business here. It needs to hand the keys to entrepreneurship over to the masses to avoid the class system I see represented in Beijing VIP parking, marriage auctions and so many other instances.

  11. Just read a book trying to explain why some countries are richer than others. I think it is quite complicated and the poorer should learn from the richer, which is the only way to be rich.

  12. This is something that I’ve not been able to ignore since arriving in China – the contrast is just too great. The only other place I can think of that might be even remotely similar is India. For anyone who hasn’t been in China before (anyone? anyone?), it’s really something to behold.

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