Essay Sample: Wealth Gap in China

Since china undertook economic reforms, there is no doubt that the Gross Domestic Product has been growing at a high speed. The high speed in growth of the gross domestic product does not depict that the people are satisfied with the economic reforms nor does it depict that it proves that there is a substantive improvement in the material conditions of life. According to Li, Sato and Sicular (2013), the continuous rise in income inequality is seen as a vital outcome of the transition to a market economy. Moreover, the inequalities of household and income wealth is considered as a vital aspect and economic and social development due to the fact that wealth and household earnings can to a greater extent serve education, household living, medical care and other necessities. The disparities in wealth in urban, rural , population groups, and regions mean that the economic gains that china has attained is not equitably spread across all people even though various indicators depict weakening trends after 2010. It is imperative to note that the institutions and policies that lead to the disparities in wealth have not radically changed and as a consequence, the increasing gap of wealth is further increasing the income gap. According to Kopf (2017), it is difficult for one to ascertain that the basic pattern of income distribution in China has been altered fundamentally. This widening gap in wealth has attracted Chinas policymakers as depicted by government backing of minimum wage policy. Although there have been various studies suggesting that there is a considerable gap in wealth as a result of property ownership, the increased neglecting of the subject of disparity in wealth gap offers a potential threat to social stability and as such authorities in China may have no choice but to implement redistributive policies in the future.

The difference in wealth in China is a subject that has been neglected in the past two decades. While the official data that covers the levels of income is available, there are no data that shed light on the household assets and wealth. This is because of the technical difficulties that arise when collecting data. The lack of accurate data is especially from reluctant households those in higher wealth brands or individuals with ties to the government to offer accurate information. Several surveys conducted depict that wealth disparities in China are significant. According to (growing, State, CPEC: Opportunity for China & Africa, 2017), Chinas Gini coefficient rose from 0.45 in 2006 to 0.55 in 2007. (A Gini coefficient of 1 denotes maximum inequality, and 0 denotes perfect inequality).

One of the key reasons that are behind the widening disparities in wealth is the structure of household wealth. Like other developing nations, the non-financial assets tend to dominate the asset portfolio of many Chinese households. According to independent surveys such as the China Household Finance Survey (CHFS), land and property assets account for 70-80% of the total household assets. The ratio is even higher in urban areas. Due to the ever-increasing house prices that have been witnessed in the past decade, it is evident that the largest source of inequality in property assets. In the areas where the prices of the property are higher, the corresponding Gini coefficient is also wider than in areas where the prices of property are low. The root cause of the problem is that when the Chinese housing market was liberalized in the late 1990s, the property was not distributed equally. Moreover, the individuals residing in urbanized areas were given the opportunity buy their rented premises at below-market rates from government employers and the state-owned enterprises. This offered an immense wealth boost to urban residents especially in megacities such as Shanghai and Beijing while at the same time unfairly disadvantaging the individuals who were excluded from the market for instance migrants. Additionally, the ownership of property does not only affect weal gap in terms of asset value appreciation but also from the income that is earned from the property. This means that property owners have in the past enjoyed faster income growth when compared to pure wage earners.

The economic policies put in place in China are also another factor that has exacerbated the disparity in wealth. The housing provident fund which is a constituent of the social security system that every salary earner makes mandatory payments is easily accessible to the richer households. The individuals who have enough capital to make any kind of down payment for a land or property can tap thee hosing provident fund for mortgage financing to complete purchases at a very low-interest rate. On the other hand, the individuals who are not in a position to make down payments are also not able to maximize the opportunities provided by the housing fund other than drawing on it to make house decorations and pay rent. It is vital to comprehend that the attractive returns on the property market or ownership have encouraged speculation in the industry. This means that the overinvestment that the property market has received in China has deprived the economy of the capital that could have been invested in other productive assets that would have generated a fortified growth in Gross Domestic Product.

Due to the skyrocketing prices in the property market, there is a need for policymakers to come up with more assertive policies to curb the disparity in wealth. Due to the recent interventions by the government policymakers, the high Gini Coefficient has started to decline- 0.49 in 2008 to 0.46 in 2016. From a nationalistic perspective, the major contributor of the wealth gap in China is the chasm between the urban areas and the countryside. In the past few years, rural incomes have grown radically. This is because many of the rural folk in China work in cities either toiling in basic service jobs or staffing factories, however, China's restrictive residency system does not allow the rural folk to settle permanently in cities. The explanation that can be provided for the reduction in wealth gap is chinas demographic shift. The working age of the population in China has started to shrink. As such, there is a high demand for blue collar workers thereby fueling their wage growth. Additionally, some organizations and businesses that thrive on cheap labor are moving further inward thereby reaching the parts of the country that are otherwise deprived.

The increased neglection of the subject of disparity in wealth offers a potential threat to social stability and as such authorities in China may have no choice but to implement redistributive policies. One of the key reasons that are behind the widening disparities in wealth is the structure of household wealth. Additionally, the economic policies put in place in China are also another factor that has exacerbated the disparity in wealth. Due to the recent interventions by the government policymakers, the high Gini Coefficient has started to decline depicting positive signs in the future.

References

Li, S., Sato, H., & Sicular, T. (Eds.). (2013). Rising inequality in China: Challenges to a harmonious society. Cambridge University Press.

Growing, T., State, s., CPEC: Opportunity for China, A., & Africa, C. (2017). The gap between Chinas rich and poor is growing. Foreign Policy News. Retrieved 2 December 2017, from http://foreignpolicynews.org/2016/05/17/gap-chinas-rich-poor-growing/

Kopf, D. (2017). Chinas extreme income inequality finally appears to be falling. Quartz. Retrieved 2 December 2017, from https://qz.com/937137/chinas-extreme-income-inequality-appears-to-be-improving-after-decades-of-deterioration/