Keywords: China; wealth inequality; decomposition of inequality; correction for under-representation and under-reporting; relationships between income and wealth; house price inflation; differential saving; income from wealth
John Knight (Visiting Professor, Beijing Normal University; Emeritus Professor, University of Oxford)
Li, Shi (IZA and Business School, Beijing Normal University)
Wan, Haiyuan (Business School, Beijing Normal University)
Which country in the world has the most dollar billionaires? If you are willing to believe the Hurun Rich List 2016 and its sources, the answer is China, with 470, now surpassing the United States by 40. Which city in the world has the most dollar billionaires? The answer is Beijing, with 100, now exceeding New York. Is this a matter for national pride or for policy concern?
Our main argument is that the inequality of wealth in China has increased rapidly in recent years. Prior to the economic reform that began in 1978, all Chinese households possessed negligible wealth. China therefore presents a fascinating case study of how inequality of wealth increases rapidly as economic reform takes place, marketization occurs, and capital accumulates. Wealth inequality and its growth deserve examination using data from two 21st century CHIP surveys.
We proceed as follows. Section 2 of this chapter sets out the relevant literature on wealth inequality. Section 3 outlines the possible reasons why inequality is hypothesized to have increased. Section 4 explains the two, comparable, data sets which will be used to test the hypotheses. Owing to the economic differences between urban and rural China and the differences in survey design and implementation, we distinguish urban and rural wealth throughout, as well as reporting national wealth. The national wealth estimates require a weighting of the urban and rural samples.
In Section 5 we examine the level and structure of wealth in our two survey years, 2002 and 2013, and its growth over that period. Section 6 measures the distribution of wealth in the two years, by decile and by other indicators of inequality. This leads on in Section 7 to a decomposition of wealth inequality in the two years. Section 8 contrasts the urban and rural sectors, distinguishing between- and within-sector wealth inequality.
Section 9 attempts to explain the results, in particular examining the processes by which wealth inequality increased over the eleven years. Several hypotheses are tested. Section 10 provides two estimates of wealth inequality in 2013 - both without and with correction for under-reported wealth at the top of the wealth distribution. Section 11 draws out the implications of the research and concludes.
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