From Gucci to mud huts: China’s income inequality

A Chinese billionaire recently commissioned a team of jewelers to design the most expensive pandemic fashion accessory in the world:  the $1.5 million N95 mask shown below.  It may feel a little heavy since it weighs about 100 times as much as a standard surgical mask.  That could be because it includes the 250 grams of 18-carat gold, or maybe it’s the 3,600 black and white diamonds.   But the anonymous buyer was not thinking about practicality; he or she was thinking about style.  I’d feel a little silly wearing it to a party, but then I can’t remember the last party of billionaires that I was invited to.

This mask could be an extreme example of a trend Blomberg News reported a few weeks ago:  “Bored after months of strict social distancing measures and unable to vacation overseas, wealthy Chinese consumers are seeking comfort in retail therapy.”

A $1.5 million Covid mask

According to a recent report in Forbes, about one out of every five billionaires on the planet now lives in China.   To be exact, there are 455 billionaires in mainland China and Hong Kong.  This is 22% of the total 2,089 billionaires worldwide, a percentage exceeded only by the 29% in the US.

That’s in addition to China’s 4,400,000 millionaires.  Here too, the US is still ahead with 18,600,000 millionaires according to a Credit Suisse report.

But the Chinese are catching up.  The same report notes that another way to measure comparative wealth is to look at how many of the “top 10% of the world’s richest people” live in each country.   (If you are wondering whether you qualify, according to Credit Suisse’s definition, you need $109,430 or more in personal savings.)  By that criterion, “The number of wealthy Chinese people has overtaken the number of rich Americans for the first time.”

That’s one of the reasons that some experts describe China as the future “driving force of luxury brands.” According to Gartner, the top ten luxury brands in China are, in order:  Louis Vuitton, Bulgari, Cartier, Gucci, Montblanc, Coach, Tiffany, Piaget, Burberry, and Chow Tai Fook.  If you’re like me, you recognize the names of the first nine brands, but have never before heard of the last.  Chow Tai Fook is a jeweler based in China.  It represents the start of another emerging trend:  the number of luxury brands based in China is expected to grow.   

For a picture of the other end of China’s wealth spectrum, consider the story of “Ice Boy” who became an internet sensation two years ago after the picture below went viral.  It was taken by his teacher after the student arrived at school on a day when the temperature was 16 degrees F, and he had walked more than an hour to school. 

At the time, the picture was taken, “Ice Boy” lived in a mud hut with his grandmother.  He is among the 60 million “left behind children” in rural China, whose parents moved to cities to get jobs, and can visit home only once or twice a year.  The internet uproar that resulted from the picture led to numerous newspaper articles, and to charitable and government contributions to help “Ice Boy” and his classmates. 

“Ice Boy”

By the following year, according to a Washington Post follow-up story entitled “China’s ‘Ice Boy’ Has a New Home” he had moved to a two story home closer to school.   The government also built a new school with heaters in each class, and a dormitory “which has new thick quilts and mattresses for the 73 students who live there [during the school week] … They are [also] given medicine to prevent frostbite.”

It is always heart-warming to see the outpouring of human concern and help for individual cases like this, but as one Chinese social media commenter put it, at the end of the day “helping one is only helping one.”

In my previous post, I described how China has lifted 850 million people from extreme poverty over the last few decades.  But one of the side-effects has been a substantial increase in the gap between rich and poor.  As the International Monetary Fund put it, “Income inequality in China increased sharply from the early 1980s [when Deng Xiaoping’s economic reforms  began to have an effect] and rendered China among the most unequal countries in the world by 2013.”  Since then, China has slowly reduced inequality, but it still has a long way to go.

The best way to compare China’s income equality to other countries is to look at their Gini coefficients, figures which varies from 0 for a totally equal economy where everyone earns exactly the same amount, to 1where a single individual has all the wealth.  (For the mathematicians in the audience – including my brother – here’s how it is computed:   “The Gini coefficient is equal to the area below the line of perfect equality… minus the area below the Lorenz curve, divided by the area below the line of perfect equality.”  Have you got that?)

According to a 2020 comparison of the Gini coefficients of 172 countries, China is toward the middle of the list, more equal than the US (ranked the fourth most unequal country in the world in this list), but less equal than such countries as France, Spain, Portugal, Belgium and Japan.  (An aside — that same article pointed out that worldwide inequality has been growing for the last 200 years: “In 1820, the Gini coefficient was 0.50 and in 1980 and 1992, the figure was 0.657.”)  In short, at this time “the huge inequality in China does not fit into the title of socialist country and its socialist extent is far less than the European’s, [and] even inferior to typical capitalist countries.”

The Chinese government has repeatedly stated its goal of reducing this embarrassingly non-Communist income gap.  For example, one of the goals of its Twelfth Five Year Plan in 2011 was “speeding up the formation of a reasonable pattern of income distribution . . ., and reversing the widening income gap as soon as possible.” In 2016, the Thirteenth Five Year Plan repeated this goal and its intent to “eradicate rural poverty” by this year, 2020.

Eradicate rural poverty?  How could a country with 1.3 billion people verify that every single one of its rural residents had been lifted above the poverty line?  Especially since, as one review put it:  “Estimating the number of people in poverty in China is like trying to nail Jell-O to the wall.. There’s no one standard definition of poverty across all of China.” 

That’s not stopping loyal Communist Party members from trying.  For example, according to a 2020 BBC article, when Jiangsu province reported its latest statistics to Beijing, it claimed that out of its 80 million plus residents, only 17 were still living in poverty.  The government even offered details on these unfortunate few: “The 17 still living below the poverty standard are all capable of working, according to authorities who spoke to Chinese media, although four ‘have diseases.’”  The BBC article also quoted a social media user on Weibo – China’s equivalent of Twitter – who asked skeptically “How could they be so accurate?”

Well, one way bureaucrats meet their “poverty targets [is] administratively: certain areas have stopped logging residents as ‘impoverished’ since the start of the year.”

2020 has proven to be an unfortunate target date for this long running initiative, since it could easily be “undermined by the coronavirus outbreak that has shaken the world’s second largest economy.”  But, as Kerry Brown, Professor of Chinese Studies at London’s King College, put it, you can be sure that “somehow or other, this [poverty] target will be declared to have been achieved.” 

China has 90 million Party members whose job is to make it succeed, even if that means an occasional fudged figure or two.  Or maybe three.  So you can be sure there will be a “mission accomplished: rural poverty eradicated” celebration no later next July at the 2021 centenary celebration of the 100th anniversary of the founding of the Chinese Communist Party.

In an excellent article published a few months ago entitled “Inside China’s race to beat poverty” the Financial Times noted that “the true level of poverty may be impossible to gauge in a system not designed to admit mistakes.”  But as the same article also noted, this should not overshadow the fact that hundreds of millions of Chinese are much better off economically than they were a few decades ago:  “the rapid rate of [poverty] alleviation is real.”

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