Shades of grey in China's widening income gap
Shades of grey in China's widening income gap
By Sim Chi Yin, China Correspondent
GRAFT CRACKDOWN: Beijing police put up a poster that cites the case of an official who was found guilty of graft, in a bid to deter workers from pocketing irregular or grey income from questionable sources. -- PHOTO: AFP
BEIJING - THE manager barely bats an eyelid when clients ask for 'goodies' before signing a deal.
Whether it is a gift of an MP3 player, a hongbao or an inflated receipt, it is all in a day's work for the Beijing textile company employee, who spoke on condition of anonymity.
'Sometimes, it's a 100-yuan (S$20) product and the buyer asks us to put 120 yuan on the receipt. That 20 yuan per item - adding up to a few thousand yuan on that contract - quietly goes to him,' said the 44-year-old manager.
Such under-the-table takings - known as 'grey income' in China - might have added up to 4.8 trillion yuan in 2005, according to a recent study by the non-governmental National Economic Research Institute.
The sum made up 26 per cent of the country's gross domestic product for that year.
The existence of a huge amount of undeclared - and therefore untaxed - income lining the pockets of China's white-collar workers means the gulf between the country's rich and poor could be much larger than officially stated.
'Patients proactively give me 500 yuan or 1,000 yuan before surgery. That way, they feel assured that we'll take better care of them.'
A 38-YEAR-OLD ORTHOPAEDIC SURGEON AT A PRIVATE HOSPITAL, who says the hongbao he gets from patients are a quiet but essential supplement to his 3,000 yuan monthly pay
Factoring in grey income at the top of the income ladder, the research institute's study found that the top 10 per cent of China's households earn 55 times more than the bottom 10 per cent - not 21 times more, as official statistics show.
Among urban families, the gulf was 31 times, not nine times.
Three decades of rapid econo- mic growth in China have not only lifted incomes overall, but also widened a growing gulf between the rich and poor.
Unrecorded income pocketed by top income-earners is at the heart of the problem, said Dr Wang Xiaolu, the institute's deputy director, who wrote a report in the influential Caijing magazine recently.
His institute's study was done from 2005 to last year and collected income data from 2,000 households in various cities and counties.
His team deliberately surveyed their relatives and friends, asking for total family income and expenditure, and then worked out their consumption patterns from there.
The 19 million families making up the top 10 per cent in urban areas were found to have a disposable income of 97,000 yuan - three times more than the officially-logged 29,000 yuan.
These families were responsible for three-quarters of the grey income.
These numbers seem plausible, said Associate Professor Michael Pettis of Beijing University's Guanghua School of Management.
'The idea that income disparities may be significantly worse than the official numbers show because of grey market activity is not at all surprising, and not just in China,' he told The Straits Times.
Grey income is a nebulous concept. Dr Wang's study covered all income illegally earned, and irregular income from 'questionable', 'unspecified' sources.
He lists five main sources - misused public works funds, corruption among financial institutions, extra fees levied on government administrative procedures, profiteering on land sales and a disproportionate wage bill from the government monopolies.
In 2005, the state monopolies in telecommunications, finance, public utilities, petroleum, tobacco and electricity employed less than 8 per cent (8.33 million) of the country's workers, but gobbled up 55 per cent of the total wage bill.
Those workers earned a total of 920 billion yuan more than if they each took home the country's average wage.
The extra money would have paid for special bonuses, gifts and trips that public sector workers are known to enjoy.
A 45-year-old manager at a state-run telecommunications company told The Straits Times that he gets to go on paid-for week-long holidays at least once a year.
Such treats, over and above his 10,000 yuan monthly salary, do not make it into the taxman's records.
Even in the private sector, shady payments seem the norm.
The Beijing textile seller said his company spends 70,000 to 80,000 yuan a year on gifts and hongbao for clients. 'We know it goes straight into their pockets, but it's no big deal. It's not a big sum.'
Those in positions of greater power are even closer to channels of wealth.
The latest annual list of the country's richest by publishing group Hurun Report shows that about 30 per cent of China's wealthiest entrepreneurs are members of the Communist Party, and 38 per cent of the top 100 are members of one of two leading political bodies - the National People's Congress and the Chinese People's Political Consultative Conference.
With social tension mounting over China's rich-poor divide, the 4.8 trillion yuan in grey income highlights structural problems that must be fixed, Dr Wang concluded in his study, which has stirred debate on Chinese websites.
Professor Zheng Yongnian, of the China Policy Institute at Britain's Nottingham University, identifies two key problems - the fact that central and local governments monopolise certain industries, and the too-cosy relationship between officials and businesses.
'It's not fair to simply term it all 'corruption', which implies it's caused by greedy individuals. It's a fundamental, structural problem across the economy.'
Beijing has in recent years made a show of fighting official corruption, sending its latest signal with the execution of the former State Food and Drug Administration chief Zheng Xiaoyu last week for taking some 6.5 million yuan in bribes to approve substandard medicines.
Two Sundays ago, the Supreme People's Court also issued a list of 'new forms of corruption' practised by officials, including illegally receiving stocks and buying houses or cars at ludicrously low prices in exchange for favours.
But, said Prof Zheng: 'It's not enough to just kill the bad guys. When you don't have the right structure, there will always be bad guys.'
By Sim Chi Yin, China Correspondent
GRAFT CRACKDOWN: Beijing police put up a poster that cites the case of an official who was found guilty of graft, in a bid to deter workers from pocketing irregular or grey income from questionable sources. -- PHOTO: AFP
BEIJING - THE manager barely bats an eyelid when clients ask for 'goodies' before signing a deal.
Whether it is a gift of an MP3 player, a hongbao or an inflated receipt, it is all in a day's work for the Beijing textile company employee, who spoke on condition of anonymity.
'Sometimes, it's a 100-yuan (S$20) product and the buyer asks us to put 120 yuan on the receipt. That 20 yuan per item - adding up to a few thousand yuan on that contract - quietly goes to him,' said the 44-year-old manager.
Such under-the-table takings - known as 'grey income' in China - might have added up to 4.8 trillion yuan in 2005, according to a recent study by the non-governmental National Economic Research Institute.
The sum made up 26 per cent of the country's gross domestic product for that year.
The existence of a huge amount of undeclared - and therefore untaxed - income lining the pockets of China's white-collar workers means the gulf between the country's rich and poor could be much larger than officially stated.
'Patients proactively give me 500 yuan or 1,000 yuan before surgery. That way, they feel assured that we'll take better care of them.'
A 38-YEAR-OLD ORTHOPAEDIC SURGEON AT A PRIVATE HOSPITAL, who says the hongbao he gets from patients are a quiet but essential supplement to his 3,000 yuan monthly pay
Factoring in grey income at the top of the income ladder, the research institute's study found that the top 10 per cent of China's households earn 55 times more than the bottom 10 per cent - not 21 times more, as official statistics show.
Among urban families, the gulf was 31 times, not nine times.
Three decades of rapid econo- mic growth in China have not only lifted incomes overall, but also widened a growing gulf between the rich and poor.
Unrecorded income pocketed by top income-earners is at the heart of the problem, said Dr Wang Xiaolu, the institute's deputy director, who wrote a report in the influential Caijing magazine recently.
His institute's study was done from 2005 to last year and collected income data from 2,000 households in various cities and counties.
His team deliberately surveyed their relatives and friends, asking for total family income and expenditure, and then worked out their consumption patterns from there.
The 19 million families making up the top 10 per cent in urban areas were found to have a disposable income of 97,000 yuan - three times more than the officially-logged 29,000 yuan.
These families were responsible for three-quarters of the grey income.
These numbers seem plausible, said Associate Professor Michael Pettis of Beijing University's Guanghua School of Management.
'The idea that income disparities may be significantly worse than the official numbers show because of grey market activity is not at all surprising, and not just in China,' he told The Straits Times.
Grey income is a nebulous concept. Dr Wang's study covered all income illegally earned, and irregular income from 'questionable', 'unspecified' sources.
He lists five main sources - misused public works funds, corruption among financial institutions, extra fees levied on government administrative procedures, profiteering on land sales and a disproportionate wage bill from the government monopolies.
In 2005, the state monopolies in telecommunications, finance, public utilities, petroleum, tobacco and electricity employed less than 8 per cent (8.33 million) of the country's workers, but gobbled up 55 per cent of the total wage bill.
Those workers earned a total of 920 billion yuan more than if they each took home the country's average wage.
The extra money would have paid for special bonuses, gifts and trips that public sector workers are known to enjoy.
A 45-year-old manager at a state-run telecommunications company told The Straits Times that he gets to go on paid-for week-long holidays at least once a year.
Such treats, over and above his 10,000 yuan monthly salary, do not make it into the taxman's records.
Even in the private sector, shady payments seem the norm.
The Beijing textile seller said his company spends 70,000 to 80,000 yuan a year on gifts and hongbao for clients. 'We know it goes straight into their pockets, but it's no big deal. It's not a big sum.'
Those in positions of greater power are even closer to channels of wealth.
The latest annual list of the country's richest by publishing group Hurun Report shows that about 30 per cent of China's wealthiest entrepreneurs are members of the Communist Party, and 38 per cent of the top 100 are members of one of two leading political bodies - the National People's Congress and the Chinese People's Political Consultative Conference.
With social tension mounting over China's rich-poor divide, the 4.8 trillion yuan in grey income highlights structural problems that must be fixed, Dr Wang concluded in his study, which has stirred debate on Chinese websites.
Professor Zheng Yongnian, of the China Policy Institute at Britain's Nottingham University, identifies two key problems - the fact that central and local governments monopolise certain industries, and the too-cosy relationship between officials and businesses.
'It's not fair to simply term it all 'corruption', which implies it's caused by greedy individuals. It's a fundamental, structural problem across the economy.'
Beijing has in recent years made a show of fighting official corruption, sending its latest signal with the execution of the former State Food and Drug Administration chief Zheng Xiaoyu last week for taking some 6.5 million yuan in bribes to approve substandard medicines.
Two Sundays ago, the Supreme People's Court also issued a list of 'new forms of corruption' practised by officials, including illegally receiving stocks and buying houses or cars at ludicrously low prices in exchange for favours.
But, said Prof Zheng: 'It's not enough to just kill the bad guys. When you don't have the right structure, there will always be bad guys.'
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