BOFIT Viikkokatsaus / BOFIT Weekly 2019/43

The NBS reports that the real disposable incomes of households in urban areas have risen at just over 5 % y-o-y this year. Growth in real incomes in 2019 is likely to be lower than at any time in the 2000s.

The slowdown is largely due to higher inflation. The rise in nominal disposable incomes has held steady at 8 % y-o-y for several years now, and will continue to do so this year. The cut in income taxes about a year ago and increased income tax deductions at the beginning of this year have had some impact on income developments. The average monthly income per capita in January-September was 3,550 yuan (460 euros) a month in urban areas and 1,290 yuan (167 euros) a month in rural areas.

The income gaps in China are vast. China’s official estimate of the Gini coefficient for income disparity is 0.47, which is already extremely high by international standards. However, the official figure does not include a large chunk of China’s top earners. When they are included, the UN’s World Institute for Development Economics Research (WIDER) finds that China has some of the largest income differences on the planet (Gini index 0.65).

The rise in incomes and asset prices (particularly housing prices) have boosted Chinese wealth. Credit Suisse’s just-released global wealth report finds that the median wealth of a Chinese adult rose from 9,000 dollars in 2010 to nearly 21,000 dollars at the end of June 2019. That puts Chinese wealth on par with Poland or just over a third of Finnish per capita wealth (56,000 dollars).

Even with large income differences, Credit Swiss finds that the wealth disparities in China are notably smaller than the global average. Nearly a billion Chinese have wealth of less than 100,000 dollars. Over 4 million Chinese are millionaires. Only the US has more millionaires than China.

Due to the long continuous rise in wages and other production costs, China is no longer considered a cheap country for manufacturing. Manufacturing wages are significantly higher than in many other counties in South Asia or Southeast Asia. Thus, labour-intensive production has shifted away from China. The current trade war has accelerated the shifting of production elsewhere.