Wealth gap curbing consumption: expert

Income inequality in China is dampening consumption and may impede the much-needed transition to a domestic demand-based economy, a statistician told the Global Times Sunday.

The income of the richest 10 percent of Chinese households made up 57 percent of the total household income in the country in 2010, compared with 44 percent in the US, which is also one of the world's more unequal countries, Gan Li, director of the Survey and Research Center for China Household Finance at the Southwestern University of Finance and Economics, said Sunday on the sidelines of an economic forum in Beijing.

Gan cited the statistics from a survey of Chinese household finance carried out by his center last year, which involved 10,000 households.

"This (income gap) is very rare in the world … It is only seen in some African countries, such as South Africa," Gan said.

According to the survey, the wealthiest 10 percent of Chinese households held 85 percent of the value of total household assets in China in 2010, which, Gan said, "is also very unequal."

The survey was echoed by research conducted earlier this year by a team led by Li Daokui, professor of economics and finance at Tsinghua University.

Since the official consumption data compiled by the National Bureau of Statistics (NBS) mainly represents lower-income families in the country, the university's theoretical model opted to use adjusted retail sales figures in China to include a broader sample of the population, Li told the forum Sunday, which was held by the China Europe International Business School.

Li's research indicated that the share of consumption in gross domestic product (GDP) grew to 41.6 percent in 2011 from around 36 percent in 2007. But the official NBS data found that the ratio declined to 33.5 percent in 2011, Li said.

The research also found that the increase in consumption during the past five years was mainly derived from spending on basic goods, Li said.

The income inequality in China has suppressed consumption, Gan told the Global Times. Consumption stimulus policies have had little effect, because they are not strong enough to persuade poorer people to spend more, he said.

To help the transition to a domestic demand-driven economy, the government should invest more in the social security network including healthcare insurance and unemployment insurance, Gan suggested.

The central government currently spends about 3 percent of its budget on the social security network, far less than the 20 percent spent by the US federal government, Gan said.

Chinese people largely self-finance their social security and healthcare insurance, he said. "They pay for themselves, and this is not right."

Growth in domestic demand over the past decade has been driven by investment rather than consumption, which has led to industrial overcapacity, oversupply of money and inflation, said Yao Jingyuan, former NBS chief economist.