With the World’s Most Billionaires, China Faces Problems With Populism, Income Inequality, Corruption, Angry Chinese Men

After several years of decline, China’s economic inequality is rising again. That could spell trouble for Western firms and for relations with the U.S. and Donald Trump

 Image may contain: people standing, sky, tree, plant, outdoor and nature
China’s official inequality measure rose last year. Here, a farmer works in east China’s Shandong province. PHOTO: ZHAO DONGSHAN/ZUMA PRESS
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Modern China is the greatest “get rich” story of the past generation—maybe ever. But after a decade of growth lifting all boats, official data contain a dispiriting revelation: Income inequality is again on the rise.

A little-noticed government press release citing the backslide comes as the just-released Hurun Global Rich List shows China with the most billionaires for the second year in a row, edging out the U.S.

Slower broad-based income growth—and increasing numbers of isolated, angry Chinese men in the countryside—is problematic. And as in the U.S., income disparity boosts the chances of political upheaval somewhere down the line. These topics are well known in Beijing, where the Communist Party leadership prizes social stability and fair distribution of wealth as linchpins of its hold on power.

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The government’s official inequality measure is the Gini coefficient, a zero-to-one measure of population income dispersion used by the World Bank and others. After declining by an average of over 0.4 percentage point a year from 2009 to 2015, official figures showed China’s Gini coefficient rising by 0.3 percentage point last year.

Not All BoatsInequality index (Gini coefficent*), ChinaTHE WALL STREET JOURNALSource:* Where 100% represents perfect inequality, i.e. in a large group one person receives all or nearly all income.
%2009’10’11’12’13’14’15’16’1746.046.547.047.548.048.549.049.52011×47.7%

Other independent measures of inequality have also rebounded. Regional disparities began widening in 2015, in part due to slowing growth in poor northern and western industrial provinces, according to a recent paper from Andrew Batson, China research director at Gavekal Dragonomics. China’s statistics bureau cited slowing income growth for some rural agricultural workers as one reason for the uptick. So-called bare branches, low-income rural men with poor professional and marital prospects, have become a persistent topic of conversation in Chinese society.

Chinese workers
Heading off to new jobs in the service industry? AFP Photo

While the shift is nascent, there are reasons to think it might continue. The massive transfer of wealth triggered by the privatization of the housing stock in the late 1990s was a huge boon to poor inland provinces, but it has now largely run its course.

And despite large helpings of rhetoric on reform from top leadership, there is little indication that the market power of big state firms in sectors such as telecommunications will be curtailed to make room for more efficient, job-creating privately run firms.

For firms eyeing China, the implications are profound: Slower broad-based income growth could weaken sales prospects for basic consumer goods. Companies such as Yum China or Coca-Cola, already under pressure from regulatory scrutiny and local competition, could see a slower lift from core consumers.

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More rich people in China might seem to present an opportunity, particularly in luxury goods and travel, real estate, and financial services. Firms such as Apple may be less tempted to pursue a pricing strategy based on volume, rather than luxury prestige.

Yet the past few years under President Xi Jinping have showed an inclination to punish conspicuous consumption. Rising inequality data may in fact embolden Beijing to keep up the pressure. Politically, corruption crackdowns to save face with the populace may become more frequent and severe. And nationalism, the old fallback of politicians bereft of other solutions to help disaffected citizens, will become more strident and potent.

That latter could make for choppy waters in the years to come, on both sides of the Pacific—and in the shipping lanes in between.

Write to Nathaniel Taplin at nathaniel.taplin@wsj.com

https://www.wsj.com/articles/chinese-populism-could-give-investors-a-rude-awakening-1490000927?mod=e2tw

Related:

The rich lawmakers are among 6,000 members of China’s parliament and advisory body which began meeting in Beijing this week

The rich lawmakers are among 6,000 members of China’s parliament and advisory body which began meeting in Beijing this week CREDIT: AFP

 (This is from a few years ago)

 A group of friends joined Sian for champagne on a yacht trip 

The rich kids of Beijing: Super-wealthy daughters of Chinese billionaires flaunt trips on private jets, £5,000 champagne bills and £16,000 rings online (despite the government telling them not to) 

Read more: http://www.dailymail.co.uk/femail/article-3586677/Rich-Kids-China-flaunt-bling-private-jet-trips-online.html#ixzz495gFcYXF
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One Response to “With the World’s Most Billionaires, China Faces Problems With Populism, Income Inequality, Corruption, Angry Chinese Men”

  1. daveyone1 Says:

    Reblogged this on World Peace Forum.

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