Income inequality in China is bad, but it’s worse in the US

While nearly 2 million Chinese people live on less than $2 per day, the economic powerhouse is also home to more billionaires than the United States. And yet, new data by the World Wealth and Income Database shows economic inequality is worse in the US than it is in China.

Rising inequality continues to be a primary concern in China, as many officials see inequality as a chief cause of public unrest and a potential threat to the communist party’s survival. However, this report suggests that the government still has a chance to stop the level of inequality from reaching levels as high as the United States.

The United States has a long history of wide wealth and income distribution gaps. The new data shows that the top 1 percent of earners make 20 percent of total income in the country, while the bottom half only make 12 percent of the total income.

In China, the gap is completely different. The earners at the bottom actually collectively make more than the top earners. The bottom 50 percent make 15 percent of the total income and the top make around 13 percent.

Another key difference between income inequality in China and the US has to do with growth in income for both groups since 1978. In China, all groups experienced huge increases in their incomes as a result of China’s economic reforms in the 1980s. But in the US, the bottom 50 percent saw absolutely no growth over the same time period.

Even though the income gap in China isn’t as wide as the US, as China’s GDP has reached similar levels as the United States’ in the past few decades, inequality has also drastically risen. Ever since China opened to foreign investment and trade and reformed its economic system in the 1980s, the top 1 percent’s share of income has more than doubled.

Income and wealth equality is a pillar of the Chinese Communist Party, so the growing income gap may become an existential crisis for the party. Officials continually attempt to achieve fair income distribution for all citizens and curb unrest through policy. In recent years, the government has increased rural residents’ incomes, reduced tax burdens on middle- and low-income groups, and placed caps on senior government enterprise officials’ salaries. The government has also worked to drastically cut down on corruption, though wealth from corruption is not accounted for in this report.

The report, published in the National Bureau of Research, combined data from governments’ financial accounts and information, surveys, and fiscal reports to estimate pretax income inequality in China and the US, and several other countries. The authors acknowledge that their estimates for China may be lower than reality because of tax evasion and limitations on gathering tax data and national accounts.

The report’s authors, Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman, recommended their own policy suggestions to curb rising inequality, including improving education and access to skills for the bottom 50 percent and boosting minimum wages.

Chinese President Xi Jinping has also recognized that income inequality is a critical problem within the country and around the world.

In his speech at Davos in January, Chinese President Xi Jinping recognized income inequality as one of the most alarming problems facing the world. “At present, the most pressing task before us is to steer the global economy out of difficulty. The global economy has remained sluggish for quite some time. The gap between the poor and the rich and between the South and the North is widening,” said Xi.