«Has inequality gone too far in China?»
By combining and confronting Chinese national accounts, surveys, wealth rankings, and tax data (including recently released income tax data covering high earners), we obtain two main findings.
First, the property structure in China is that of mixed economy: about 30% of national wealth in 2015 belongs to the government, including about 60% of domestic corporate equity. This is larger than the share of public property in the Western mixed economies of the post - World War 2 decades, though not far from it. The public share has stopped declining since 2007-2008 and might be a long-lasting feature of the Chinese economy.
Second, income inequality has increased substantially since the beginning of the reform process. China used to be more equal than Europe in the late 1970s - about as equal as the most egalitarian Nordic countries - while it is now approaching U.S. inequality levels. Despite this rise, inequality remains lower than in the United States today, which given the size of China and the large gaps between its rural and urban regions is striking. Our new estimates of capital and inequality in China lend themselves to a number of applications and suggest avenues for future research.
One hypothesis raised by our research is that our two key findings - declining but still high public ownership of capital; rising income inequality, but less than in the United States - may be related. China's mixed economy structure (with a high public share in national wealth) may have mitigated the rise of inequality, compared to the rise that would have happened if the government had only relied on the tax-and-transfer system. This could explain why inequality has increased less in China than in the United States (where public wealth is negative). Our new dataset, which includes detailed statistics on both public vs. private wealth and income and wealth inequality that are comparable internationally, provides the necessary information to conduct quantitative and comparative analyses of how public property, taxes, public services, and welfare spending shape the distribution of income and wealth. (To conduct such an analysis, however, one would need to collect systematic data on the amount of taxes paid and public transfers received by each group of the population. In this paper, we restricted ourselves to analyzing the distribution of pre-tax-and-transfer income; we leave the task of estimating the distribution taxes, transfers, and post-tax-and-transfer income to future research).
Has inequality gone too far in China?
The evidence compiled in this paper is obviously not sufficient to provide answers to such a complex issue. However, at the very least, our findings indicate that there is a need for more transparency about income and wealth. The recently released tax statistics on high earners lead us to propose a large upward correction of official income inequality estimates. Improved access to tax statistics could lead to further revisions. The current lack of transparency about income and wealth data in China - and elsewhere - puts serious limits to our collective ability to monitor inequality dynamics and design adequate policy responses.
Co-authored with Gabriel Zucman.