SUN
WUKONG China's hidden wealth? Color it
gray By Wu Zhong, China Editor
HONG KONG - Chinese people nowadays are
known as big spenders, both at home and abroad -
so much so that there has long been a suspicion
that their actual income may be much more than
what appears on their official payrolls. But how
much more has largely remained anyone's guess.
A recently released survey put the total
"gray income" of urban residents at about 4.4
trillion yuan (US$578 billion at the current
exchange rate) in 2005. This is a quite shocking
figure and is of
great significance for
economic statistics. The survey was conducted in
2005-06 by a team with the China Reform
Foundation's National Economic Research Institute
and headed by NERI's deputy director, Wang Xiaolu.
According to data from the Chinese
National Bureau of Statistics (NBS), total income
of urban residents amounted to 5.9 trillion yuan
that year. If the findings of the survey are
accurate, urban residents were 75% richer than
officially calculated.
NBS statistics also
showed that in 2005, income of farmers across the
country totaled 2.4 trillion yuan. Hence national
income amounted to 8.3 trillion yuan. But if the
gray income is added, the figure jumps to 12.7
trillion yuan, or 53% more.
If this is
true, then China's gross domestic product (GDP) in
2005 may be much greater than the 18.2 trillion
yuan reported by the NBS. The 4.4 trillion yuan
gray income accounted for 24% of the country's
GDP. Hence China's economy may be much larger than
generally thought.
One way of calculating
gross domestic product is to measure the total
payable in the GDP income accounts, using the
formula called GDP(I): GDP = compensation of
employees + gross operating surplus + gross mixed
income + taxes less subsidies on production and
imports, where compensation of employees (COE)
includes wages and salaries, as well as other
incomes such as social security and other
benefits.
According to Wang, the survey
has adopted a broader definition of gray income.
Normally, all legal incomes that are reported on
tax returns are called "white income". All illegal
incomes are called "black income". And "gray
income" refers to those in between. But in the
survey, black income is also included in gray
income.
"By 'gray income', we also include
all illegal incomes, questionable incomes, and
incomes of dubious origins," Wang said at a press
briefing on the findings of the survey in Beijing
last month. In short, "gray income" here covers
all those incomes that are not reported on tax
returns.
Wang said the survey covered
2,000-plus residents with various incomes in
dozens of Chinese cities and towns. All the
respondents were relatives or friends of members
of Wang's team. As such, Wang believes they would
have been truthful and therefore their figures are
more reliable than those collected by the NBS.
The study found that the higher the white
income a person has, the more gray income he or
she is likely to have. "This suggests there are
loopholes in NBS's statistics about the incomes of
high-income people," Wang said.
In
discussions of their findings with NBS officials,
Wang said, the latter frankly admitted that it is
a headache to find out the real income of
high-income people. This is also illustrated in
Wang's survey, in which 70% of the high-income
respondents said they did not want to report their
real incomes to NBS statisticians.
In the
breakdowns, the survey found the per capita
disposable income of the 10% highest-income urban
households (about 50 million people in 19 million
households) was 97,000 yuan (about $12,700) in
2005, more than three times the NBS figure of less
than 29,000 yuan.
And according to the
survey, the wealth gap in China is much wider than
official statistics show. The per head disposable
income of the 10% highest-income urban households
was 55 times that of the 10% lowest-income urban
households, compared with the government figure of
21 times.
Wang said his team verified the
findings of the survey with other data such as
cars and houses owned by the respondents, their
overseas trips and their bank deposits. And the
results were in agreement. Therefore, the figure
for real income of the high-income households was
close to truth, if not too conservative, he said.
But Wang's survey has aroused fierce
criticism. The title "Distribution of National
Income and the Gray Income" and the vocabulary
used, such as "urban households", have angered a
number of critics who say not all urban households
have gray income.
These critics correctly
point out that only those who have power or
capital are likely to make big illegal incomes.
But they miss the key point that this is a
statistical report that cannot probe into specific
details about who has gray income and who has not.
And statistically, Wang's survey does show that
the lower the income, the less likely it is that
one will make any gray income.
And some
critics may have misunderstood the definition of
"gray income" in Wang's survey as referring to
"black income". In fact given the broader
definition in Wang's survey, it can be said that
quite a few urban residents do have gray incomes.
Leave aside those strictly illegal
incomes, such as bribes taken by officials,
profits from drug trafficking, smuggling or
production and sale of fake goods and other filthy
lucre. Let's also not talk about perfectly legal
incomes that are not required to be reported on
tax returns, such as profits made by buying and
selling stocks or by buying and selling housing
(only recently have some cities begun to tax
profits from housing speculation). There is still
a vast range of gray income made by various social
groups in cities.
For instance, it is a
rampant practice in hospitals for doctors,
particularly surgeons, to receive "red packs"
(with cash inside) from families of patients to
give the patients prompt and better treatment.
Elementary- and high-school teachers make
extra money by holding extracurricular tutorial
classes. Parents are willing to pay such money in
the hope that their children can win tough
competitions in various exams. Even in
kindergarten, parents offer red packs to staff so
that their children are better taken care of.
In commercial activities, it is not a
secret that kickbacks in cash are offered and
accepted.
Authorities have been making
efforts to crack down on so-called "paid reports"
in the media. From this one may say that it may be
a quite rampant malpractice among journalists to
receive red packs to write reports favorable to
those offering such gifts, or not to expose their
scandals.
What about tour guides? Given
their low basic salaries, they have to live on
cash tips from tourists. It can be safely assumed
that those who received such income in cash would
never report it in their tax returns.
Among city dwellers, the 100-million-plus
rural migrant workers are the least likely to have
any gray income. On the whole, therefore, the
number of urban residents who receive gray income
as defined by Wang may not be as small as claimed
by some critics.
Consequently, Wang's
survey has cast a new light on China's economic
statistics that deserves serious study. It has
also explained certain phenomena that hitherto
have not been explained by official statistics.
One of them certainly is why Chinese consumers can
spend so generously.
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