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rfmcdonaldBusinessWeek had two articles up today which examined and compared the American and Chinese economies. What does it mean now that--according to one source--China has the larger economy of the two?
Peter Coy's article "The U.S. Is Big and Rich. China Is Just Big" has its summary in its title.
Dexter Roberts' article "China's Income-Inequality Gap Widens Beyond U.S. Levels" notes very significant income inequality.
TLDR? China has very many people who are well-off by First World standards, but it has a much larger population of people who are very poor by First World standards, too.
It doesn’t mean China is rich. All that gross domestic product has to be spread around more than a billion people. On a per-capita basis, the highest-income country in the world in 2011 was the oil-soaked and lightly populated Gulf monarchy of Qatar, at $146,000 per person. The U.S., as this chart shows, was No. 12, at just under $50,000.
It also doesn’t mean that China has the same international heft as the U.S. does. Remember, these figures are calculated according to purchasing power parity, which compares buying power. China looks good by that measure because it has a lower cost of living. A hundred dollars buys more food, haircuts, etc., inside China than it does inside the U.S. But if China wants to buy critical materials from abroad—say, sophisticated electronics or aircraft—what matters is the regular old exchange rate. And by that measure, China’s economy is considerably smaller. It was 47 percent as big as the U.S. economy in 2011 going by the exchange rate vs. 87 percent as big using purchasing power parity.
The metric used in these studies, the Gini coefficient, would be zero in a society in which all income is equally distributed, while a score of one would reflect a society in which all income is concentrated in the hands of a single individual. Over a three-decade period starting in 1980—shortly after China’s economic reform and opening commenced—the Gini coefficient has grown from 0.3 to 0.55 in 2010.
In the U.S., by contrast, the index reads 0.45. Anything over 0.50 is considered “severe disparity,” says the report in the Proceedings of the National Academy of Sciences. The authors used data from seven separate surveys conducted by a number of Chinese university-affiliated organizations, including Peking University’s Institute of Social Sciences.
“Income inequality in today’s China is among the highest in the world, especially in comparison to countries with comparable or higher standards of living,” said University of Michigan sociologist Yu Xie, who co-authored the report.
The official figure given last year was 0.473, slightly down from 0.474 in 2012, according to China’s statistics bureau. That’s still higher than the 0.4 level that the United Nations has said is likely to cause social unrest. “Unfortunately, for a variety of practical and political reasons, government statistics have not been a reliable source of information on income inequality in today’s China,” Xie said.
[. . .]
“The rapid rise in income inequality in China can be partly attributed to longstanding government development policies that effectively favor urban residents over rural residents and favor coastal, more developed regions over inland, less developed regions,” said Xiang Zhou, a graduate student who co-authored the report with Xie.
TLDR? China has very many people who are well-off by First World standards, but it has a much larger population of people who are very poor by First World standards, too.
