Growing income disparity as super-rich get richer

December 23, 2013 by Yang Shen

China’s super rich have three defining characteristics: they obtained their wealth rapidly, often in the last decade; they like to spend extravagantly; and by-and-large, they are young.

According to a recent report from the Boston Consulting Group, China ranked third globally in terms of total personal wealth in 2012 and is expected to rank second by 2017. In 2012 China had 1.3m millionaire households – out of 13.8m such households in the world – and is about to overtake Japan to become the country with the second highest number of millionaires in the world. (Separately, Hong Kong had 231,000 millionaire households).

Given the fast growth in personal and household wealth in China, what do we know about these nouveaux riches, their lifestyles, religious beliefs and geographically location?

First, let’s look at the super-rich. The average wealth of the top 1000 people in the Hurun Institute’s Hurun Rich List is up 21% to a record high of US$1.04bn. The cut-off to make the Top 1000 is up 12% to $325m, more than triple the cut-off in 2008 and 500 times the cut-off 15 years ago.

According to the Hurun Rich List 2013, 23.5% of the people in the top 1000 – the largest single group – made their money in real estate, which has overtaken manufacturing as the main wealth-creating sector. And those that make money seem to be holding on to it; only 1 out of 20 has disappeared from the list in the last five years. In fact there are only 10 new entrants to the top 50 richest people and only three of these were not previously in the top 100.

Jianlin Wang, the chairman of Wanda Group, who ranked 20th in 2008 with 16bn yuan ($2.6bn) of wealth, has managed to climb up to the top in 2013, with a fortune of $22bn, more than doubling his wealth in the previous year. In fact the top five wealthiest people in China – Wang Jianlin, Zong Qinghou (Wahaha), Ma Huateng (Tencent), Wei Jianjun (Great Wall Motor) and Yang Huiyan (Country Garden) – have all seen their wealth double in the last year.

The number of dollar billionaires – of whom there were none a decade ago – is up by 64 since last year and now stands at 315 individuals. Of those individuals in the top 1,000 richest, 559 saw their wealth grow, with 144 growing more than 50%. About a quarter (252) saw their wealth shrink over the year.

And whilst the number of people making fortunes in the IT and entertainment sectors rose by 20%, the number making money from natural resources (especially coal mining), retail, manufacturing, steel and clothing dropped by between 5%-10%. More than 150 people who are on the Hurun Rich List 2013 were appointed to the 12th National Peoples’ Congress or to the Chinese People’s Political Consultative Conference, including eight members of the CPPCC standing committee.

Hurun also focuses on high net-worth individuals (NHWIs), defined as individuals with more than 6m yuan ($990,000) in personal wealth. It says that 2.8m people in China belong to this category. In 2013 there are 8,100 Renminbi billionaires – up 7.4% compared to 2012, of which two-thirds were ‘invisible rich’. 280 (260 in 2012) of the super-rich were worth 10bn yuan, of which 52.9% were invisible billionaires. Invisible wealth, also called ‘grey income’, usually refers to illegal cash and gifts, which account for an estimated 12% of GDP, and which is often associated with the bribery of government officials by entrepreneurs.

The Hurun Report shows that the super rich in China are more likely to be entrepreneurs, real estate speculators, professional investors in the stock market, or professional managers. Around 70% of them are men; with an average age of 38; 43% are master degree holders; on average, each of them sleeps 6.6 hours a day, own three cars and four luxurious watches and goes overseas 2.8 times each year. They are interested in travelling, reading, drinking traditional Kung Fu tea and half of them are fond of wine.

China Outlook has previously noted an emerging trend for Chinese millionaires to emigrate in the hope of improving their families’ quality of life. Apart from investing in real estate, Hurun Reports notes that these rich people tend to invest in share market, fine arts, wines, watches, jewellery and business jets.

Half of the super-rich claim to have religious beliefs; 30% are Buddhists compared to 18% of the general population; 7% are Christians whilst 3% are Moslems.

Compared to Hurun’s reports, the China Private Wealth Report published by China Merchant Bank (CMB) and Bain and Co, concentrates on the group of qianwan fuhao –  a less wealthy group whose assets are above 10m yuan (£1m). A total of 1.05m people in China reached this level in 2012, up by 3% compared to the previous year, but the lowest increase rate for the last five years. These people tend to be entrepreneurs, professionals and professional managers and investors.

The CMB report notes that China’s overall individual investable assets totalled RMB80 trillion in 2012, up by 14% in two years and double the figure for 2008. It predicts that the number of people with at least RMB10m in investable assets will reach 840,000 by the end of 2013.

Both Hurun and the BCG report show that around 40% of wealthy people live in first tier cities such as Shanghai, Beijing, Shenzhen and Guangzhou. Hurun says that although the northeast and northwest, southwest, and central China only account for 16% of total NHWIs, the increased rates of NHWIs in the latter three areas are slightly faster than eastern China. In 2012, the top three fastest growth cities of NHWIs whose wealth was above 10m yuan were Tianjin Municipal (11.1%), Guizhou Province (9.4%), and Shandong Province (8.6%). These growth rates follow closely the overall GDP growth in these areas.

Whilst media interest has been dominated by the rich and super-rich, for the first time in 12 years, the National Bureau of Statistics (NBS) has recently reported China’s Gini coefficient for income inequality. Measured at between 0.47 and 0.49, this suggests that income inequality is high in China.

Some people are sceptical about the official figure, speculating the reality is worse. The income gap discovered by the China Society of Economic Reform’s (CSER) survey was wider than the NBS figure. CSER reported that the top 10% of household incomes was 20.9 times that of the lowest 10%, compared to the NBS figure of 8.6 times.

This huge disparity was echoed in the report published by China Household Finance Survey (CHFS) which found that the net-worth of an average household in China was 665,187 yuan, in sharp contrast with the median of 24,000 yuan. The average net-worth household in urban areas was 1,467,860 yuan, whereas the median is 33,340 yuan.

These figures suggest a huge gap between urban and rural households, and an even wider gap in urban areas. One estimate is that 10% of households own 86.69% of the nation’s wealth. Nevertheless, both CSER and NBS both demonstrate that the income gap has been narrowing since 2008. Whether the gap will continue to narrow is unclear. The Beijing government still has a long way to go to deal with income disparities and social inequality.

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