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The Size and Distribution of Hidden Household Income in China

Author

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  • Xiaolu Wang

    (National Economic Research Institute, China Reform Foundation, C510 Guo Hong Building, No. A-11 Muxidi Beili, Xicheng District, Beijing, 100038, China.)

  • Wing Thye Woo

    (Economics Department, University of California, Davis, California 95616, USA, Central University of Finance and Economics, Beijing, China.)

Abstract

Official Chinese data on urban household income are seriously flawed because of significant underreporting of income by respondents and non-participation by the high income groups in official household surveys. We collected urban household income and expenditure data in a way that increased their reliability and the coverage of the wealthy. We utilized the well-known relationship between Engel's coefficient and income level through two different approaches to deduce the true level of household income for each of the seven Chinese income categories (lowest income, low income, lower middle income, middle income, upper middle income, high income, and highest income). We found that the ratio of our estimated income to official income increased from 1.12 for the lowest income group to 3.19 for the highest income group. Total household disposable income in 2008 is RMB 14.0 trillion according to the official data but RMB 23.2 trillion according to our estimate; and 63 percent of the unreported income went to the wealthiest 10 percent of urban households. The income of the wealthiest 10 percent of Chinese households is really 65 times that of the poorest 10 percent instead of the 23 times reported in the official data. The Gini coefficient is clearly much higher than the usually reported figure of 0.47.In one of the estimations, we had to drop the 76 wealthiest households (1.8 percent of our sample) from the analysis because there were no super-rich in the official data for us to match characteristics with. We therefore still understate the income of the highest income households. As the amount of unreported income indicates the degree of corruption, it is troubling that it grew 91 percent in 2005-–08 compared to the 71 percent growth in gross national income. Serious institutional reforms must be enacted if corruption is not to derail economic development and social harmony. (c)© 2011 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Suggested Citation

  • Xiaolu Wang & Wing Thye Woo, 2011. "The Size and Distribution of Hidden Household Income in China," Asian Economic Papers, MIT Press, vol. 10(1), pages 1-26, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:10:y:2011:i:1:p:1-26
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    Cited by:

    1. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2016. "Evaluating the risk of Chinese housing markets: What we know and what we need to know," China Economic Review, Elsevier, vol. 39(C), pages 91-114.
    2. Joseph P. H. Fan & Randall Morck & Bernard Yeung, 2012. "Translating Market Socialism with Chinese Characteristics into Sustained Prosperity," NBER Chapters, in: Capitalizing China, pages 1-32, National Bureau of Economic Research, Inc.
    3. Emi Nakamura & Jón Steinsson & Miao Liu, 2016. "Are Chinese Growth and Inflation Too Smooth? Evidence from Engel Curves," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 113-144, July.
    4. Schettino, Francesco & Gabriele, Alberto & Khan, Haider A., 2021. "Polarization and the middle class in China: A non-parametric evaluation using CHNS and CHIP data," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 251-264.
    5. Zhou, Yixiao & Tyers, Rod, 2019. "Automation and inequality in China," China Economic Review, Elsevier, vol. 58(C).
    6. Li, Feng & Wang, Xintao, 2024. "Misreporting in household income and expenditure: Evidence from the Chinese Household Income Project," Economics Letters, Elsevier, vol. 237(C).
    7. Wing Thye Woo, 2016. "The Key Obstacles to Success in Economic Catching Up by China," RBA Annual Conference Volume (Discontinued), in: Iris Day & John Simon (ed.),Structural Change in China: Implications for Australia and the World, Reserve Bank of Australia.
    8. Wang, Wen & Seifert, Roger, 2017. "Employee referrals: A study of ‘close ties’ and career benefits in China," European Management Journal, Elsevier, vol. 35(4), pages 514-522.
    9. Li Xie & Wing Thye Woo & Zhichao Zhang & Zhuang Zhang, 2015. "A Multiple-Goal Investment Strategy for Sovereign Wealth Funds: An Application to China," Asian Economic Papers, MIT Press, vol. 14(1), pages 78-97, Winter/Sp.
    10. Joseph P. H. Fan & Randall Morck, 2012. "Capitalizing China," NBER Books, National Bureau of Economic Research, Inc, number morc10-1.
    11. John Knight, 2014. "Inequality in China: An Overview," The World Bank Research Observer, World Bank, vol. 29(1), pages 1-19.
    12. Ding Lu, 2011. "Transition of China’s growth pattern," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(4), pages 535-555, December.
    13. Cong Pan, 2018. "Firms’ timing of production with heterogeneous consumers," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1339-1362, November.
    14. Qu, Zhaopeng & Zhao, Zhong, 2017. "Glass ceiling effect in urban China: Wage inequality of rural-urban migrants during 2002–2007," China Economic Review, Elsevier, vol. 42(C), pages 118-144.
    15. Yu, Xiaohua & Abler, David, 2014. "Where have all the pigs gone? Inconsistencies in pork statistics in China," China Economic Review, Elsevier, vol. 30(C), pages 469-484.
    16. Yu, X. & Zhang, X. & You, L., 2018. "Does The Granary County Subsidy Policy Lead to Manipulation of Grain Production Data in China? Evidence from a Natural Experiment," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277298, International Association of Agricultural Economists.
    17. Masahiro Higo & Kiyohiko G. Nishimura & Yukie Sakuragawa, 2020. "Reforms and Crises in Government Statistics: The Case of Japan," Asian Economic Papers, MIT Press, vol. 19(2), pages 21-37, Summer.
    18. Milan TEREK, 2017. "Regional Incomes Structure Analysis In Slovak Republic On The Basis Of Eu-Silc Data," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 64(2), pages 171-185, June.
    19. Christine Siew-Pyng Chong & Suresh Narayanan, 2017. "The Size and Costs of Bribes in Malaysia: An Analysis Based on Convicted Bribe Givers," Asian Economic Papers, MIT Press, vol. 16(1), pages 66-84, Winter/Sp.
    20. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
    21. Mu, Ren, 2022. "Perceived relative income, fairness, and the role of government: Evidence from a randomized survey experiment in China," China Economic Review, Elsevier, vol. 73(C).
    22. Ingvild Almas & Ashild Johnsen, 2018. "The cost of a growth miracle - reassessing price and poverty trends in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 239-264, October.

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