China should mind wealth gap, not rich scions

OUT OF REACH? A store in Beijing. According to the Gini index, the degree of wealth concentration in China has risen by a third in the past 35 years. This disparity fuels perceptions that the deck is stacked in favour of the rich.


    Jun 24, 2015

    China should mind wealth gap, not rich scions

    CHINA'S fuerdai, or second-generation rich, stink, but they are not the main problem.

    The United Front Work Department of the Communist Party of China Central Committee is trying to guide the fuerdai on proper behaviour. The party is rightly worried that the open flaunting of wealth could undermine social harmony.

    After getting into hot water for saying that breast size is his main criterion for choosing a girlfriend, Wang Sicong, son of China's richest man and Wanda magnate Wang Jianlin, made headlines again for buying a pair of golden Apple watches for his dog.

    On his Weibo microblog, which has 12 million followers, Wang Jr wrote that giving his dog four watches - one for each leg - "seems much too tuhao (vulgar rich), so I kept it down to two". It is hard to see what difference this would make.

    The fuerdai will continue blowing lots of money on luxury products; they may now just be more discreet in doing so. And for rebellious fuerdai like Mr Wang, who has loudly declared that he has no interest in following in his father's footsteps, the new guideline will perhaps have no impact.

    China would do better by addressing its widening wealth gap. According to the Gini index, the standard yardstick for measuring socio-economic inequality, the degree of wealth concentration in China has risen by a third in the past 35 years and now exceeds that of the United States. This rising disparity fuels perceptions among ordinary Chinese people that the deck is stacked in favour of the rich and their offspring.

    China has indeed made notable progress in addressing this problem in recent years. In particular, the government eased the tax burden on villagers while improving the rural education and healthcare systems. These moves seem to have played a role in the recent narrowing of the urban-rural income gap.

    Despite these gains, China has much more to do to improve education and its social safety net. With respect to the former, according to a study conducted by Stanford University Institute for International Studies recently, China lags well behind not just member states of the Organisation for Economic Cooperation and Development, but also its Brics (Brazil, Russia, India, China and South Africa) counterparts in terms of secondary and post-secondary education.

    While most Chinese now have at least rudimentary health insurance, the coverage remains inadequate for many, with medical expenses creating crippling financial burdens.

    Improving education and the social safety net would not only improve perceptions regarding the fairness of life and opportunity among ordinary people, but can also help rebalance the economy and address other problems such as the country's looming shortage of human capital.

    Finally, while the rich should be asked to behave properly, they also need to be given incentives to do so.

    As Bill Gates' case illustrates, for all their faults, the American super-rich can be very generous when it comes to philanthropy. While they do this in large measure because of noblesse oblige, the American tax system also offers strong incentives to act in this way.

    A few Chinese billionaires, notably Alibaba founder Jack Ma, are now doing the same. But donations made by China's super-rich to charity are still much lower than those of their American counterparts.

    As it seeks to promote private philanthropy, China should take steps, such as allowing tax breaks, to encourage its wealthiest citizens to be more charitable. That will at least lessen the flow of funds to Mr Wang and other fuerdai for splurging on gold Apple watches for their pet dogs.


    The writer is a research fellow at the Centre for China and Globalisation.