Twofish's Blog

July 27, 2006

China and the Gini Coefficient

Filed under: china, finance, Uncategorized — twofish @ 11:13 am

One thing that people talk about a lot is China’s huge Gini coefficient and the gap between rich and poor.  The interesting thing is that statistically China does have a huge Gini coefficient, but if you go to China, the gap, while there, seems to be much less than the gaps for Africa, India, and Latin America.  It turns out that there is an interesting fact, which never rarely gets mentioned.  Within a given area, the Gini coefficient is quite low.  The huge Gini coefficient is almost completely the result of the difference in income between rural and urban areas.  However, I wonder in comparing China with say Peru, even that is misleading since Chinese peasants have a secure claim to future income from land, whereas Peruvian peasants, generally don’t.

It’s useful to step back a moment and examine some of the context behind a story.  Most Western journalists and a lot of academics have this “Soviet model” of what is happening.  The belief is that the Chinese government really knows what is going on, and the statistics that they give are mainly a sham to make people feel good about the government, and so when a “bad statistic” is issued, the real situation much really be worse.  The two bad statistics are the huge number of mass incidents and the inequality in income.

This narrative comes from what happened with the Soviet Union.  It’s not a bad first guess as to what is happening, but if you leave it like that, you miss what I really think is going on.  First of all, the Chinese government is as confused about what is going on as anyone else.  I don’t think that Beijing has a better idea of what the real situation is than anyone else does.  Second, if you look at the statistics that the Chinese government releases, there is a clear political motive behind them.  They are intended to justify greater investment in rural areas.  This isn’t a bad thing, but you have to keep that in mind when you hear them.  The “bias” that exists is that things that make it look like the government will imminently collapse will get more press than those that don’t.  For example, there are a huge number of “mass incidents” but if you look at the definition that seems to be operative for “mass incidents” actually seems to include a lot of minor incidents.

This gets to my philosophical biases, which are “the world is complex” and “there’s no way you can reallt figure out what is going on by focusing on one number” and “to correct for philosophical biases you need multiple people discussing things from different perspectives.”

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