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Explaining the Gini Index Number, To Understand the Real China

Sometimes, numbers lie, because so often, a few numbers are summarized to generalize about a vastly complex landscape.

“42”!!  That’s the answer for every thing.

Well, don’t complain to me if you don’t understand the answer.  It’s the question you need to really understand, which is, what does that number REALLY supposed to mean.

Take for another example, China’s Gini Index, supposedly designed to measure the economic disparity in Chinese population, which is now at around 0.474.  (US is at around 0.469).  http://en.wikipedia.org/wiki/List_of_U.S._states_by_Gini_coefficient

Not much difference.  Yet numbers lie in different ways to different people.  Thus, we take to explain the reality here.

In anecdotal evidence, China’s wealthy are comparatively more wealthy relative to the extreme poor in China.

This has led to some to conclude that either the Chinese Gini Index is “lying”, or the slightly larger value of Gini Index of China vs. US makes a huge different.

Both explanations are wrong, because they take a view of China as somehow analogous to US, and that is completely false assumption.

The above graph from 2004 actually shows that while overall China Gini index increased, localized/regional Gini Indexes are increasing slower, for both rural and urban regions.

This is 1 major difference for Chinese population, which is much less mobile and less mixed than in US.  Thus, for China, the regional Gini Index can vary from low in urban area of 0.32 to rural area of 0.37 in 2004.

That means, while a rural poor Chinese person may be very poor relative to an urban rich, the wealth gap among urban Chinese is actually very small.

China recently implemented its own regional based poverty guidelines specifically to address this relativeness, in order to classify urban poor, realizing that the urban poor may actually have higher income than the rural poor.  This standard is also based upon cost of living, such as food, housing, etc., in each locality.  China also distributes social welfare, under the program of “minimum livelihood supplements”, DiBao, according to this standard.

In various non-Chinese studies, it was found that the Chinese urban poor was about 6-8% of the urban population, total.

Realizing that most Chinese urban centers are located on the Eastern coast of China, in about 7-8 small provinces, the Chinese urban poor are still fairly concentrated, whereas the rural Chinese poor are scattered among the vast remote provinces.

However, with these new numbers given, what do they mean?  That would require some comparison.

FACT:  NY City has about 20% population below the poverty level (by both US federal and NYC’s own poverty rate calculations).  OK, that should give you a clearer picture here.  http://www.nytimes.com/2011/09/22/nyregion/one-in-five-new-york-city-residents-living-in-poverty.html

As in the NYC case, it is seen that there is almost NO difference between the US federal poverty rate calculation and NYC’s own regional poverty rate calculation.  WHY?  NYC is actually representative statistically of average US numbers in terms of poverty lines (NYC however has higher than average national US GINI index).

That should give you even clearer picture here.

In US, urban Gini index, as in NYC, is higher than the national average (DC also has pretty high Gini Index, of whopping 0.532, http://en.wikipedia.org/wiki/List_of_U.S._states_by_Gini_coefficient).

http://www.usnews.com/news/articles/2011/04/29/large-cities-have-the-greatest-income-inequality

Yet, in China, urban Gini Indexes are significantly lower than the national average.

Conclusion:  China’s wealth gap is less on regional locality level, whereas US wealth gap is more in urban localities.

What’s the implication:

(1) Chinese cities see less wealth gap within each city.

(2) cost of living in China is also regional based, hence the varying poverty line.

(3) China see less “visible wealth gap”, because a Chinese citizen is less likely to be near both extreme poverty and extreme wealth in the same locality (relative to US).

Which one is worse for social stability?  US case has far more “visible wealth gap” in localities.

Numbers do lie, if you don’t understand the details.

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  1. ersim
    September 21st, 2013 at 06:29 | #1

    Being a resident of NYC, having had a CEO billionaire/dictator for a “mayor” for 8 years PLUS the past 4 years being ILLEGAL bypassing the law of term limits, says it all why such a wide income gap in the city.

  2. wwww1234
    September 21st, 2013 at 19:22 | #2

    home ownership is well above 80% in china, even though the house may not actually locatedbe in the town people live, thus people always have a home to fall back on when hardship hits. For the american they are then left with either a cardboard or a tent. this is not distinguished by the Gini index.
    Nor is the index a good measure of social mobility. The best universities in china are public owned, with little legacy enrollment. This is well illustrated in “New History for a New China, 1700-2000: New Data and New Methods, Part 1” .

  3. September 22nd, 2013 at 20:54 | #3

    Thanks for the analysis. Another example of inappropriate “global” standards and indices. What do more recent data look like? I’ curious about the trend since 2004.

  4. Black Pheonix
    September 23rd, 2013 at 11:56 | #4

    I indicated in the article that Gini Index for China is currently at 0.474, which fell a little from the previous year.

    The Gini index for US continue to increase, across the states.

    This map: http://en.wikipedia.org/wiki/File:Gini_Index_US_Counties_2010.jpg

    explains that INequality is higher in more dense populated areas in US. (This is opposite of China, where more densely populated areas actually have less inequality, lower gini index number).

    Thus, in US, Intra-regional Gini Index is very small. That is, state to state variation of Gini Index is very small.

    IN contrast, a number of studies have suggested that in China, the Intra-regional Gini Index is very high. (That is, Provinces and regions vary more drastically in income level).

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