Official economic data released by the Communist Party of China on Monday showed that the average disposable income of China’s wealthy 20% of the population will be more than 80,000 yuan in 2020, 10.2 times the income of the poorer 20% of the population, and that China’s huge income disparity has dampened consumer spending, indicating a weak follow-up to the country’s economic recovery.
Bloomberg reported on Jan. 19 that Chinese Communist Party officials released economic data on Monday showing that China’s economy grew faster in the fourth quarter of 2020 than it did before the epidemic, but the figures also revealed that the average disposable income of China’s wealthy 20 percent of the population exceeds 80,000 yuan ($12,000) in 2020, 10.2 times the income of the poorer 20 percent.
According to the OECD, the ratio is about 8.4 times higher in the United States and nearly 5 times higher in Western European countries such as Germany and France. This ratio shows that the level of inequality between rich and poor in China is roughly the same as in Mexico, where the wealthy 20 percent of the country’s population earn 10.4 times more than the poor 20 percent.
Although Communist Party General Secretary Xi Jinping has identified uneven income distribution as a threat to China’s future growth, the latest data show that the Communist government has made little progress in narrowing the gap between rich and poor.
Full-year data for 2020 also show that despite a recovery in Chinese economic activity by the second half of the year, household spending has yet to return to pre-epidemic levels.
After adjusting for price, China’s per capita consumer spending declined by 4% in 2020.
In 2020, China’s total retail sales of consumer goods fell 3.9% from the previous year, more than developed economies such as the U.S., where spending on consumer goods was supported by direct government subsidies to workers stranded at home and the unemployed.
As in other economies, the shutdown impacted Chinese services spending more severely than goods spending due to fears of a viral (Wuhan pneumonia) plague in the CCP, with restaurant spending falling nearly 17% in 2020.
In December 2020, China’s total retail sales of consumer goods grew by 4.6% year-on-year, struggling to return to the pre-epidemic level of around 8%. Economists offer two explanations: a weak job market and people increasing their precautionary savings.
Millions of migrant workers lost their jobs in early 2020 as factories, restaurants and stores closed for epidemic prevention and control. After the blockade was lifted in late spring and early summer, some people still chose to stay in their hometowns, and official figures show that the number of migrant workers in 2020 is 5.2 million fewer than in 2019.
Communist authorities have not provided financial support to families affected by job losses, and many have had to draw on their savings to save money.
Bloomberg reports that the reduction in private spending means that consumption as a percentage of China’s GDP declines, with final consumption spending pulling downward 0.5 percentage points of GDP in 2020. In 2019, final consumption expenditure will drive economic growth by 3.5 percentage points.
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