Dr Wang surveyed more than 2,000 households in urban areas and concluded that the 'grey' portion of the annual incomes of city residents, which is not included in official data because the money is illegally earned by bureaucrats and others, amounted to about 4.8 trillion yuan in 2005.

The mainland's total, legitimate personal income that year was 9 trillion yuan.

'That means Chinese people made much more money than official data suggested, but the problem is that most of it, at least three-quarters, goes into the pockets of a small proportion of people who have enjoyed political privilege,' Dr Wang said in an interview with the South China Morning Post.

Grey income is a nebulous concept. Dr Wang's study covered illegally earned income and irregular income from 'questionable' or 'unspecified' sources.

He lists five main sources - misused public-works funds, corruption among financial institutions, extra fees levied on government administrative procedures, profiteering on land sales and the disproportionate wage bills of government monopolies.

'Basically speaking, most of the grey income comes from illegal activities such as corruption, bribes and embezzlement,' Dr Wang said.

He said the state monopolies in telecommunications, finance, public utilities, petroleum, tobacco and electricity employed less than 8 per cent, or 8.33 million, of the workforce in 2005, but gobbled up 55 per cent of the total wage bill.

Those workers earned a total of 920 billion yuan more than if they each took home the average wage.

The extra money would have paid for special bonuses, gifts and trips that public-sector workers enjoy.

Unexplained spending outside the state budget by central and local government departments had also become a source of benefits for officials, Dr Wang said.

The National Audit Office finds billions of yuan of unexplained spending by government departments every year. The Beijing city government had 27 billion yuan of unexplained spending in 2006.

'Many government agencies get off-budget revenue from unauthorised charges on services and use it for entertainment and other benefits for their staff,' Dr Wang said. In some cases, such undeclared income was many times their taxable salary.

He said his research showed the gap between the top 10 per cent of wage earners and the bottom 10 per cent was much larger than official statistics admitted.

Three-quarters of all grey income was obtained by the top 10 per cent of income earners in urban areas in 2006, and their per capita disposable income averaged 97,000 yuan, more than three times the 29,000 yuan average cited in official statistics, he said.

Dr Wang estimated that the per capita disposable income of the top 10 per cent of earners across the mainland averaged about 60,000 yuan, while it was slightly more than 1,100 yuan for the bottom 10 per cent.

That made the income gap 54:1 compared with the 21:1 claimed in official statistics.

Dr Wang said his survey found big differences in official data for the highest earners but little difference for the lowest because rich people made most of the untaxed grey income.

'That undeclared income is often involved with illegal or unauthorised activities, such as corruption and abuse of public funds,' he said.

He argued that the government needed to remove itself from the economy in order that the mainland could sustain its phenomenal economic growth.

'The first thing we need is transparency to stop corruption and increase efficiency, and that is to say all government activities should be under the spotlight,' he said.

'If its duties, responsibilities and authority are not properly spelled out so as to regulate what it must do, can do and cannot do, then we can't even begin to talk about fairness and efficiency in governance.'

Dr Wang said that the glaring contradiction between the mainland's lean, free-market capitalism and its bloated, closed and corrupt government was about to become the country's central economic challenge.

Debate on the income disparity has intensified in recent years, with President Hu Jintao making it one of his chief policy objectives to narrow the gap in pursuing social harmony.

Dr Wang said the central government had taken steps to help the poor, but 'money earmarked by the central government to help the needy often ends up in the pockets of corrupt local officials or businessmen in collusion with officials'.

Corruption costs China as much as US$86 billion a year and poses one of the most serious threats to its economic and political stability, according to the Carnegie Endowment for International Peace.

Bribery, kickbacks and theft account for about 10 per cent of government spending and transactions, even though the state had more than 1,200 laws and directives against corruption, the US-based think-tank said in a recent report.

Dr Wang said: 'The key bottleneck is in the government sector; it has not changed substantially with the economy and is compromising economic reform.'

He said the public's widespread hostility to the rich was not just about disparities in wealth, but also about unequal opportunity.

'With social tension mounting over the mainland's rich-poor divide, the 4.8 trillion yuan in grey income highlights structural problems that must be fixed,' he said.

'All these problems are rooted in the unsound political system, which has not made any significant progress in past decades despite the continued market-oriented economic reform.'

Five main sources of grey income

1Unauthorised use of tax revenue: 560 billion yuan

2 Financial corruption: 1 trillion yuan

3Rent-seeking: 500 billion yuan

4 Land sale irregularities: 748 billion yuan

5 State monopoly overpayment: 920 billion yuan

Source: Wang Xiaolu