China now reaching the same levels of inequality as Johannesburg

The mainland's wealth gap has widened in the past decades to levels seen in South Africa, where shanty towns border gleaming office blocks

PUBLISHED : Tuesday, 11 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:01pm

The Johannesburg suburb of Sandton is a real eye-opener. Known among property agents as "Africa's richest square mile", Sandton is the office location of choice for multinational investment banks and brokerages - thanks, in part, to its heavy security.

In the car parks of Nelson Mandela Square it would take one of the more exotic marques of European sports car to stand out among the super-charged Range Rovers and luxury S-class Mercedes saloons.

The boutiques above are as chic and expensive as anything in Hong Kong's Central district, while the clientele of the complex's nightclubs and restaurants are, if anything, even more elegant and cosmopolitan than the denizens of Shanghai's smartest A-list venues.

Black and white rub shoulders easily, discreetly checking out each other's watches and frocks. Talk is of the boundless wealth creation opportunities afforded by the new Africa.

The riches of Sandton stand out all the more sharply because its glittering office towers are just two kilometres from Alexandra, one of Johannesburg's poorest shanty towns.

Here a population of several hundred thousand, many penniless migrants, live crammed into flimsy shacks nailed together from discarded planks and old sheets of corrugated iron.

The fresh water supply rarely exceeds a trickle. The inadequate sewers are frequently blocked. And illegal electrical connections pose a constant fire hazard. Unemployment is high and violent crime common.

Because of contrasts like the one between Sandton and neighbouring Alexandra, South Africa today has the greatest wealth gap of any of the world's major G20 economies.

The most common indicator of income inequality is the Gini coefficient, which runs on a scale of zero to 100. A score of zero would represent perfect equality, with everyone earning the same. In contrast, a score of 100 would see all the income generated by the entire country going to a single individual, with everyone else getting nothing.

On this measure, the most equal countries in the world are usually reckoned to be Japan, and the egalitarian social democracies of Scandinavia, all of which score around 25.

In contrast, any number above 40 is regarded as moving into territory where inequality is likely to become a pressing political problem. According to the World Bank, South Africa scores a sky-high 65.

So it is disturbing to learn that the Survey and Research Centre for China Household Finance, a well-respected body established by the People's Bank of China and the Southwestern University of Finance and Economics in Chengdu, reckons that in 2010 China's own Gini coefficient reached 61.

As the first chart shows, that is almost as high as South Africa's score. Even more worrying, it indicates an explosion of inequality since the middle of the last decade, when China's Gini score was estimated to be in the mid-40s.

Perhaps the widening of China's income gap shouldn't be too much of a surprise. As the second chart illustrates, 20 years ago China's richest quintile of urban households earned three times as much as the poorest. Today they earn 11 times as much (and 30 times as much as the poorest rural households).

Narrowing this gulf will be the single biggest economic challenge confronting China's new leadership.

Happily, there are some obvious steps to take. Scrapping the hukou household registration system, handing farmers legal title to their land, forcing state companies to hand over more of their profits as dividends and investing the proceeds in social services, such as education and health care, would be a good start.

Failure to act, on the other hand, would be to risk the sort of political backlash many of the inhabitants of Sandton fear could soon sweep away their jealously guarded fortunes.