More money, more mobility

High income mobility makes China's wealth gap more palatable, writes Jasper Moiseiwitsch

PUBLISHED : Sunday, 10 November, 2013, 10:58pm
UPDATED : Tuesday, 12 November, 2013, 6:03pm

As China gets richer, income disparities widen. People are getting richer, yes, but people are evidently moving freely in and out of money. It's a prosperity roundelay that is well described in a Credit Suisse Wealth Report published in October.

The report tracks the number of billionaires in an annual Forbes' rich list, for each country, for five year intervals spanning 2000, 2005 and 2010. In the United States, the report finds fairly robust income mobility where less than half the billionaires on the 2000 list resurface in the 2010 list. But in China the turnover is 100 per cent. China's sole billionaire in 2000, Rong Yiren, was dropped from the 2005 list because of death. His son, Larry Rong Zhijian, did appear on the 2005 list but disappeared from the billionaire ranks when Forbes did its tally in 2010. This may have something to do with Rong Jnr's involvement with a US$2 billion FX loss at Citic Pacific in 2008, when Rong chaired the firm.

Also exiting the 2010 list was Wong Kwong-yu, founder of the Gome electronics retailing empire, who was sentenced to 14 years in jail in 2010 after being convicted of bribery and insider trading.

Forbes identified two billionaires in China in 2005; in 2010, it was 64. By comparison, in the same period, the number of Japanese billionaires went from 51 to 33.

"With the further liberalisation of the economy we anticipate further deregulation in the restricted industries and enterprises, and a further widening in inequality … and opporutnity," said Fan Cheuk-wan, Credit Suisse's Asia-Pacific chief investment officer for private banking and wealth management.

Graph No2 tracks the probability of moving in and out of wealth quintiles over one and two generations (30 to 60 years).

The band at the top is the movement a statistician would expect to see over generations if there were "perfect mobility", or if being born into a rich family did not increase the odds of becoming rich, or if being born into poverty did not decrease one's opportunities in life.

The striking expectation of this report is China will match this model of perfect mobility over 60 years. The report gives insight as to why mainland Chinese have so far been tolerant of gaping wealth disparities. So long as citizens have a fair shot at wealth, they might be inclined to accept inequality.