As we discussed at the beginning of week two, the rising income inequality in China is extremely well known. As China's Gini coefficient has doubled from a level of roughly the level of inequality of Sweden. To a level of inequality which is greater than the United States. But what's less recognized is that this pattern of equal of relative equal wealth equality. As well as the income inequality that we saw in [UNKNOWN], is also true of contemporary China. And that this wealth equality therefore blunts to a tremendous degree the inequality measured by the Gini coefficient. And this is documented in the part three of today's talk which summarizes the findings from a 2011 China Household Finance Survey. done by a, led by a professor at UT Austin [UNKNOWN]. with the participation of China University of Southwest Finance and Economics. Now what [UNKNOWN] and his colleagues discovered was, that in contrast to the world average, where about 63% of households own their home... In the United States, it's 65%, in Japan it's 60%. In China, almost 90% of all families own at least a home. Which by the way I should say is much, much, much greater than Hong Kong, another example of one country, two systems. so in urban populations overall, 85% of households own a home somewhere, not necessarily the home where they're living. But a home, but a home somewhere. And in rural, 93% of households own a home, usually the home where they're living. what's quite striking, about this finding is that you look at these households by income or by age. You find that the distribution ownership is remarkably similar. for example. And by income, if you're in the second quartile, 25-50%, the third quartile, 50-75%, or the fourth quartile, 75-100%, it's roughly the same. 84, 86, 88% of households own a home. Even in the bottom quartile. 77% of households own a home. Now again, it's important to remember, that this may not be a home where they're living. It may be a home where they came from. A much cheaper home in some, in some remote village. But it does mean that they no matter what happens to them, in terms of income and equality. They always have the potential of having a roof over their head that they own themselves. And if you look at age, and we even distinguish the most expensive cities in China. Of course Not considering Hong Kong, which definitely qualifies for being one of the most expensive cities. So we just separate Beijing, Shanghai and Shenzhen from other cities. What we see again is that this this categorization doesn't make that much difference except to the very young age groups. people who are 35 to 45, people who are above 45. Again, it's over 80% of households own their own home. That's only under age 35 where it does make a difference. But even there whereas young people under the age of 35 in other cities, 77% of them own their own home. Even in the most expensive cities almost 60% of young people under the age of 35 own their own home. And the reason for this is partly because, unlike the west, where you have both extreme inequality in terms of accumulation and wealth. you also have in the west the transfer of wealth. The inter generational transfer of wealth largely occurs with the passing away of the older generation. As the older generation, you know, as the life expectancy goes from 60 to 70 to 80. you'll find that the inheriting generation goes from 40 to 50 to 60 years old. Or older before they're able to inherit wealth. Whereas in China, an enormous amount of this wealth transfer actually occurs at marriage. So parents, when their, especially when their son gets married, have an obligation to if they can, to provide a home to that son. That he can use to offer his bride as an example of his ability or his family's ability to establish a new family worthy of marrying. indeed another important finding of [UNKNOWN] is that not only is the total amount of home ownership much greater than the United States or the UK. in fact 18% of households own more than one apartment, whereas in the United States and the UK it's only about 6%. so so we find is that home ownership is much greater than in the wealthiest western nations. And that this home ownership is not just the home where you live, which may give you wealth. But doesn't give you liquid wealth because it's rare that want to actually sell the home you live in ,in order to in order to acquire liquid capital. But if you own two apartments, then you have the possibility of actually converting one at least to to other kinds of investment purposes. So again, you see an example that it's not just wealth... That has been distributed more equally. But it's also potentially liquid wealth, although it's, although it's still in the form of real estate. Now, most of this capital gains, of course, happened because of early privatization. Because of the 1980s and 1990s Chinese, work units, allowed, their employees to buy the public housing in which they lived at highly reduced prices. So therefore those people who were able to buy a first apartment. As you can see in this graph, had much higher capital gains than people who were buying a second or a third apartment. because the second or the third apartment are usually acquired on the market, on the private market. And therefore you don't have the kind of, the kind of wealth transfer that you had in China from the public sector to the private sector with early privatization. again, what you can see here is, is that it's important of course to recognize even what we talk about the widespread ownership of housing in China. That there's a tremendous difference in terms of the quality of the housing. people who live in the bottom quarter or the second quarter, their real estate has appreciated far less. Than people who live in the top half of the income distribution in China reflecting a phenomenon which is universal. That while real estate as a whole has increased what the, what the Chinese call the [UNKNOWN], the bubble of rising real estate values. These are led especially by the better apartments. because it is largely the better off population which is creating the demand for more and more privatized higher value housing. So, throughout the world, the Haves, as you see here defined by income, by wealth, wealth, education, attainment and by occupational prestige. In China the Haves there were also defined by such categories as work unit, job sector, residence, geographic location. Because a lot depends on where they were at the time of privatization. If you are fortunate enough to live in the a very central location in Beijing or in Shanghai, or in Shenzhen. You simply the net appreciation of your real estate was much, much greater than if you were in a a more remote area, a more remote residence. A less valued work unit or job sector which didn't have the same kind of housing that a more desired more prestigious work unit or job sector might have. So in other words what we're looking at therefore in China is But there are two types of have-nots. The kind of have-nots that we're more used to in the west. Categorical have-nots, people who just, you know, are poor. whether they are rural poor or urban poor. In China you just have cohort have-nots. People who are because of the real estate bubble those people who are in a cohort that were able to take advantage of the early privatization. And the realistic bubble did much better by period and again by age. So young people in China facing the need to buy housing on the private market are highly disadvantaged. Because their incomes simply don't give them the possibility of buying an apartment on their own. However, in China, as we've said, much wealth transfers from parents to children occurs at marriage. Rather than at the death of parents. So that therefore they're not so dependent on having to buy the apartment themselves. But rather can rely to a large extent on parental altruism and largesse, to acquire their needed real estate. so underlying this pattern of equal wealth distribution is a pattern of parental altruism and wealth distribution. by contrast, home ownership is less equal say in the west. this slide is from the United Kingdom. From a 2006 survey, and we can see that for housing tenure by age. You can see that the young people in the UK, very rarely own themselves own outright. 16 to 24 is 2%, 25 to 34 is 3%, 35 to 44 is 7% where it was 58% for under 35 in the 2011 Chinese survey. So so far more unequal and far more unequal especially by age. in the UK than in contemporary China.
