Hidden Wealth

Gini coefficient is so far the most popular indicator to evaluate inequality in a country. The higher the Gini Coefficient, the less equal the country is. Since the coefficient is respected by most countries, economists always use it to rank the level of inequality in a country. It always looks less decent if a country tops the list of Gini coefficient with a low GDP per capita.

Therefore some countries use their own way of calculating Gini coefficient. For example, India calculates Gini by consumption instead of income to lower its Gini coefficient. How does this work? For example, one family owns $1 million a year, but consumes $100K; while another family owns $1000 a year and consumes all of it. The difference between their consumption is much less than the difference between their income. The trick that the Chinese Statistical Bureau is playing with Gini coefficient is equally cunning. Instead of calculating Gini coefficient for the entire country, they calculate two separate Ginis, one for urban area and the other for the rural area. Because of the big income gap between cities and countrysides, both Ginis are considered not reflecting the true inequality in China.

In addition to these obvious tricks of lowering Gini coefficient, it is widely believed that some assets of rich people's are not reported as government officials trade power for money in the grey area, which make the money unspeakable. Though the central government looks determined in addressing corruption and driving its bureaucrats to publish their salaries and assets, very few are willing to do that. And those who have to put the information online usually choose to understate their wealth. It's not surprising. In almost every corruption case that has been disclosed recently, the asset of each official can be counted in billions - millions of cash and dozens of mansions. Even that is not the whole story. Headlines of NY Times yesterday seemed to reveal that in China large assets can be acquired by seniors in the government and their relatives in a legal way. These assets, no matter taken legitimately or illegally, are usually not included in the calculation of Gini coefficient, and they are seeking global investment opportunities with a significant ratio of them already transferred overseas.

Meanwhile, the Gini coefficient can be overestimated as well because of non-monetary assets in a family. When we look at household income, we usually assume that's what people live on; while actually they may live on things other than monetary income. Farmers grow food in their fields and decide to eat half of them instead of selling all; and tailors make clothes for their family members and relatives. Poor people do not always receive paychecks and live on commodities, and complexity of the market makes Gini coefficient even more confusing. But in comparison to the large hidden wealth, this slight overestimation can be ignored.

Data don't lie, but the people who develop and interpret it can lie. That's the world of “闷声发大财" (make money, not noises).