August 12, 2010

Credit Suisse Study Suggests There is 9.3 Trillion Yuan of Hidden Income in China


China’s households hide as much as 9.3 trillion yuan ($1.4 trillion) of income that is not reported in official figures, with 80 percent accrued by the wealthiest people according to a Credit Suisse Equities Research Study

* the money is mostly illegal or quasi-illegal equates to about 30 per cent of China's gross domestic product
* The average urban disposable household income in China is 32,154 yuan, or 90 percent more than official figures
* top 10 percent of China’s households take in 139,000 yuan a year, more than triple the official figures
* the bottom 10 percent earns 5,350 yuan, or 13 percent more
* The top 20 percent of households account for 81.3 percent of total hidden income
* Average per-capital income for the richest 10 percent, at 97,000 yuan, was 65 times of that of the poorest 10 percent, Wang's survey showed -- instead of the 23 times figure given by official National Statistics Bureau's household income survey.
* China’s wealth gap between rich and poor is even wider
* The “grey income” comes from many sources, including gifts to officials at weddings, profits from land transfers, kickbacks from construction projects, and payoffs from state monopolies such as the tobacco industry
* The potential of China’s consumer market is even bigger than we expected
* China's property bubble may not be so bad. China’s national real estate affordability ratio drops to 4x –similar to that in the US.
* If the effect of grey income is included, China’s Gini index is likely to be more than 0.55 – similar to many South American countries’


* household income is a much higher percentage of GDP than official figures show, helping explain a surge in spending on luxury goods.
* The figures make sense of the wealth accumulated by local officials, often revealed during corruption trials. Hao Pengjun, a former county mine official in northern China’s Shanxi province, was jailed for 20 years in April for taking in 305 million yuan illegally, the People’s Daily reported. Hao owned 35 properties in Beijing including 17 in one development, according to the Shanxi Evening News
* Credit Suisse's suggests investing in luxury goods providers like LVMH or BMW, Chinese property developers, and gambling companies with a big presence in Macau.

FURTHER READING
A 2006 study of shadow economies for 145 countries.

Back then the estimate for China was about 15% shadow economy. the 30% is more in line with estimates for other Asian countries. The USA and OECD countries have an estimate of about 16% for shadow economy.

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