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Narrow income gap first

(China Daily)
Updated: 2010-03-08 09:34

Narrowing the income gap is a precondition to solving the housing problem, says an article in China Securities Journal. Excerpts:

Housing prices and the wide income gap are two of the greatest problems society faces today. Many experts have suggested ways to reduce housing prices. But very few have blamed the widening income gap for the rising number of complaints against skyrocketing housing prices. This, despite an increase in the country's per capita income in recent years.

How wide is the income jump in China? Statistics show the Gini coefficient (a measure of inequality of income or wealth) reached 0.47 in 2008. The Gini coefficient ranges from 0 to 1 and the higher the index of a society the greater its inequality. Normally, anything above 0.40 is considered alarming.

China's economic development during the past three decades has created a wealthy section in society, which can drive the housing market crazy if it focuses its investment on it. These wealthy investors know that even though a family earning 30,000 yuan a year (which the majority of Chinese earn) cannot afford to buy an apartment, there are enough affluent people who can. That's why there is an artificial surge in housing prices.

Hence, to rein in the housing market the government has to reform the national wealth distribution system first in order to narrow the income gap.