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Capital Accumulation, Private Property, and Rising Inequality in China, 1978–2015, By Piketty, Thomas, Li Yang, and Gabriel Zucman

China has seen a large economic expansion after 1978. What is the distribution of the wealth accumulated through the economic expansion?

Piketty, Yang, and Zucman (2019, AER) provide the first piece of evidence on the wealth distribution between the public and private sectors, and top and bottom individuals. They find that the ratio of national wealth to national income has increased from 350 percent in 1978 to 700 percent in 2015. 

The share of public property in national wealth has declined from 70 percent in 1978 to 30 percent in 2015. More than 95 percent of the housing is now owned by private households, as compared to 50 percent in 1978. 30 percent of equities of the listed companies are owned by private Chinese entities, 60 percent to the government, and  10 percent to foreigners. "China has ceased to be communist, but is not entirely capitalists; it should rather be viewed as a mixed economy with strong public ownership. The share of public property in China today (30 percent) is higher than in the West during the mixed economy regime of the post-World War II decades (around 15 to 25 percent)."

On inequality among individuals, they find that top 10 percent income shares around 41 percent of total national income and top 1 percent income shares around 14 percent. The bottom 50 percent earns about 15 percent of total national income. As for comparisons, "China's inequality level used to be less than Europe's in the late 1970, while it is now approaching US levels" (higher than France, lower than US).

One interesting point not explored in the paper is what factors and mechanisms contribute to the observations. They argue (and provide a first-step analysis) that a combination of high saving rates, improvements in the legal system of property and therefore a gradual rise in relative asset prices can be the reasons. Formal analysis of the role of those elements will expand our knowledge on better understanding the growth path of China.

Regarding their measure of public and private sector shares, they only look at listed companies, probably due to data limitation. While listed companies are interesting per se, they tend to be more mature companies. For a relatively young and recently rapidly growing economy like China, a majority of players in the economy are non-listed startups and small companies. As the company age, size, business style, management operations, and industry distribution are quite different for those young and small companies than for the listed mature companies, we have reasons to believe the public versus private shares look different. For example, mature energy and resource companies, as relics from the purely public ownership period before 1978, are less likely to transform into heavily private-owned companies given their public good nature.  On the other hand, newly-established high-tech startups are privately owned in the beginning. Whether governments step into the late stage in those private-established companies is an empirical question to be studied.

Finally, can the rise in inequality be translated into worse well-being for the bottom population? One important dimension is the quality of consumption/wealth or the quality of inequality. It's also meaningful to look at the absolute value of the wealth of the bottom population. As they pointed out, while "in both China and the United States, growth accruing to the bottom 50 percent has been smaller than macro growth", "the key difference between China and the United States is that in China the bottom 50 percent has also benefited enormously from growth: its average income was multiplied by more 5 in real terms between 1978 and 2015." Although "China's inequality levels used to be close to Nordic countries" before the 1978 reform, it is a low-level income economy for the whole population. Whether the shrink in the share of wealth in the bottom population is inevitable as the economy grows is a question for future research.


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