The Rich List, “Brother Watch” and the Gini Coefficient in China
Hurun has released its annual list of China’s richest individuals. Topping the list for the second time in three years is Zong Qinghou, founder and chairman of beverage giant Wahaha Group, who owns a fortune worth $12.6 billion. Time Magazine looks at the statistics behind the list:
The average wealth of China’s richest 1,000 stands at $860 million, down 9 percent from last year but still up 96 percent since the start of the financial crisis in 2008. Their average age is 54, most live in the capital Beijing (12 percent), are born in years of the rabbit (13 percent), and by an increasing margin are male (87 percent). Almost half have made their fortune in either manufacturing or real estate, or both. The country has 2.7 million millionaires when measured in U.S. dollars, according to Hurun. But even with a boom of wealth entering China, the country’s richest are still dwarfed by their U.S. counterparts. China’s richest man would rank 25th on the Forbes List of America’s Richest.
The combined fortunes of America’s richest three — Microsoft founder Bill Gates, investor Warren Buffett and Oracle CEO Larry Ellison — equal the wealth of China’s richest thirty, the Beijing-based New Capital Daily calculated. You’ll need $3.9 billion to make it into Forbes’ list of the richest one hundred Americans. For the same list in China, just $1.8 billion would suffice.
A report from the Wall Street Journal says that the decline in overall wealth is due to a slowdown in the property market, where many on the list made their fortunes:
While elsewhere in the world, being named on such a list might be cause for celebration, many in China prefer to keep a lower profile. With a widening wealth gap and corruption becoming major concerns of the Chinese people, China’s wealthy elite often prefer not to draw attention to themselves or the sources of their income. According to a new study, they have good reason to worry. From the Financial Times Beyond BRICS Blog:
Hurun-listed entrepreneurs are more likely to be arrested than their unlisted rivals – and, whether or not they are taken away for questioning, the mere fear that they might be can hit their share prices. Moral for investors – sell the listed, buy the unlisted.
Shanghai-based authors Xianjie He, Oliver Rui, and Tusheng Xiao present their findings in a 38-page paper called The price of being a billionaire in China: evidence based on Hurun rich list*.
The conclusion is clear:
We find that when the Rich List is announced, investors react negatively to the companies controlled by the listed entrepreneurs and their market values drop significantly in the following three years and the government is reluctant to assist listed entrepreneurs and their companies, and even monitors them more closely. Furthermore, listed entrepreneurs are far more likely to be investigated, arrested and charged than other entrepreneurs. In addition, they tend to conceal profits through negative earnings management to avoid public attention.
Chinese citizens are growing increasingly frustrated with blatant displays of wealth and power by even low-level local officials. After a local official in Shaanxi was shown wearing numerous luxury watches, which he wouldn’t be able to afford on his salary, he became the target of netizen outrage. He was subsequently removed from his position.
Responding to such public outrage, the government has launched a crackdown on corruption and conspicuous consumption. Some observers say that this has led to a slowdown in the overseas luxury market. But despite these efforts, the wealth gap is growing and so is the anger of those on the losing side. From Business Week:
China’s Gini coefficient, a measure of inequality, may hover around 0.5, Li Shi, who helped draft a government plan on income distribution, said in an interview last week. The government hasn’t published a countrywide Gini figure since 2000. The index (SHCOMP) ranges from 0 to 1, readings at 0.4 or higher are used by analysts as a gauge of the potential for social disturbances.
“The situation is very dangerous now, and it’s a life-or- death battle for the new leaders to fight,” said Li, 55, executive dean of Beijing Normal University’s China Institute of Income Distribution, who compiled his own Gini survey in 2007. “Many reforms have been delayed in past years, but I don’t think China has the luxury to delay any more.”