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China wealth gap may be far worse than official estimates

A cyclo rider who makes a meagre living delivering goods passes a fashion billboard.
Peter Parks | AFP | Getty Images
A cyclo rider who makes a meagre living delivering goods passes a fashion billboard.

Income inequality has been rising rapidly in China and may be far more severe than originally thought, according to a new study by the University of Michigan.

The Gini coefficient, which measures the degree of inequality within a country where zero is complete equality and one is maximum inequality, has risen to 0.55 - almost doubling from 0.30 in 1980 - indicating a "severe" gap between the rich and poor, according to the research. This compares with 0.45 in the United States.

"Income inequality in today's China is among the highest in the world, especially in comparison to countries with comparable or higher standards of living," said University of Michigan sociologist Yu Xie.

The official estimate for the wealth gap last year was 0.473, improving from 0.474 in 2012 but experts consider anything above 0.4 a threshold for potential social unrest.

According to economists, estimates can differ based on data being used to calculate the Gini coefficient, in terms of who is included and what is being measured.

The researchers based their main analysis on data from the China Family Panel Studies, a large-scale survey project conducted by Peking University's Institute of Social Science Survey. The project represents about 95 percent of the Chinese population in 25 provinces in mainland China, and was started in 2010 in collaboration with the University's Institute for Social Research.

Read MoreHow income inequality can hurt the economy

The researchers also used data from six other surveys conducted by Chinese university-affiliated survey organizations using internationally accepted scientific sampling methods, the University said.

"Unfortunately, for a variety of practical and political reasons, government statistics have not been a reliable source of information on income inequality in today's China," Xie said.

"Ordinary persons in China know about this increase, as they have personally experienced it in their own lives," Xie said. "Although ordinary Chinese people seem to tolerate the high inequality, they also recognize it as a social problem that needs to be addressed."

51-year-old Ning Shumei, a taxi driver in Beijing, sees income inequality as very serious issue in the country.

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"There are people complaining about it, especially new graduates who are not paid well. They need to change this because I am sure it will affect the health and growth of China," Ning said.

"I am not happy with the fact that people are not paid and respected according to what they can do. The rich remains rich, the poor remain poor," she said.

The rise of income inequality in China has coincided with the country's rapid economic development since the late 1970's. The large regional variation in economic activity and the large income gap between rural and urban residents was the main forces responsible for widening the gap.

While there has been an explosion in wealth in China, there are still about 128 million people living below the national poverty line, which is defined as an annual income of 2,300 yuan ($368).

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Government policies to address rural-urban and regional disparities could have a major impact on reducing income inequality, the researchers said.

Earlier this year, Chinese Premier Li Keqiang promised to wage a war against poverty with stronger resolve, highlighting the existing imbalances in China's economic growth.

Ning says she would like to see more being done.

"I can't say if the government is doing anything. I know that they know about income inequality but do I see any improvements? I can't say simply because I still hear complaints. I hope they do and make things fairer," she said.

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