Wealth accumulation and distribution in urban China

Abstract

In 1995-2002, the personal per capita net total wealth in urban China has increased at annual rate of 24% in real terms. While both real income and real wealth increased rapidly, the rate of growth of wealth was much faster than the growth in real income. The analysis indicates that wealth distribution became more equal in 2002 than in 1995. Also, a large proportion of the increase in wealth accumulation may come from nonsaving channels. Furthermore, although households at each income percentile have experienced increases in wealth and in nonsaving wealth, the increase is larger for the high-income group than from the low-income group. Wealth accumulation in China differs from the life-cycle model prediction. Household wealth is almost linearly associated with household heads' age and the unusual shape of the age-wealth profile is related to housing reform, as the aged normally had larger housing and were able to benefit more from the housing reform. Party members and their children have done particularly well in accumulating wealth. Relative to the median of net total wealth, those households who where both head and spouse are party members, accumulated 31-43% more net total wealth in the 3 survey years. Having a household head whose father is a party member contributes an additional 10% increment in net total wealth for 1999 and 2002, respectively. Due to inability to find good instruments, the estimated party-membership effect is a combination of the reward to party-members' unobservable ability and to their political power.