According to a recent survey conducted by the People's Bank of
China, 24.4 percent of urban Chinese residents feel that prices of
commodities are exorbitant, a 2.3 percent increase from the
previous quarter. Meanwhile, the satisfaction index dropped to
minus 12.1 percent, down 3 percentage points.
However, the National Bureau of Statistics (NBS) announced in
August that the growth of consumer price index (CPI), a major
inflationary barometer, stood at 1.3 percent, 1 percent decrease
year-on-year.
From 2000 to 2005, China's CPI grew 1.2 percent annually,
comparatively low next to the average 9.3 percent of annual GDP
growth.
Why do many Chinese consumers believe prices have risen too much
when the CPI has grown slowly?
The latest Outlook Weekly published an article by Xu
Lianzhong from the Price Supervision Center of the National
Development and Reform Commission who analyzed the reason behind
the differences between CPI growth and residents' practical feels
on price hikes.
Faster rise of commodity prices
In recent years, the rise of commodity prices has been much
higher than that of the CPI. For example, the CPI grew 3.9 percent
in 2004 while the average growth of food and fuel prices stood at
9.9 percent and 12.4 percent respectively.
In 2005, CPI only grew 1.8 percent, 2.1 percent drop than 2004.
However, commodity prices remain at a high level. Furthermore,
service prices increased 3.3 percent while residential service
prices including water, electricity and gas fees increased 5.4
percent, 3.6 percent higher than the CPI.
In the first half of 2006, CPI growth continued to slow. Despite
this, price hikes on fruit, vegetables, fuel and residential
services stood respectively 30.9 percent, 15.9 percent, 13 percent
and 3.4 percent higher than CPI.
These price hikes put pressure on residents' expenditures,
especially those living on low and medium incomes.
Improper CPI calculation system
The current CPI calculation system accounts for sectors such as
food, clothing, household facilities and services, medical
services, transportation and telecommunications, education and
entertainment as well as housing. Most of its statistical standards
are woefully outdated, having been set 20 years ago. Though the
values of certain sectors have been readjusted, mirroring changes
in Chinese economy and society, they are still far away from
accurately reflecting daily consumption expenditures, particularly
after the reforms undergone by the medical, education and housing
sector throughout the 1990s.
The monthly report issued by the NBS shows that the housing
expenditure for Chinese residents in 2005 stood at 808 yuan
(US$101), 10.2 percent of the average per capita expenditure.
Education and entertainment expenditure was 1097.5 yuan (US$138),
13.8 percent of the average per capita while medical services
amounted to 600.9 yuan (US$75.6), 7.6 percent of average per
capita.
However, practical expenditure proportions on the three sectors
are all significantly higher than the above percentages. They are
the most expensive as well as the fastest growing sectors in public
opinion. Ministry of Health statistics show that the annual
national total volume of medical service fees in the 1980s amounted
to 14.3 billion yuan (US$1.8 billion). This figure had increased to
662.3 billion yuan (US$83.3 billion) in 2003, having multiplied
over 40 times in 20 years. Furthermore, the proportion of personal
payments has increased from 21.2 percent to 55.5 percent.
Slow growth of income
Another important reason for the contrast between CPI growth and
public opinion is the torpor in income increase.
From 1997 to 2005, personal income increase had consistently
lagged behind GDP growth in China. Disposable income for urban
residents rose by 9 percent annually, while farmers' net income
rose by 6 percent, both lower than the 9.2 percent registered in
annual GDP growth.
However, from 1991 to 1996, China's GDP growth kept steady at 12
percent annually while the increase of disposable income for urban
residents and net income for farmers stood at 23.3 percent and 22.1
percent annually, a far more rapid growth.
This torpor has weakened residents' manageability of price
increases, making them more sensitive to price fluctuations.
Widening income gap
The widening income gap across the social spectrum worsens the
situation. According to a 2005 survey that sampled more than 10,000
workers in 1,000 enterprises nationwide by the All-China Federation
of Trade Unions, from 2002 to 2004, 81.8 percent of workers were
paid below the local average level, a 28 percent increase of the
previous period (1998-2001). This worrying figure is compounded
when seen that of these underpaid workers, 34.2 percent were paid
half the local average with 12.7 percent receiving salary below the
local minimum level.
In contrast, employers' salaries are much higher than those of
employees. A survey done by the State-owned Assets Supervision and
Administration Commission of the State Council showed that
employers earned 12 times more than employees in 2002, which rose
to 13.6 times in 2003.
According to a research undertaken by the Development Research
Center of the State Council, among 1,883 enterprises in 2004, 61.2
percent of general managers benefited from an income
level three to 15 times that of their workers, and 14 percent,
7.4 percent and 6.4 percent of employers earned 15-25
times, 25-50 times and staggeringly over 50 times more than
their employees respectively.
The income gap between urban and rural areas increased to 3.22:1
in 2005 from 2.2:1 in 1990.
From a vocational viewpoint, in 2004, the highest-paid vocation
was the securities sector that was 7.52 times higher than the
income of the forestry sector. The average per capita salaries in
industries like power, telecommunication, finance, insurance and
tobacco were twice or three times of those in other trades. Adding
bonus or subsidies, the practical income gap may rise to five
to 10 times.
In 2004, 10 percent of rich families owned 45 percent of
property in urban families while 10 percent of poor families only
had 1.4 percent of the total properties. In the same period, urban
residents' financial capital gravitated to high-income
families.
China's Gini Coefficient, increased from 0.282 in 1991 to 0.47
in 2004, also shows the imbalance inherent to income distribution
across the country.
Public burden increase
The reform on social welfare and security system as well as
education and housing system partly transferred responsibilities,
traditionally the task of social institutions and enterprises, to
individual households. This, added to the slowdown of income
increases and the deepening income gap, places great pressure on
common residents.
Statistics show that annual per capita tuition for higher
education increased 25 times from 200 yuan (US$25) before 1985 to
5,000 yuan (US$629) in 2005.
Tacking on accommodation and other fees, each student needs more
than 40,000 yuan (US$5,033) for a four-year college study. However,
the 2005 average annual income for a farmer was only 2,936 yuan
(US$369), meaning a university education for his child would cost
him 13 years' salary.
Thus, differences between practical truths and CPI growth
reflect not only the improper weight of sectors inherent to the CPI
calculating structure, but also the problems caused by consuming
expenditure updates and structural non-coordination in economic
development. These should be further improved to better reflect
daily consumption expenditures and the impact of price changes on
different consumer groups.
(Outlook Weekly translated by Li Shen for China.org.cn,
September 14, 2006)