There is frequent reference to the number of high income households in China – but typically without definition of what ‘high income’ is. Given that there is good data available on the distribution of households in China by income, it is useful to provide a clear indication of what is high income, just how many households there are in China that meet this criteria, and how that might change over the next decade.
The State Statistical Bureau undertakes a Household Income and Expenditure Survey every year (since 1984) and it currently has a sample of 168,000 households nationally. Data is collected by diary method, with a rolling sample throughout the year. It is geographically structured to allow representation of all regions, as well as providing a good sample distribution in terms of income levels.
Analysis of that data, including converting it to a per household basis (it is reported on a per capita basis per household) and expressing it in real 2007 values, indicates that the overall distribution for each of Urban and Rural in 2009 is as shown in Figure 1. Key points to note from this chart are (a) the significant difference between the urban and rural household populations, and in terms of this Blog, the fact that with some certainty only 1.8% of Urban households and 0.2% of rural households have an income in excess of Rmb 120,000 pa. This translates into an estimated 4.014 million urban households and 415,000 rural households.
Furthermore, extending the overall shape of the distribution to higher figures, the model indicates that the top 0.5% of all households are those with an earned income in excess of Rmb 150,000pa and there are just 2.15 million such households and 89% of these are urban based.
How reliable is this data? A good check on reported income figures is the extent to which the expenditure of all households is in line with the Private Consumption Component of GDP. In the case of China the reported average urban and rural household incomes, multiplied by the number of such households and then multiplied by the average proportion of income spent ties very closely indeed with the PCE component of GDP. This is the case for many countries and it indicates that the reported average incomes are in fact defensible. Second, the sampling that is done for the ‘Household Income and Expenditure Survey’ is more likely to represent the middle and lower income households well. There are more of them and they tend to co-operate more. As such the reported figures from the Household Income and Expenditure survey confirm the number of low, middle, and upper middle, households with some rigour, and hence, by implication, the likely maximum number of high income households.
Also, in China, persons with an income in excess of Rmb 120,000 per annum are required to report to their local Tax office personally to pay their tax. In 2007, 2.4 million persons were recorded as doing so. This is less than the number of households Global Demographics Ltd estimates earning an after tax income in excess of Rmb 120,000 (4.4 million households) and is explained by the fact that the average household has 1.8 earners and hence there is a significant number of dual earner households meeting this income level.
Therefore, the number of households in China with an income in excess of Rmb 120,000 in 2009 is with some confidence estimated to be 4.4 million. Global Demographics’ Income model indicates that this will have increased to 12.2 million by 2014, and will reach 27.7 million in 2019. So it is a high growth segment. Finally it is worth noting that of the households with an income over 120,000, an estimated two thirds of them are located in just 43 of the 720 cities of China with a population in excess of 200,000 persons. A high growth, high disposable expenditure, geographically concentrated consumer segment – what more could one ask for!
