China's wealth gap narrows as disposable incomes grow

Income inequality in China narrowed last year, a silver lining to the cloud of a cooling economy that grew at the slowest pace since 1990, the National Bureau of Statistics reported on Tuesday.

The Gini coefficient, an internationally used indicator of a country's wealth gap, stood at 0.469 in 2014, down from 0.473 in 2013, according to the NBS.

A Gini reading of 0 represents perfect equality, while a reading of 1 suggests perfect inequality.

The index, which dropped for a sixth consecutive year from the high level of 0.491 in 2008, was read by analysts as a positive signal amid the country's reform to cap the income of top executives of State-owned enterprises and pension reform which requires government and public institution employees to contribute to their retirement plans.

Disposable per capita incomes grew faster than gross domestic product last year, increasing 8 percent year-on-year in real terms－that is, adjusted for inflation. Rural disposable incomes rose 9.2 percent, faster than the 6.8 percent gain recorded for urban residents, the NBS said.

The country's unemployment rate stood at 5.1 percent, while 13.22 million new jobs were created, surpassing the full-year target of 10 million, the data showed.

While China's Gini coefficient remains above the international warning level of 0.4, analysts said the steady growth of household incomes and narrowing inequality will likely lead to a growth of the middle class and consumption and the service sectors. These will be the new growth engines for the economy.

"The expansion in the service sector was stable, the unemployment rate remained under control, household income (growth) surpassed economic growth, and income inequality started to narrow. These are important features in China's economic rebalancing process," Zhu Haibin, chief China economist at JPMorgan Chase & Co, said in a research note.

A broad-based salary hike in China is expected soon, with Beijing having issued guidelines to raise the salaries for civil servants and public employees.

The range is reportedly 10 percent to 30 percent, with lower-ranking employees receiving higher percentages. Pay hikes for employees of State-owned enterprises and some private enterprises are likely to follow.

"The pay hike, in our view, indicates Beijing's goal of improving the quality of life for the average Chinese, after having extracted savings by curbing wasteful spending at government branches and SOEs," Wendy Liu, a researcher at Nomura Securities Co Ltd, said in a report.

Labor force shrinks for third year

China's working population declined for the third straight year in 2014, triggering concerns that a shrinking labor pool will weigh on the country's economic growth, especially for labor-intensive industries.

The working age population, those aged 16 to 59, decreased 3.71 million last year, the steepest drop since 2012 when the country first saw a decline, data from the National Bureau of Statistics showed on Tuesday. The decline in 2013 was 2.44 million while the figure in 2012 was 3.45 million.

Economists are worried the record decline in China's labor force will drive up labor costs and force both domestic and foreign companies to shift their plants and factories overseas, hurting the export and manufacturing sectors, the main national growth engines.

The shrinking labor force has raised concerns of a demographic crisis. Some experts are calling for a complete scrapping of all family-planning restrictions so China can avoid the trap of the population getting older before it gets richer.

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