2012-02-06

How big is China's economy? Hidden income in the trillions

China's Hidden Wealth Feeds an Income Gap
Wealthy Chinese are snapping up gold, Rolls-Royces and yachts, Louis Vuitton, Chanel and Gucci faster than ever before, with increases registering not in baby steps, as a decade ago, but in giant leaps — 20, 50, even 80 percent, year on year. The Chinese have become the world’s biggest duty-free shoppers.
How could the luxury market outstrip the economy by such a significant margin?
In an interview last week at a Beijing restaurant, where incense swirled around a bust of Lu Xun, the critical, celebrated 20th-century writer, Mr. Wang said the hidden, or “gray,” economy, already very large, had grown significantly since the government began its giant stimulus package in late 2008 in response to the global economic crisis.

“It was already about 9.3 trillion renminbi” annually, or $1.47 trillion, said Mr. Wang, whose mild manner belies the explosive nature of his work.
Just as in the U.S., government directed stimulus and bailouts first goes into the pockets of the wealthy. Even if they are not direct recipients of the cash (the financial sector), they are better able to obtain credit and take advantage of inflation that comes in the form of asset bubbles.

This also helps explain why wealthy Chinese are looking for escape routes. They rightly fear that the government may get around to passing reforms that target gray income and tax it. If some of the money was earned using tactics such as the black market loans in Wenzhou, there's the possibility of jail and even execution. With social mood declining, such strict punishments are also more and more likely to be administered.

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