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Wealthy Chinese: Who Are They? Where Does Their Money Come From? eChinacities  2012-5-17 10:01:00

Editor’s note: The following article was translated and edited from an op-ed article which first appeared on the Chinese financial times website in late 2009. In the article, the author asks the basic questions of "who is wealthy in China" and "where does their money come from". He categorically answers these questions, analyses the time he spent living in Beijing talking with various residential neighbourhood "landlords", and ultimately concludes that the underground economies and "grey income" prevalent in China make it difficult (or impossible) to accurately understand the real situation.

Wealthy Chinese: Who Are They? Where Does Their Money Come From?

Who are the "wealthy Chinese" and where does their money come from? Actually, this is something I've asked myself too. Common sense tells me: If commodity prices in China's biggest cities are even more expensive than those in much of the West, then China must also have a larger group of wealthy people to sustain these higher prices, right? In 2009, I lived in Beijing for more than six months, and based on what I saw and heard, I definitely concur with this notion.

Of course, the proportion of rich people in China as a whole is extremely small. However, due to China's massive population base, even a small percentage of wealthy Chinese in absolute terms is still quite a lot. Several years ago, the Boston Consulting Group (BCG) published a report on wealth in China. According to the report, in 2008, less than 0.1% of Chinese households possessed more than one million USD in total assets. However, this 0.1% possesses 45% of China's total wealth, and more than half of China's millionaires are concentrated in Guangdong Province, Shanghai Municipality, Zhejiang Province, Beijing Municipality, Jiangsu Province and Shandong Province.

While I can't speak for other places, I can talk about my experiences in Beijing. My feeling is as follows: Even though the rich are still a minority, due to the prevalence of "grey income", the proportion of consumers in Beijing that can sustain the comparatively higher commodity prices must be greater than 0.1%. After six months in Beijing, I found much support for my argument that Beijingers are "not lacking in wealth" from several things I witnessed on a daily basis: Beijingers drive expensive cars, dine at high-end restaurants and frequent luxurious bathhouses, KTVs and massage parlours (brothels). They seem to be uninhibited in their expenditures, perhaps even outspending the most frivolous of their Western counterparts. Such a discussion will naturally lead to two questions: who are these people, and where do they get their money?

Who are these people?

I think that wealthy Chinese can be roughly divided into three categories. The first category of person is the product of China's market-oriented reforms, and includes private business owners, high-salary employees at foreign companies, lawyers, consultants, accountants and other senior professionals, as well as singers, actors and other celebrities. The second category of person is the beneficiary of China's booming housing and stock markets, and includes real estate developers, stock brokers, "capital market players", as well as successful real estate speculators and investors. The third category of person are the powerful elite and include officials in administrative units of the party and the government, as well as middle and high-level managers of SOEs. But remember: we don't want to underestimate the assets and spending power of those in the third category, as, although their official salary appears to be far lower than those in the first two categories, it is supplemented by their various forms of "grey income" (submitting private expenses as part of their official expense account, having others pay for their meals etc.).

Where do they get their money?

The methods in which the first and third category obtain their wealth – whether it be through "white", "black" or "grey" methods – remain constantly debated between Chinese people, as well as a popular topic in Chinese media and a heavily researched by economists. Wang Xiaolu (王小鲁), the Deputy Director of the China Reform Foundation, who previously led a research group that conducted a survey on "grey income", concluded that in 2005, of the total income for all of China's urban residents, there was 4.4 trillion RMB unaccounted for, equivalent to approximately 24% of that year's total GDP. And those who had the opportunity to obtain "grey income" were predominantly those in the high-income professions (first category) or the powerful elite (third category). But where do those in the second category get their money?

In Beijing, Shanghai and other major cities, for the last 10 years, the pace of commercialisation for the real estate industry has increased with no end in sight. Along with the renovating of a city's older districts and the seemingly unending urban sprawl, real estate has become the go-to moneymaking game (with Chinese characteristics). First, there are the government officials who are in charge of land auctions: local governments sell land at higher prices to fill the local treasury (and the officials' pockets). Second, are those in the real estate industry: they throw up new apartment complexes as fast as they can, and then sell the apartments at higher prices to consumers. Third, are the various real estate speculators: they ride the real estate bubbles in Beijing, Shanghai and other major cities, quickly flipping properties and making a fortune in the process. Finally, there are the beneficiaries of the renovation and urban sprawl. While in Beijing, Shanghai and other major cities, many former residents in the older urban districts and urbanised outer suburbs have been victims in the waves of demolition that ensued, and have had their rights encroached upon by the local government and developers, however some of these residents have successfully earned themselves small fortunes, through staunchly resisting threats of eminent domain (钉子户) and bargaining with the developers. In short, this category of people seems to create their wealth through the sale of land and building of properties. Almost as if, with the quick wave of a magic wand, poof! Another batch of wealthy Chinese is created.

But while it may seem as though the demolition of old properties and construction of new properties is in itself creating a new rich class, this is not entirely accurate. In reality, the demolition and construction of properties does no such thing by itself – a  property for sale needs someone to buy it after all. And in Beijing, Shanghai and other major cities, the buyers of property are China's wealthy from the first and third categories (as well as some wealthy foreigners). In this sense, wealthy Chinese (first and third category) and foreigners have jointly nourished and nurtured the new (second category) class of wealthy Chinese in Beijing, Shanghai and other major cities.

A tale of two residential neighbourhoods

During my time in Beijing, I lived in two residential compounds. Both compounds included their own swimming pool, gym, foot massage centre, pet hospital, and other facilities, on par with what you'd expect to see in a middle class residential neighbourhood in Beijing. I'm quite fond of swimming, and relaxing in the sauna post-swim. In the first residential neighbourhood that I lived in, I'd often run into the neighbourhood’s three proprietors: two business owners and one government official. One business owner was from Guangdong, and was in Beijing working in the cosmetics industry. The other owner was formerly one of the "Shanxi coal bosses", and later got into the real estate game, becoming a landlord in Beijing. As for the government official, I don't know much about him (what work unit he's from, what his official rank is) as he'd only talk vaguely about it, but from the conversations I overhead, I'd guess that he worked in one of the departments dealing with foreign trade and economic cooperation. He'd often complain to the other two that he had no money, although the car he drove was the same as the other two proprietors: a BMW. I believe that what I overheard in that sauna supports my above-mentioned notion that proprietors in Beijing (or other major cities) are often already quite well off and come from across the country. Also this instance seems to verify the propensity of many government officials to look for "extra" sources of income.

In the second residential neighbourhood that I lived in, the proprietors' incomes were slightly lower, and they were mostly government officials, SOE employees and "white collar" workers at foreign and private companies. For example, one of my closest "swimming friends" was a common tour guide for a travel agency in Beijing. I was there during the height of summer, and we'd often chat in the shade by the poolside after swimming. He was one of those "old Beijingers", and was very talkative. He told me much about his job: He worked at a state-owned travel agency. His salary was not very high – only about 2,000 RMB per month – but the benefit of this line of employment was that he only had to work during peak travel periods, and even then he still seemed to find time to go to the gym or the pool quite frequently. What puzzled me was that despite his lax work schedule and low salary, he seemed to be pretty well off. In the residential neighbourhood he owned a three-bedroom apartment, he drove an Audi, and everyday after swimming, he'd go out with his drinking buddies to a nearby restaurant. Only later did I realise that the 2,000 RMB salary he earned at the travel agency was not his primary source of income. He also owned two properties in downtown Beijing – one that he rented to a family for more than 3,000 RMB per month, and one that he rented out to a restaurant for about 15,000 RMB per month. Of course, while this is but one example, based on what others have told me, it seems that quite a few "old Beijingers" are similarly dealing in renting properties to supplement their primary salaries.


China has undergone a course of rapid economic development for more than 30 years already, during which time it has also avoided the pitfalls of any major recession. While this in itself is no doubt a miracle, it's also quite a mystery that has remained more-or-less unsolved. However, in my opinion, the greater mystery is: how did the first wave of Chinese to "get rich quick" do it exactly? Unfortunately, any answers to this question remain hidden under layers upon layers of dense fog and mythology. For those attempting to answer this question from outside of China, it seems that the deeper they dig, the cloudier things becomes; for those inside of China, answering this question has likewise encountered obstacles, as even with official statistics, the vastness of the underground economy and distortions of "grey income" have made it difficult if not impossible to judge the authenticity of the actual situation. 

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