Tuesday, 30 March 2021

Bank CEOs Making More Money Despite the Pandemic?

 

As at 25 March 2021, only five banks in Malaysia have released their FY2020 annual reports. At least three of the CEOs received wage increments of over 10% last year. AmBank’s CEO secured more than 50%, but that is for the period between April 2019 until March 31, 2020 (not the full pandemic year), AmBank Group clarified.

Bank

Pre-Tax Profit

Growth

CEO

Remuneration

Growth

AmBank’s AMMB Holdings Bhd

FY2019: RM2,095.4m

FY2020: RM1,782.9m

-14.9%

Datuk Sulaiman Mohd Tahir

FY2019: RM4.2m

FY2020: RM6.64m

58%

Hong Leong Bank Bhd

FY2019: RM3,186m

FY2020: RM2,989m

-6.2%

Domenic Fuda

FY2019: RM15.34m

FY2020: RM17.13m

11.7%

Malayan Banking Bhd

FY2019: RM11,013.9m

FY2020: RM8,657.0m

-21.4%

Datuk Abdul Farid Alias

FY2019: RM8.43m

FY2020: RM9.4m

10.2%

CIMB Group Holdings Bhd

FY2019: RM6,618m

FY2020: RM1,530m

-76.9%

Datuk Abdul Rahman Ahmad

RM2.41m

(appointed on 10 June 2020)

 N/A

Alliance Bank Malaysia Bhd

(“Alliance”)

FY2019: RM538m

FY2020: RM424m

-21.2%

Joel Kornreich

FY2019: RM10.6m

FY2020: RM9.5m

- 11.5%

 

Alliance Bank, same as AmBank, has its financial year end as 31 March 2020. The remuneration of the group’s CEO, Joel Kornreich however, was reduced by 11.5% - from RM10.6 million in FY2019 to RM9.5 million in FY2020. This comprised salary and remuneration of RM6.41 million, bonus of RM1.77 million, EPF contribution of RM1.16 million, and benefits-in-kind of RM150,000.

Despite being the only CEO to have compensation reduction in FY2020, Joel Kornreich received the largest portion over group’s pre-tax profit (remuneration of RM9.5 million over pre-tax profit of RM424 million). An article from Simply Wall St, noted that among companies in the industry with market capitalizations of between RM1.7 billion and RM6.7 billion, Alliance paid a compensation that was higher than the industry median to its CEO. All these show that CEOs’ remunerations don’t always align with company performance or size.

David Bolchover, a management-pay expert says the 2008 global financial crisis was a prime example of how performance and pay don't always align. "The financial sector always defended their high pay on the basis of their rare abilities and their talent," he says. "But a lot of these banks went bust during the crisis, and people started to ask questions – why were they paid so much and why did they continue to be paid so much even after the crisis?" In fact, in many cases they are bailed out using tax-payers money.

With the pandemic, the banks have again experienced a difficult time. But some CEOs are earning more than a 10% pay rise, taking home millions in ringgit. What about their employees? Shouldn’t they be recognised for rewards too? Then again, it is at the expense of savers who receive paltry returns for keeping funds in a bank. Surely, Bank Negara has a say on all this?

 

Reference:

1.     Bankers take home more despite pandemic, says report, 23 March 2021, Free Malaysia Today

2.     A Look At Alliance Bank Malaysia Berhad's (KLSE:ABMB) CEO Remuneration, 25 Sep 2020, https://simplywall.st

3.     Peter Yeung, Why CEOs make so much money, 27 Jan 2021, BBC

 

Monday, 29 March 2021

Malaysians Generate More Trash with MCO?

 

With Covid-19 and imposition of MCO, Malaysian households generate vast amounts of domestic waste. Primarily, food and plastics.

Khazanah

According to Solid Waste Management and Public Cleansing Corporation (SWCorp) Malaysians generated slightly over 200,000 tonnes of domestic waste each month since March 18, 2020. Food waste comprised 30%, while plastics stood at 24.8%, paper (10.5%), disposable diapers (11.1%), textile (4.8%) and waste from gardens/ parks (4.1%).

People staying at home were using Grab or other home deliveries. More than 2 million deliveries were made by Grab between July and September 2020. On-line purchases resulted in higher use of plastics and boxes.

According to SWCorp, several factors contributed to large amount of waste being generated:

-        increase in population;

-        lack of awareness on proper waste disposal; and

-        socioeconomic and lifestyle changes

According to Prof. Dr. P. Agamuthu of Jeffrey Sachs Centre on Sustainable Development at Sunway University, a long-term solution needs to be looked into. Mechanical biological treatment (MBT) system is more suitable for the Malaysian waste and climate. This is less costly than incinerators. Other ways include the ban of single-use plastics, stricter enforcement on illegal dumping and more dedicated research on waste-to-energy plants.

There are several measures and examples that could be followed. Learning from other nations in the tropics (like Singapore) may provide better solutions for our waste management. Universities should have dedicated research teams to examine solutions which could be commercialised. Funding by the Government is essential to make progress in this area.

 

Reference:

1.     Rahimy Rahim. Piles of waste, we want not, 11 March 2021, The Star

2.     SWCorp: Food waste drops during MCO, rises again soon after, 20 October 2020, Bernama

Friday, 26 March 2021

Are AmBank’s Minority Shareholders Taking a Hit?

 

AMMB Holdings has agreed to a RM2.83 billion global settlement in relation to the 1MBD matters. This is in addition to the paltry RM53.7 million penalty imposed by Bank Negara Malaysia and paid by the AmBank Group.

The Sarawak Report (Mar 17, 2021) suggested the whole thing is a “stitch-up” with counsels for Government and AmBank working together to conclude an agreed sum! If that is true who is representing the minority shareholders? The Minority Shareholders Watchdog? The SC? It doesn’t seem so for now.

Why did 7 members of AmBank’s senior management dispose their personal shares in the bank on 29/30th December 2020? Is this insider trading?


The date happened to coincide with a spike in prices after a poor year at the bank. Price, of course, plummeted after the announcement of the settlement.

ANZ, a key shareholder, has written down its equity interest of 24% in AmBank by AUD212 million. ANZ has been unsuccessful in trying to sell its stake. The carrying value of its stake is lowered to AUD850 million from AUD1.05 billion.

AmBank’s AMMB Holdings Bhd CEO, Datuk Sulaiman Mohd Tahir, recorded a huge jump in pay from RM6.64 million in 2020 compared to RM4.2 million in 2019, a 58% increase. However, the financial year for AmBank is April 2019 to March 31, 2020 and so it is not reflective of more recent developments --the effect of the pandemic and the settlement sum. Whatever the case, the minority shareholders are left with the consequences, drop in value and little say on proceedings.

 

Reference:

1.     Did AmBank's Minor Shareholders Just Get A Mugging From All Sides? 16 March 2021, Sarawak Report

2.     Ahmad Naqib Idris, SC says reviewing share disposal by Ambank senior execs, declines further comment, 18 March 2021, The Edge

3.     ANZ writes down AmBank stake after 1MDB settlement, 1 March 2021, The Star

4.     AMMB agrees to RM2.83bil global settlement over 1MDB, 26 Feb 2021, The Star

Thursday, 25 March 2021

McKinsey: Transition to New Occupations


Covid-19 has, for the first time, elevated the importance of the physical dimension of work. McKinsey finds that jobs in work arenas with higher levels of physical proximity are likely to see greater transformation after the pandemic, triggering knock-on effects in other work arenas as business models shift in response.

The short- and potential long-term disruptions to these arenas from Covid-19 vary. During the pandemic, the virus most severely disturbed arenas with the highest overall physical proximity scores were medical care, personal care, on-site customer service, and leisure and travel. In the longer term, work arenas with higher physical proximity scores are also likely to be more unsettled, although proximity is not the only explanation.


McKinsey finds that a markedly different mix of occupations may emerge after the pandemic across some economies. Compared to pre-Covid-19 estimates, McKinsey expects the largest negative impact of the pandemic to fall on workers in food service and customer sales and service roles, as well as less-skilled office support roles. Jobs in warehousing and transportation may increase as a result of the growth in e-commerce and the delivery economy, but those increases are unlikely to offset the disruption of many low-wage jobs.

Before the pandemic, net job losses were concentrated in middle-wage occupations. And these were in manufacturing and some office work, reflecting automation. Nearly all low-wage workers who lost jobs could move into other low-wage occupations—for instance, a data entry worker could move into retail or home healthcare. Because of the pandemic’s impact on low-wage jobs, McKinsey now estimate that almost all growth in labour demand will occur in high-wage jobs. Going forward, more than half of displaced low-wage workers may need to shift to occupations in higher wage brackets that require different skills to remain employed.

Given the expected concentration of job growth in high-wage occupations and declines in low-wage occupations, the scale and nature of workforce transitions required in the years ahead will be challenging, according to McKinsey research.

Policymakers could support businesses by expanding and enhancing the digital infrastructure. Both businesses and policymakers should collaborate to support workers migrating between occupations. Businesses can start with a granular analysis of what work can be done remotely by focusing on the tasks involved rather than whole jobs. They can also play a larger role in retraining workers, as Walmart, Amazon, and IBM have done. Others have facilitated occupational shifts by focusing on the skills they need, rather than on academic degrees.

In Malaysia, more needs to be done for transition to take shape. Output from universities and colleges must change to match future industry requirements. Engaging with industry experts and others to implement retraining programmes and providing adequate funding for industry to support initiatives are possible steps.  Are we nimble or still focused on irrelevant political issues?  


Reference:

The future of work after COVID-19, 18 February 2021, McKinsey

 

Wednesday, 24 March 2021

Are We Transitioning into a High-Income Economy?

 

A high-income economy is defined by the World Bank as a country with a gross national income (GNI) per capita of US$12,536 or more in 2019, calculated using the Atlas method. And according to the World Bank, Malaysia is likely to exceed the threshold that defines high-income economy status between 2024 to 2028.

Malaysia‘s GNI per capita was at US$11,230 in 2019, and this was before the pandemic. Based on historical data, the 10-year average growth rate on Malaysia’s GNI per capita was 4.14% whereas the 10-year average growth rate for high-income threshold was only 0.29%.

 


 

Quantitatively, the projection of breaking high-income threshold by 2024-2028 looks possible. The difference between the threshold and Malaysia’s GNI per capita over the years is getting smaller. In 2019, we are only US$ 1,306 below the threshold.

However, when compared to other countries that achieved high-income status in recent decades, Malaysia is growing more slowly. The country has a lower share of employment at high skill levels, and greater inequality. There is also a growing sense that the aspirations of Malaysia’s middle-class are not being met and that the proceeds of growth have not been equitably shared between the richest and the poorest.


Adding labour and capital is not sufficient to maintain growth, let alone to ensure that its benefits are shared equitably. Malaysia needs to use its resources more efficiently, produce new ideas and products, expand markets, and increase productivity.

Even more important, Malaysia needs to ensure that it achieves broader economic development by focusing on the quality, and not just the quantity, of economic growth that involves far more than merely increasing per capita income. Its ultimate end is to enable its citizens to enjoy greater freedom and ability to determine their own preferred outcomes. What worked in the past will not work in the future. Malaysia needs an enhanced social contract between the state and the country’s citizens. It needs to account for a more diverse set of incentives and more dynamic, heterogenous drivers of growth. And that requires some honest soul searching, which the present Government will avoid because of its political ramifications.

 

Reference:

Aiming High: Navigating the next stage of Malaysia’s development, World Bank Group, 16 March 2021

 

Tuesday, 23 March 2021

Retail Growth in 2021 Not Exciting?

 

On 9th March 2021, Vasantha Ganesan of The Edge reviewed retail growth in 2021. The Malaysian retail industry registered its worst performance in over two decades last year, contracting by 16.3% and recording only RM90 billion in retail sales. This was due to Covid-19 pandemic which forced people to stay home and retail stores remained shut. For 2021, the industry is expecting to grow 4.1% and ring-in sales to the tune of RM93.7 billion. In 2019, the country’s retail sales expanded by 3.7%, translating into RM107.5 billion.

Malaysia’s retail industry recorded the worst performance in 22 years. In 1998, retail sales in Malaysia dropped by 20%,” Retail Group Malaysia (RGM) managing director Tan Hai Hsin said in the latest edition of the Malaysia Retail Sales Report (March 2021). In 2020, retail sales contracted for four consecutive quarters at 11.4%, 30.9%, 9.7% and 19.7% respectively.

For this year, RGM has cut its growth projections to 4.1% from 4.9%, after major states nationwide were once again placed under the movement control order (MCO).

“Interstate travel ban is expected to be enforced for longer period of time and it has been affecting domestic tourism spending,” Tan said.

“The return of foreign tourists will be slow and gradual. Travel bubbles with selected countries will likely begin towards end of this year,” he added.

Tan noted that vaccinating the majority of the population will take a while and expected movement restrictions and social distancing measures to be in place until the end of the year.

“For the entire year, consumers’ spending is not expected to recover back to 2019 level,” Tan emphasised. Sales in 1Q2021 is estimated to shrink by 13.4% with department store operators expecting to contract by 47.4%, while supermarkets and hypermarkets will decrease by 14%. However, a recovery of 7%, 4.1% and 13.9% respectively is anticipated over the next three quarters.


In 2020, most of the retail sub-sectors contracted by double digits, with the department store, and fashion and fashion accessories segments shrinking the most at 38.3% and 37.9% respectively.

The only two sub-sectors which grew last year were the mini-markets, convenience stores and cooperatives which expanded by 14.8%, and furniture and furnishings, home improvements and electrical and electronics (E&E) which grew by 0.4%. All other retail sub-sectors contracted by double digits. (see table for specific sub-sectors).

Meanwhile, in the October to De­cember 2020 (4Q20) period — tradi­tionally a very strong quarter for re­tailers due to the year-end holidays, Christmas shopping and back-to-school shopping — retail sales contracted by 19.7% from a year earlier, after the sec­ond conditional movement control or­der (CMCO) was enforced in the Klang Valley on Oct 14, 2020.

The Klang Valley accounted for 60% of the country’s retail sales. Retail sales were further dragged down when the CMCO was later extended to include all states ex­cept Sarawak until the end of 2020, ac­cording to the report.

In 4Q20, the retail sub-sector that was the worst hit was the fashion and fashion accessories segment, which contracted 49.6%. Another segment that was bad­ly hit was the department store category, which slumped 44.7%, according to the Malaysia Retail Sales Report.

On a positive note, at least two retail sub-sectors expanded. The furniture and furnishing, home improvements and E&E segment grew 11.7%, while the mini-mar­ket, convenience store and cooperative seg­ment grew 10.2%, it said.

Unless disposable income increases, jobs pick-up, tourism recovers, domestic consumption will remain muted. Government cash transfers are for essentials and will not change subdued retail sales. Meanwhile, we will see mall closures and retail outlets shuttered until overall tempo of economic activity improves, hopefully by 2022.

 

Reference:

1.     Vasantha Ganesan, Pace of retail growth in 2021 won’t undo 2020’s devastation, says RGM, 9 March 2021, The Edge

2.     Retail sales slump to worst showing since 1998 Asian financial crisis, 8 March 2021, Free Malaysia Today

Monday, 22 March 2021

ASEAN: Key Perspectives and Issues


Just like the rest of the world, Southeast Asia is preoccupied with the COVID-19 pandemic and recovery process. The threat to health from COVID-19 (76.0%) is currently the region’s most pressing concern, followed by unemployment and economic recession (63.0%) and the socio-economic gaps and income disparity (40.7%). Terrorism is ranked last (5.2%), after deteriorating human rights conditions (12.6%). This is based on a Survey Report 2021 of the ASEAN Studies Centre at the ISEAS Yusof Ishak Institute.

Southeast Asians’ top concern about ASEAN is that it is slow and ineffective and thus cannot cope with the fluid political and economic developments (71.5%). In the same vein, 52.4% worry that ASEAN is unable to overcome the current pandemic challenges. Geo-politics is also not far from everyone’s mind as 69.1% fear that ASEAN is becoming an arena of competition among major powers and its members may become their proxies. Fears that ASEAN may become irrelevant in the new world order is ranked last (22.1%).


The majority of Southeast Asians (60.7%) approve of their governments’ response to COVID-19. A large majority (84.8%) of these approving respondents feel that their governments have acted effectively in implementing public health measures to mitigate the outbreaks. In terms of what governments can do better to address the pandemic, 49.0% feel that financial relief and subsidies are needed.


In terms of COVID-19 leadership, respondents vote almost equally for Singapore (32.7%) and Vietnam (31.1%) for providing best leadership to ASEAN. In terms of provision of COVID-19-related assistance, 44.2% pick China, followed by Japan (18.2%) and the EU (10.3%) as providing most help to this region.

If forced to align oneself in the on-going US-China rivalry, the majority of respondents choose the US (61.5%). China as a choice dropped from 46.4% in 2020 to 38.5% in 2021, even despite intensive COVID-19 diplomacy seen in the region. When asked how ASEAN should best respond to Beijing and Washington’s barbs, the majority (53.8%) prefer to have ASEAN enhance its own resilience and unity to fend off their pressures.

China remains the undisputed influential economic power in the region according to 76.3% of respondents. Majority of those (72.3%) who view China in this way point to worries about its growing economic influence. China continues to be seen as the most influential political and strategic power (49.1%), which also engenders considerable anxiety over Beijing’s strategic clout in the region (88.6%).

In contrast, even with out-of-control COVID-19 outbreak, record number of deaths, pandemic-induced recession, racial tensions and assaults on democracy in the US, the region is still welcoming of Washington’s strategic influence (63.1%), an increase from 52.7% last year. Likewise, the share of respondents having confidence in the US as a strategic partner and provider of regional security increased from 34.9% to 55.4% this year. This positive view of the US may well be attributed to the anticipation that the Biden Administration will elevate American engagement with the region (68.6%).

Expectations of different players in alleviating the stresses on multilateral free trade and the championing of international law continue to be divided. Southeast Asian respondents (32.4%) view the ability of the European Union (EU) to provide leadership in maintaining a rules-based order and upholding international law positively. Respondents are equally split between the US (22.5%), the EU (22.2%) and ASEAN (20.6%) in the ability to champion international trade.


In this global leadership vacuum, Southeast Asians exhibit a steadfast partiality for openness and integration to respond to rising protectionism and nationalism around the world. 50.7% prefer that ASEAN “deepen cooperation with like-minded multilateralist partners beyond ASEAN”, followed by strengthening of ASEAN institutions that support the rule of law (26.8%) and hastening regional integration within ASEAN (20.2%).


ASEAN continues to express concerns over the South China Sea (SCS) situation. 62.4% are concerned about China’s militarisation and assertive actions, followed by Chinese encroachments in the exclusive economic zones and continental shelves (59.1%). The third-ranked concern (45.2%) is a US-China military confrontation that may lead to a political crisis. A large majority (84.6%) want ASEAN to adopt a principled stand on the SCS that upholds international law, and 80.8% agree that a code of conduct in the SCS must be aligned with international law.


The majority of Southeast Asians (72.2%) suggest ASEAN should discuss the Mekong River issues in its agenda. 46.3% in this cohort are concerned about the Mekong’s environmental problems and their impact on regional food security while 32.9% regard the Mekong as a geo-political space where ASEAN should play a more active role.


The EU and Japan are the clear front-runners for ASEAN’s most favoured and trusted strategic partners in the hedging game against US-China rivalry. Japan (67.1%) remains the most trusted power in the region. The EU comes in second place at 51.0% with many viewing the EU as a reliable champion on issues such as the rule of law, global governance, free trade, sustainability and climate change. In the meantime, the US makes a surprising turn-around with a 18.0% jump in trust ratings while the China trust deficit is trending upwards from 60.4% in 2020 to 63.0% in 2021.

 


The above responses provide a basis and framework for ASEAN to strengthen strategic partnerships to develop a coherent strategy in dealing with the pandemic, especially in procurement and supply of vaccines; the Myanmar governance issue; trade relations with China and/or the U.S.; and, the geopolitical tensions in the South China Sea and the region.

Reference:

The State of Southeast Asia: 2021 Survey Report, ASEAN Studies Centre, ISEAS, Yusof Ishak Institute

Friday, 19 March 2021

Is There Cautious Optimism for 2021?

 

With the nationwide vaccination campaign in progress, things might start looking up for businesses according to Star Report on Wednesday, 17 March 2021.

While Malaysia’s gross domestic product (GDP) will likely contract in the first quarter owing to the second movement control order (MCO 2.0), the overall impact will be less severe compared to the first MCO last year.

For comparison, the government estimates daily economic losses during MCO 1.0 to be around RM2.4bil but for MCO 2.0, it is gauged to be around RM70mil a day.

World Bank Group macroeconomics, trade and investment global practice lead economist Richard Record said the bulk of global vaccine deployment will be completed this year in most economies, leading to strong recovery and demand, as well as boosting trade and commodity prices.

Although he projected global growth of 4.0% and between 5.6% and 6.7% for Malaysia, he noted that there are risks to growth that are linked to the Covid-19 pandemic, such as any unexpected delays in vaccine rollout.

AmBank Research expects Malaysia’s GDP growth to hover at 5.2% and 5.9% with Maybank Investment Bank Research maintaining its 5.1% projection and Fitch Solutions revising its forecast from 10.0% to 4.9%.

Despite the positive growth outlook, that does not mean the year will be smooth sailing for businesses, especially small and medium enterprise (SMEs). These businesses continue to grapple with the aftershocks form the MCO 1.0 and MCO 2.0 period.

Cash flow, as always, remains a core worry for smaller businesses. A survey by the Associated Chinese Chambers of Commerce and Industry of Malaysia revealed that SMEs cannot survive for more than three months with zero cash flow.



Among the initiatives that have alleviated the pinch is the RM2bil National Economic Recovery Plan (Penjana) SME Financing scheme.

The government has approved nearly 7,000 applications with a total loan value approximating RM1.32bil, prioritising SMEs that have not previously received bank loans.

As for Penjana Micro Credit Financing, a total of RM391.9mil has been channelled to 11,708 micro-SMEs, while Perbadanan Usahawan Nasional’s RM200mil Bumiputera Relief Financing has benefited 641 SMEs with total funding of RM182.8mil as at Feb 26.

On March 17, Tan Sri Muhyiddin Yassin announced a RM20 billion Pemerkasa economic stimulus package. Under this package, small businesses could benefit as follows:



With MCO 2.0 not a full lockdown, SMEs that have survived were still able to generate enough income to scrape by.

That said, even with hope on the horizon, there is no denying that there are still more obstacles to come for SMEs, which will have to persevere and innovate to not only survive but have sustained growth.

The fear of shutdown still looms. It is best to be reminded that is just 6 months (March-September 2020) over 32,000 SMEs were shut. Why? Cashflow, cashflow, cashflow! No business can survive indefinitely if products/ services are not sold or purchases are deferred. But hopefully, we will see better times by second half of 2021.

 

Reference:

1.     Cautious optimism for 2021, 17 March 2021, The Star

2.     Pemerkasa: Something all can look forward to, 18 March 2021, The Star

Thursday, 18 March 2021

Employee Monitoring: Do You Need It? (Part 2)


We posted more of the pros on employee monitoring last week, showing you why you may need a monitoring system for your company. In today’s article, we will discuss about the cons and what you may need to be aware of.

https://www.employmentcrossing.com/

1. Privacy Concerns

Employee monitoring comes with its fair share of potential privacy concerns. Most employees may be worried that you’re monitoring even their non-work hours. They fear that their private conversations are being recorded and that their passwords are at risk.

Some countries have very strict laws when it comes to monitoring, and employers must abide by them. Unfortunately, the case is that some don’t, and that same laws do have loopholes which can be easily used to the employer’s advantage. And some employers even monitor their employees without them knowing.

2. Ethics of Employee Monitoring

Spying on employees or monitoring their computer activity may cause ethical problems. To what extent employers can track their employees? What will the employers use the data for? Are employees bank account details protected?

3. Potential Trust Breakdowns

An installation of monitoring system may indicate that employers do not trust their employees. Employees will feel like all their prior work counts for nothing and that you need to spy on them because you still doubt their commitment. This will lead to a toxic work environment, diminished employee morale and potentially higher employee turnover!

4. Who will watch the watchers?

You’ve got people who are watching the data being collected, but who is watching the people that monitor the employees and the data? Eventually there will need to be a person or in larger cases of employee monitoring, a team that oversees the implementation of standards while understanding their position’s power and how it can lead to abuses.

 

Employers should start monitoring ONLY after you have got your employees’ consent to do so. The best way to do this is to explain why are you monitoring them and have them sign a form agreeing to employee monitoring. Let them know that this is now a standard company policy. This isn’t personal or targeted at them – everyone in your company – from junior employees to executive leadership are using it. Choose monitoring software that track only the time your employees spent on work and restrict the websites where they can access during working hours, this may reduce the privacy concerns from your employees. Lastly, employee monitoring may enhance your business productivity but trust is still the key to success!

 

Reference:

1.     Pros and Cons of Employee Monitoring: Does It Increase Productivity? https://biz30.timedoctor.com/

2.     The 7 Pros and Cons of Employee Monitoring https://www.employmentcrossing.com/

Wednesday, 17 March 2021

China’s Social Inequality a Cause for Concern?

 

China’s social inequality increased significantly since its “reform and opening up” process in 1979. In 1980, China’s Gini coefficient (a measure of inequality) stood at 0.3, according to People’s Daily; in 2012, it was at 0.49. 

The Gini coefficient measures inequality on a scale of 0 (perfectly equal) to 1 (perfectly unequal); any country with a Gini coefficient over 0.5 is considered highly unequal. A coefficient of 0.4 is generally considered to be a warning level. For comparison, the most recent World Bank estimates for the Gini coefficients of the world’s other top economies — the United States, Japan, and Germany — were 0.41, 0.32, and 0.3, respectively.

A report from one of China’s Peking University found that wealth and income inequality in the country is getting steadily worse. According to the report, one-third of the country’s wealth is owned by the top 1 percent of households, while the bottom 25 percent account for only 1 percent of wealth.

According to Thomas Piketty (Prof. of Economics) and Li Yang of the Paris School of Economics (PSE), the share of national income earned by the top 10 per cent of the population has increased from 27 per cent in 1978 to 41 per cent in 2015, while the share earned by the bottom 50 per cent has dropped from 27 per cent to 15 per cent. The bottom 50 per cent of the population used to have about the same income share as the top 10 per cent, while their income share is now about 2.7 times lower. Over the same period, the share of income going to the middle 40 per cent has been roughly stable. (See Figure below.)

Income inequality in China, 1978-2015: corrected estimates

Note: Distribution of pretax national income (before taxes and transfers, except pensions and unempl. insurance) among adults.Corrected estimates combine survey, fiscal, wealth and national accounts data. Raw estimates rely only on self-reported survey data. Equal-split-adults series (income of married couples divided by two). Pre-2006 series assume that the tax/survey upgrade factor is the same as the one observed on average over the 2006-2010 period when national-level tax data exist.

 

According to PSE, the level of inequality in China in the late 1970s used to be less than the European average – closer to those observed in the most egalitarian Nordic countries – but they are now approaching a level that is almost comparable with the USA. In 2015 the bottom 50 per cent in China earned approximately 15 per cent of total national income versus 12 per cent in the USA and 22 per cent in France; while the top 1 per cent earned about 14 per cent of national income, versus 20 per cent in the USA and 10 per cent in France. (See Figures below.)

Bottom 50% vs top 1% income share: China vs US


Note: Distribution of pretax national income (before taxes and transfers, except pensions and unemployment insurance) among adults.Corrected estimates (combining survey, fiscal, wealth and national accounts data). Equal-split-adults series (income of married couples divided by two).Pre-2006 series assume that the tax/survey upgrade factor is the same as the one observed on average over the 2006- 2010 period when national-level tax data exist.

 

Bottom 50% vs top 1% income share: China vs France

Notes: Distribution of pretax national income (before taxes and transfers, except pensions and unemployment insurance) among adults.Corrected estimates (combining survey, fiscal, wealth and national accounts data). Equal-split-adults series (income of married couples divided by two). Pre-2006 series assume that the tax/survey upgrade factor is the same as the one observed on average over the 2006- 2010 period when national-level tax data exist.

Comparing the average annual growth rate of real per adult pre-tax national income for different income groups in China, U.S. and France from 1978-2015, the top 1 per cent of the income distribution experienced a growth rate of 8.6 per cent in China, 3.0 per cent in the USA, and 1.4 per cent in France. However, the average annual growth rates for the bottom 50 per cent in China and the US are significantly lower at 4.5 per cent and 0 per cent respectively, while the same figure was 0.9 per cent in France. For the time being, China’s development model appears to be more egalitarian than that of the United States, but less than that of European countries.

For China’s government, social inequality is worrying because of the potential threat it poses to social stability – particularly in a country whose government remains nominally communist. A survey by People’s Daily before the National People’s Congress in 2015 listed wealth inequality as the top issue China’s people wanted their government to tackle. Meanwhile, treating the symptoms of wealth inequality – ensuring equal access to education as well as providing universal health insurances and pensions for the elderly – dominated Chinese netizens’ wishlist. That concern of social stability is applicable in Malaysia, India or other parts of the world when Gini coefficient is above 0.4.

 

References:

1. Report: China’s 1 percent owns 1/3 of wealth, Shannon Tiezzi, The Diplomat, Jan 15, 2016

2. Income inequality is growing fast in China and making it look more like the US, https://blogs.lse.ac.uk, April 1, 2019