ECONOMIC GROWTH AND INCOME INEQUALITY IN CHINA

Chang LIU

Agenda

Background Causes of inequality Features different from other

developing countries Implications for economic growth in

the future

Background

Economic reform High GDP growth rate Greater income inequality was

necessary to provide the incentives in economic transformation

Inequality increased rapidly

Table 1. The Gini Coefficient of Income Inequalityfor Selected Large Developing Countries, Circa 1988 and Circa 2007

Causes of inequality

Urban biased policies

Institutional factors -- Hukou system

Geographical factors

Gaps in access to education & healthcare

Barriers to employment & career progression

Features different from other developing countries

unusually high urban–rural income

inequality

unusually high interregional inequality

nonagricultural income dominates rural

income inequality

Figure 1. Per Capita Annual Income of Chinese Urban and Rural Residents, 1978–2004 (yuan)

Implications for China’s Economic Growth in the Future

The fight against poverty and inequality should still focus on the rural sector, but sufficient attention should be given to the issues of unemployment and social security in the cities.

Poverty reduction should not just rely on income growth, but on the reduction of inequality as well.

Implications for China’s Economic Growth in the Future

Have a clear regional development strategy that favors the disadvantaged areas

Allow more free movement of labor and capita between the two sectors. Open up the inland areas for more international trade and investments. Production in the poor rural areas needs to be diversified out of pure agricultural activities

Funds should be used to invest in long-term projects, such as education, health care, microfinance, transportation, and telecommunications

References

Growing inequality and poverty in China, Shujie Yao, Zongyi Zhang, Lucia Hanmer Income Disparity in China and Its Policy

Implications, Fuzhi Cheng Inequality: Recent Trends in China and

Experience in the OECD Area Poverty, Income Inequality, and Economic

Growth in China, Jiantuo YU Urbanization and Urban-Rural Inequality

in China: A New Perspective from the Government’s Development Strategy, Justin Yifu Lin, Binkai Chen

References

China in Focus: Lessons and Challenges, OECD

Urban Trends and Policy in China, Lamia Kamal-Chaoui, Edward Leman,

Zhang Rufei Spatial inequality in education and

healthcare in China, Xiaobo Zhang, Ravi Kanbur

Inequality in China: An Overview, John Knight

Questions