18 - Income Inequality during China's Economic Transition

Summary

INTRODUCTION

The primary motivation for China's economic reforms was to increase economic growth and raise living standards after nearly twenty years of stagnation. Given the move to more market-based income determination, the reforms had the potential to conflict with inherited egalitarian-motivated socialist institutions and rhetoric. To what extent have the reforms led to widening inequality? Who have been the winners and losers? Have the reductions in poverty that accompanied growth been sufficient to alleviate concerns over inequality? Do increases in inequality threaten the long-run sustainability of the reforms? Are there identifiable patterns in the evolution of the income distribution that suggest potential policy responses?

The objective of this chapter is to document the evolution of inequality, and the income distribution more generally, during the reform period and where possible to draw conclusions concerning the role that transition has played in increasing inequality. The centerpiece of our chapter is the assembly of three cross-section data sets that allow a relatively consistent calculation of inequality from the mid-1980s onward. It turns out that establishing “first-order” facts about Chinese inequality is quite difficult and that conclusions hinge on mundane (but important) issues of measurement and data quality. In this regard, it is unfortunate that much of the household-level survey data collected annually by China's National Bureau of Statistics (NBS) remains outside the public domain.