11 - Decomposing Income Inequality: People's Republic of China, 1990–2005

Summary

Introduction

Rapid growth in the People's Republic of China (PRC), which began as it embarked on economic reforms in the late 1970s, has been accompanied by rising income inequality. During 1985–2006, the country's real per capita gross domestic product grew at an annual average rate of 8.5%. Such strong growth led to an unprecedented reduction in the incidence of poverty, from 32.5% in 1990 to 7.1% in 2005, measured by the $1-a-day international poverty line (Ali and Zhuang 2007). However, the Gini coefficient of per capita income also increased, from about 0.30 in the early 1980s to about 0.45 in 2001 at the national level (Ravallion and Chen 2007).

The literature on income inequality in the PRC is extensive. Researchers have used three types of data: unit-level household survey data, aggregate income data, and grouped household survey data. Due to the absence of consistent data covering the entire PRC, studies based on unit-level data often focus on a particular segment of the population, such as urban households (Cao and Nee 2005, Meng 2004) or rural households (Gustafsson and Li 2002), for isolated years. Aggregate data, often at the provincial level, have been used to investigate the spatial dimension of inequality (Hussain and Zhuang 1994, Kanbur and Zhang 2005).

More recently, attempts have been made to study the PRC's income inequality by extrapolating unit-level data from grouped household income data. Notable examples are Ravallion and Chen (2007) and Chotikapanich et al. (2007).