1. Income Distribution and Economic Growth in China During Past Three Decades Xie Jing Renmin University of China

2. Main points Introduction of the problem of China s growth and income distribution Introduction of the problem of China s growth and income distribution Main problems of income distribution Main problems of income distribution How does income distribution affect China s economic growth How does income distribution affect China s economic growth Conclusions Conclusions

3. Introduction of China s growth and income distribution During 2001 to 2003, Chinese economy increased by 10% every year; but the real income of the 10% poorest people decreased by 2.4%. China s gini coefficient has reached 0.45.(world bank) During 2001 to 2003, Chinese economy increased by 10% every year; but the real income of the 10% poorest people decreased by 2.4%. China s gini coefficient has reached 0.45.(world bank) Russia s economy increased by 6% from 1999 to 2006, and the total salaries and individual income increased by 500%. Considering the inflation, real salary income in Russia increased more than 200%. Russia s economy increased by 6% from 1999 to 2006, and the total salaries and individual income increased by 500%. Considering the inflation, real salary income in Russia increased more than 200%. The lowest living standard in Moscow is 5124 ruble (1700 RMB) per month, while this number in Beijing is 448 RMB, 26% of Moscow. In Harbin, the capital of Heilongjia province which borders on Russia, this number is 200 RMB. This standard was made in 1997, and had not been changed till now. The lowest living standard in Moscow is 5124 ruble (1700 RMB) per month, while this number in Beijing is 448 RMB, 26% of Moscow. In Harbin, the capital of Heilongjia province which borders on Russia, this number is 200 RMB. This standard was made in 1997, and had not been changed till now.

4. Introduction of China s growth and income distribution The income of top 20% people is eighteen times of that of the lowest 20% people. (Chinese Academy of Social Science) The income of top 20% people is eighteen times of that of the lowest 20% people. (Chinese Academy of Social Science) According to UN s poverty standard (1 dollar consumption per person a day), there are still 200,000,000 poor people in China, the second largest number in the world, just a little smaller than India. According to UN s poverty standard (1 dollar consumption per person a day), there are still 200,000,000 poor people in China, the second largest number in the world, just a little smaller than India. In 2006, salaried persons contributed 60% of the whole tax income, while the rich contributed only 10%. In 2006, salaried persons contributed 60% of the whole tax income, while the rich contributed only 10%.

5. Introduction of China s growth and income distribution Did the income difference stimulate China s economic development, or will it harm the future growth in China? Did the income difference stimulate China s economic development, or will it harm the future growth in China? Unequal income distribution and poverty has been the main obstacles of China s growth. Unequal income distribution and poverty has been the main obstacles of China s growth.

6. Main Problems of Income Distribution Ceaseless widening of the income gap

7. Main Problems of Income Distribution Concentration of amassed wealth

8. Main Problems of Income Distribution Concentration of financial wealth in urban family(%) Classified according to financial assets value First group 20% Second group 20% Third group 20% Forth group 20% Fifth group 20%Total100% Total financial assets 1.34.99.817.666.4100 RMB financial assets 1.45.210.218.567.4100 Deposit1.25.010.418.764.8100 Bond0.33.08.415.872.5100 Equity0.43.06.215.474.9100 Foreign assets 0.30.94.95.888.1100 Deposit0.20.94.35.489.1100 Currency2.70.927.914.154.5100 Equity0.00.00.026.873.2100

9. Main Problems of Income Distribution Most of rural families get low income Pure income of different regions (RMB) region1990199519992002 Whole country 686.3177.742210.342253.42 Beijing1297.053223.654226.594604.55 Shanxi (north- west) 603.511208.301772.621905.61 Anhui (central) 539.161302.821900.291934.57 Shandong (east) 680.181715.092549.582659.20 Sichuan (south- east) 557.761158.291843.471903.60 Hainan Hainan696.221519.712087.462182.26

10. Main Problems of Income Distribution Year Absolute value Comparative contribution(%) UrbanRural Between urban and rural UrbanRural 19900.030.130.177.8838.9052.22 19910.030.130.187.8138.1254.07 19920.030.120.178.4337.7753.80 19930.030.120.198.4635.4456.10 19940.030.110.219.4731.5458.99 19950.040.110.2310.3029.4560.25 19960.040.110.2311.4628.8159.73 19970.040.120.2211.2030.6258.18 19980.040.110.2012.2531.5156.24 19990.050.110.2012.7431.5355.73 20000.050.100.2213.8626.8259.32 20010.060.110.2314.0427.5758.39 Extraordinary Gap Between Urban and Rural Families Urban-rural gap and its contribution to general income difference

11. Main Problems of Income Distribution The average income in China's east has been 2.26 times that of the west and it saw a three times difference between the highest and the lowest. The average income in China's east has been 2.26 times that of the west and it saw a three times difference between the highest and the lowest. In 2005, disposable income of west urban people was 66.7% of that of east, while in 2004 this rate is 69.7%. In 2005, disposable income of west urban people was 66.7% of that of east, while in 2004 this rate is 69.7%. In 2005, disposable income of west rural people was 44.2% of that of east, while in 2004 this rate is 48%. In 2005, disposable income of west rural people was 44.2% of that of east, while in 2004 this rate is 48%. In 2005, total regional economic growth rate in the west reached 12%. In 2005, total regional economic growth rate in the west reached 12%. Increasing Division Among different regions with rapid economic growth

12. How does income gap affect Chinese growth? Two opinions: income difference improves economic growth; income difference harms economic growth. Two opinions: income difference improves economic growth; income difference harms economic growth. Different analyzing method and empirical model. Different analyzing method and empirical model. First analyze the channels through which income gap affects economic growth. First analyze the channels through which income gap affects economic growth. Then test whether the income gap explain the different growth performance of regions. Then test whether the income gap explain the different growth performance of regions.

13. How does income gap affect Chinese growth? The formation of human resource Yield of education (by year)

14. How does income gap affect Chinese growth? The formation of human resource Yield of education (by educated level) Primary school high school technical school college University

15. How does income gap affect Chinese growth? Gap between deposit and loan increased from 1995 (billion) The over deposit and over production effect 199519992003200420052006 101504005709201067

16. How does income gap affect Chinese growth? social capital formation was mainly driven by government social capital formation was mainly driven by government The over deposit and over production effect

17. How does income gap affect Chinese growth? Excess producing capability, decreasing CPI and PPI (last year=100) The over deposit and over production effect 1993199419951996199719981999200020012002200320042005 CPI 114.7124.1117.1108.3102.899.298.6100.4100.799.2101.2103.9101.8 PPI 124.0119.5114.9102.999.795.997.6102.898.797.8102.3106.1104.9

18. How does income gap affect Chinese growth? Laid-off people, unemployment, lack of social security reduced the general consumption desire. Laid-off people, unemployment, lack of social security reduced the general consumption desire. Income gap between urban and rural area distort the structure of macro-economy. Income gap between urban and rural area distort the structure of macro-economy. Unequal income distribution pattern encourages corruption and injustice, intensifies social conflicts. Unequal income distribution pattern encourages corruption and injustice, intensifies social conflicts. Unstable social and economic circumstances

19. How does income gap affect Chinese growth? --------Empirical Analysis Explanatory variables Dependent variable: growth rate of GDP per person 2000-20041996-20001991-1995 GDP per person at beginning 0.003199 0.798051 0.798051 -0.027275 -0.809678 -0.809678 0.017596(0.506685) Education0.098693 0.798051 0.798051 0.157292 1.258446 1.258446 0.12333(0.986422) Rate of investment to income 0.186366 1.942065 1.942065 0.139722(1.442046) Gini coefficient -0.027945 -2.467765 -2.467765 -0.023614(-2.092666) R-squared0.4515660.3893140.513012 Included observations 878787 Income difference effects on economic growth (panel data)

20. conclusions The conclusion made by Barro(2000) that the enlargement of income difference is harmful to the economic growth in the country with per capita GDP lower than 2000 dollars is correct. The conclusion made by Barro(2000) that the enlargement of income difference is harmful to the economic growth in the country with per capita GDP lower than 2000 dollars is correct. Behind the rapid increase of growth rate there do exist some problems of income distribution which can not be neglected. Behind the rapid increase of growth rate there do exist some problems of income distribution which can not be neglected. Large income distribution gap is to be the serious obstacle of China s healthy economic development. Large income distribution gap is to be the serious obstacle of China s healthy economic development. To make the virtuous circle of economic growth and impartial income distribution has been the important task for China. To make the virtuous circle of economic growth and impartial income distribution has been the important task for China.

21. Resolutions Establish the redistribution system based on the benefit of disadvantaged group. Establish the redistribution system based on the benefit of disadvantaged group. Improve the taxation system, and reduce the burden of low income group. Improve the taxation system, and reduce the burden of low income group. Break the separation in regions and sectors, improve the reasonable market competition. Break the separation in regions and sectors, improve the reasonable market competition. Improve the social security coverage in urban and rural families. Improve the social security coverage in urban and rural families.