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 Inequality for 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

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