As China experienced rapid economic growth in the mid-1980s, it also faced an accompanying downside: a widening income gap.
Today, even while the economy slows, income inequality remains high in China. The wealthy continue to grow richer while lower income households fare only somewhat better than before.
Research underscore this fact. Xu Tian at the College of Economics and Management and China Center for Food Security Studies at Nanjing Agricultural University and colleagues recently found that China’s provincial incomes are essentially converging into two groups: seven east-coastal provinces (Shanghai, Tianjin, Jiangsu, Zhejiang, Guangdong, Shandong and Fujian) and Inner Mongolia form a high-income group, and another containing the rest of the provinces in a low-income group. Inner provinces earned per capita incomes of only 60% of that in wealthier coastal provinces. Other differences, including ownership of capital, education level and population growth rate also impacted the widening of the gap between these two regions.
Other studies have reached the same conclusion. Economists at the Southwest University of Finance and Economics in Chengdu found that the Gini coefficient, which is the most widely used measure of inequality, was .61 in 2010. It remained relatively stable at .6 through 2014, close to the highest level of inequality in the world, found in Lesotho, which measures .63. The study found that the combined income of households in eastern coastal regions was 2.7 times that of households in inland regions.
Yu Xie and Xiang Zhou, of the University of Michigan, conclude that inequality has been rapidly increasing due to stark differences between rural and urban, as well as regional, incomes. Xie and Zhou find that China's Gini coefficient is in the range of 0.53-0.55. This is on par with inequality levels in Colombia or Venezuela, which are both oil-based economies with extremely low levels of development in some areas and corrupt governments. The following figure is from Xi and Zhou, showing the state of inequality in China versus the U.S.
Trends in Gini coefficient of family income in China and the United States
Source: Xie and Zhou. Gini coefficients from UNU-WIDER and CHIP 2007 are based on household... [+]
The following figure shows the rise in income in rural and urban areas in China over the past two decades. One can see that while urban income is rising rapidly, rural income is rising slowly, widening the gap between the two groups.
Per Capita Disposable Income in China, Rural and Urban (RMB)
Source: Statista
Shi Li and Haiyuan Wan show a distinct rise in wealth inequality in China, too. They find that wealth (as opposed to income) inequality reached 0.739 in 2010.
But China’s National Bureau of Statistics paints another picture. It has reported a somewhat declining Gini coefficient: from .49 in 2010 to .46 in 2015.
Part of this contradiction in findings—that inequality is rising or that it is falling—can be attributed to differences in which regions and sections are being studied, and which data set is used. But what tips our understanding of inequality in favor of the stubbornly static or widening, rather than shrinking, gap is evidence that the poor are not much better off than they have been, and the rich are.
While China has eradicated extreme poverty, the poverty line has declined as a percentage of average disposable urban income, from 26.7% in 1998 to 13.8% by 2010. This means, in effect, that to be considered poor, one has to be quite far away from middle class living standards.
And those who are quite poor are finding it increasingly difficult get government help. According to Dorothy Solinger, Professor Emerita of Political Science at the University of California, Irvine, in China Perspective, the Urban Minimum Living Standard, or dibao, has become more stringent. The purpose of this is to force any able-bodied individuals to work, leaving only the most desperate to obtain government assistance. While average supplements rose from 152 RMB per person per month in 2004 to 441 RMB in 2014, the dibao, as a percentage of income, have declined. In addition, requirements to receive the assistance have become stricter. A 2012 regulation required that anyone able-bodied should be employed rather than receive assistance, which is now reserved for the "diseased, disabled, and deserted."
And the new middle class is being squeezed. According to a study by Juzhong Zhuang and Li Shi at the Asian Development Bank, individuals in the middle, who have obtained tertiary education and are high-skilled workers, now face more slowly-growing wages than low-skilled workers. Wage growth for high-skilled workers has slowed from a peak of 20.3% in 2007 to 8.6% in 2014.
By contrast, China now has more billionaires than the United States, producing 568 as opposed to the U.S.’ 535, according to the Hurun Report. China’s rich are concentrated in the real estate, manufacturing and technology sectors. The number of high net-worth individuals has also risen, doubling between 2010 and 2014, according to a report from Bain and Company.
Wealth among the richest tier is growing rapidly, as they have better access to real and financial assets, as well as business ownership. As a result, improving social safety nets at the bottom rungs of society becomes ever more important to ensuring social stability, but, as the dibao illustrates, China has not been highly successful in this process. This is yet another item that China's leadership should put on the reform agenda as income inequality still festers in the country.
