A Pause in the Growth of Inequality in China?

In recent years, policymaking in China has put increasing emphasis on stemming the growth in inequality, which had been fairly steep since the 1980s. Policy action has taken the form of regional development measures and of reforms of various aspects of the social safety net broadly defined. The Western Development Plan has aimed at narrowing the income gap between the sparsely populated and under-developed West and the more prosperous and faster-growing East. The bulk of the expenditure, however, has been on large capital-intensive projects rather than on education and other social spending. More emphasis on education would help reduce the income gap, since human capital is a key determinant of income. Government policies to improve conditions in rural areas nationwide have involved a substantial reduction in the burden of regressive taxes and fees. Welfare assistance has also evolved: a minimum living allowance has been introduced in urban and more recently in rural areas, but it has not reduced poverty that much, not least because of how it is administered. Moreover, the financing of this allowance ought to rely more on national solidarity and its delivery needs to be better co-ordinated with that of other social benefits. A set of new indicators of nationwide inequality, based on household survey data, suggests that overall inequality has ceased to increase in recent years, and may even have inched down. Alternative measures of income inequality across provinces show that, if migration is taken into account, disparities are markedly less, and have tended to decline somewhat in recent years. Even so, geographical inequality remains very high by international standards. It reflects intra- more than inter-provincial differences, pointing to persistent, if diminishing, labour market segmentation.