Rising Regional Inequality in China: Fact or Artifact?

China’s local populations can be counted in two ways: people with hukou household registration from each place, and people actually residing in each place. For most of the first three decades of the reform era the hukou count denominated per capita GDP figures. Output and living standards were overstated in coastal provinces and understated in the interior. The distortion grew bigger as the non-hukou migrants increased to over 100 million. Much of the apparent increase in inter-provincial inequality is a statistical artifact caused by this distortion. The recent switch to using the resident count to denominate GDP introduced new distortions.