Structural transformation, inequality, and inclusive growth in China

In this paper, we analyse the relationship between China's structural transformation and the inclusiveness of its economic growth. China's economy has undergone significant structural changes since it initiated the economic reforms in 1978. Economic activities have shifted from the low-productivity agricultural sector to the high-productivity industrial sector and, more recently, the tertiary sector, with a large portion of the labour force moving from rural to urban areas, from inland to coastal regions, and from the public to the private sectors. These changes have only been able to happen because of major reforms to the land system, the Hukou system, the ownership of state-owned enterprises, and trade policies. Despite its great success in poverty reduction, China has witnessed rapidly increasing income inequality which only began to decline in the late 2000s. We analyse the political economy that determined the inclusiveness of the structural transformation. As the economy further transitions into services, the tension between structural transformation and its inclusiveness will depend more on the government’s ability to reform the current social security policies and pay more attention to disadvantaged groups.