22 Pages Posted: 29 Feb 2012
Date Written: January‐February 2012
China faces serious external (i.e. trade) and internal (i.e. structural) imbalances. Both are related to income inequality, reduction of which will help to increase domestic demand. This paper discusses how income inequality has evolved over time. This is followed by an exploration of the consequences of high inequality. Driving forces underlying the rising inequality are analyzed before providing concrete policy recommendations. It is found that inequality declined in the early period of reform, until the mid to late 1980s, and then began a rising trend up to 2010. Major determinants of inequality include: location, institutional and policy factors, trade and globalization, and education inequality and human capital gaps along rural–urban and spatial divisions. To achieve a balanced economy and a harmonious society, development policies in China must shift from emphasizing growth to prioritizing equality. In addition, government interventions can target rural–urban disparity through rapid urbanization, and tackle regional inequality by developing financial markets, ensuring progressive allocation of fiscal resources, promoting trade and foreign direct investment in inland China, creating more formal jobs and supporting the service sector.
Keywords: development policy, Gini index, income inequality, urbanization
JEL Classification: O15, C43, C63
Suggested Citation: Suggested Citation
Zhu, Cuiping and Wan, Guanghua, Rising Inequality in China and the Move to a Balanced Economy (January‐February 2012). China & World Economy, Vol. 20, Issue 1, pp. 83-104, 2012. Available at SSRN: https://ssrn.com/abstract=2013006 or http://dx.doi.org/10.1111/j.1749-124X.2012.01274.x
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