Abstract

This paper argues that after a quarter century of sharp and sustained increase, Chinese inequality is now plateauing and, according to some measures, even declining. A number of papers have been harbingers of this conclusion, but this paper consolidates the literature indicating a turnaround, and provides empirical foundations for it. The argument is made using a range of data sources and a range of measures and perspectives on inequality. The evolution of inequality is further examined through decomposition by income source and population subgroup. Some preliminary explanations are provided for these trends in terms of shifts in policy and the structural transformation of the Chinese economy. We relate the turnaround to two classic phenomena in the development economics literature—the Lewis turning point and the Kuznets turning point. The plateauing is not yet a full blown decline, and there are short term variations. But the narrative on Chinese inequality now needs to accommodate the possibility of a turnaround in inequality, and to focus on the reasons for this turnaround.

Highlights

  • Alongside the spectacular growth and extraordinary reductions in poverty, perhaps the most dramatic in human history, the evolution of Chinese income inequality since the start of the reform process in 1978 has been a focus of interest among analysts and policy makers

  • With changes in the economic structure and new policy tools introduced in recent years, a revisit of Chinese inequality should give us the latest information about its evolution and the impacts of these economic and policy changes on income distribution

  • Household-level data are from two surveys, the Chinese Household Income Project (CHIP) and the China Family Panel Studies (CFPS)

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Summary

INTRODUCTION

Alongside the spectacular growth and extraordinary reductions in poverty, perhaps the most dramatic in human history, the evolution of Chinese income inequality since the start of the reform process in 1978 has been a focus of interest among analysts and policy makers. Household-level data are from two surveys, the Chinese Household Income Project (CHIP) and the China Family Panel Studies (CFPS). While the public RUMiC data are based on a different questionnaire from previous waves of CHIP and have no income component details, CHIP 2007 has a restricted nationally representative NBS sample dataset that is consistent with the previous waves. There should be no systematic distortion on the aggregate level, as there is no cutoff year in which the statistical approach changed for all This is the data base for our assessment of Chinese inequality trends over the last 20 years. We proceed to a description of the overall trends and the decomposition patterns in the data

TRENDS
B: Adjusted income
DECOMPOSITIONS
TTTTTT
Findings
SOME EXPLANATIONS
CONCLUSION
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