Why has China’s Inequality of Household Wealth Risen Rapidly in the Twenty‐First Century?

Abstract

The inequality of wealth in China has increased rapidly in recent years. China presents a fascinating case study of how inequality of household wealth increases as economic reform takes place. Wealth inequality and its growth are measured and decomposed using data from two national sample surveys of the China Household Income Project (CHIP) relating to 2002 and 2013. The changing relationships between income and wealth are explored. An original attempt is made to explain the rising wealth inequality in terms of differential saving, differential house price inflation, income from wealth, and a growing urban‐rural wealth disparity. Income from wealth as conventionally measured makes a negligible contribution but becomes central when it is reformulated to include real capital gain as part of income. A series of counterfactual experiments are conducted in order to measure the contributions of the various factors to the rise in inequality. Wealth and wealth inequality increase most rapidly for those in the top wealth decile.