The Cause and Cure of China's Widening Income Disparity

Abstract

China's income disparity has been widening during the reform period, as the Gini coefficient of China rose from a low level of 0.33 in 1980 to 0.46 in 2000. Will this trend of widening income gap continue? This article makes the following arguments: First, China's income disparity is alarmingly high but the main reason for this disparity is the rural-urban income gap. Secondly, there is no secular trend of the income disparity. The disparity may either increase or decrease in near future. Finally, although the disparity may not further grow, it is likely to remain at a high level in coming years. There is no effective way to reduce the Gini coefficient or other measures for income inequality per se. The cure for this problem is to accelerate urbanization in the short-run and to promote the growth of the modern urban sector in the long run. Yet these policies in the short-run may further widen the measured income gap.

Keywords: Income disparity, China, Gini coefficient

JEL Classification: D3, O1, O5