Inequality in China

Question 1

Is China unequal

Answer 1

Yes. 146 billionaires in 2011 but 336 million people on under $2 a day. High and rising inequality.

Question 2

Implications of inequality in China

Answer 2

1. Domestic demand decreases, increased pressure on exports and trade imbalance.
2. Social cohesion - increased political instability, crime and civil unrest.
3. Growth and poverty - effects of growth on poverty are smaller with inequality, as benefits the rich only.
4. Decreased growth as inequality hinders economic growth.

Question 3

Explain wealth inequality and its causes

Answer 3

Wealth inequality is greater than income inequality.
1. Capital accumulation - increased returns and increased investment opportunities if rich invest in capital.
2. Rise in the price of property - enriched those that had wealth.
3. Financial market imperfections - access if often only available for a few.
The share of the top decile increased from 37% to 46% of total wealth.

Question 4

What are the determinants of inequality

Answer 4

1. Hukou system - household registration system meaning that surplus labour can’t move to the cities despite faster urban growth. This prevents potential migrants from sharing the dividends of growth in urban areas, but this increases the urban-rural and regional income gaps.
2. Policy issues - decentralised tax systems, poor regions can’t afford basic social services, therefore increasing current and future inequality.
3. Locational factors - coastal provinces better for exports, human capital but inland areas have more natural resources and faster population growth rates.
4. Trade and FDI - (imports+exports+FDI) / GDP is 65% in coastal provinces but <10% for central and western provinces.

Question 5

What are the interventions

Answer 5

1. Urbanisation - increasing minimum wage, abolishing agricultural taxes, increased public services provision and increased education so migrants can update their skills and get jobs in city.
2. Increased public spending in lagging regions, increased pensions, unemployment benefits, education and healthcare.
3. Increased FDI to central areas to phase out preferential costal policies.