Income inequality in China

Team Dubai 25th January

China downtown 1970 Source: hdwallsbox.com

 China used to a poor country

 GPD per capita in 1970 was 113,16 USD
 Its economy depended much on agriculture.
 A picture of Hong Kong Source: izbilir.com
 Nowadays, China is the world’s second biggest economy, after the
US
 GDP per capita reached 8,830 dollars in 2017
 China’s products are commonplace everywhere in the world.
China has been one of the greatest growing economies in the
world since the late 1970s, when it reforms the policies. Its GDP
has grown at an average rate of approximately 9% for almost
thirty years.
Source: The golden dragon capita
However, this incredible economic growth rate has
been accompanied by an alarming increase in income
inequality.
Source: Ong Xuan Hong
“Gini index is often used as a gauge of economic inequality, measuring income
distribution or, less commonly, wealth distribution among a population. The
coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect
equality and 1 representing perfect inequality.” (Source: Investopedia.com)
 Gini coefficients in China from 1981 to 2013
Increase is the general trend, it means that the gap between the rich and the poor
is getting greater and greater every year.
Source: Gini coefficients for the years 1981–2001 are from Ravallion and Chen (2007), 2002 from WIID,
2003– 2012 from the National Bureau of Statistics
 Reason
Income inequality in China has been
caused by three main factors :
Created by Dubai group .:: January 11th,
Location
2019

The standard of labors

The increase in migration from rural

areas to urban areas
9
Location

Poor road system in the countryside Modern roads in the city

In isolate places, transportation and the road system is not developed, so it is

difficult to do business. It leads to increase in the poverty.
The standard of labors
In urban areas, labors need high qualifications in order to work with advanced
technologies. Therefore, their salaries are usually higher than those in rural
areas.
 The increase in migration from rural areas
to urban areas
Population density of areas which is sparse usually lead to
decrease in economic growth.

In China, more and more people prefer living in the city rather than the
countryside, which in turn income inequality happens.
Regional income inequality
• The provincial incomes are converging into two
clubs: seven east-coastal provinces (Shanghai,
Tianjin, Jiangsu, Zhejiang, Guangdong, Shandong,
and Fujian) and Inner Mongolia are converging into a
high income club
• The remaining provinces are converging into a low
income club

https://www.sciencedirect.com/science/article/pii/S0264999316300
475?fbclid=IwAR3BFDwPn1UioDorfuZLowdGWnrBudMDuznwHq7
KMPBKdr6dwPJ6Oo68zqI
 Solution
- Addressing inequality income at a more systemic
level — by both leveling the playing field (equality of
opportunity) and redistributing income through policy
(equality of outcome).
 EDUCATION

-From 1996 to 2008, the average years of schooling

increased from 6.79 to 8.28 years. Today, nine years of
education is compulsory and virtually universal in China.
In 2006, all fees for compulsory education in rural
areas in western China were abolished and in 2007,
this policy was extended to central and eastern China.
 Minimum wage policy
• Since 2006 it has worked to raise minimum wages for migrant workers, improve rural
incomes through tax cuts and enforce labour contract law.

 There was a dramatic rise in minimum wages in China from 960 CNY/Month to 2420
CNY/Month in the period of 12 years , reaching an all time high of 2420 CNY/Month in
2018 and a record low of 690 CNY/Month in 2006.
 Relocation of industrial zones and
residential areas to rural regions
• The Chinese leadership also tries to force labor-intensive and low-
value added industries to move to rural areas.

 Farmers, lacking a higher level of vocational training, cannot automatically

change from working in the fields to making smart phones. But they can, for
example, work in a food processing plant, packaging food.
• Moving millions of people from homes in anti-
poverty drive

 “Xi Jinping always says that if we give the ordinary

folk a better life, the whole country will be well off.”
 Social Welfare Policies
• A policy to alleviate both urban and rural
income inequality is the minimum living
standard program (dibao).

• This was piloted in Shanghai in 1993. By

2003, the number of urban beneficiaries
had reached 22.5 million; since then, the
number of participants has fluctuated
roughly around this level.

• By 2011, 85.3 million were in receipt of

the pension( Li,2013).

Income inequality in China: Causes and Policy Responses Yixiao Zhou1 ,

 Reform of the taxation system
Level Monthly taxable Tax (%) Quick deduction
income yuan

1 From 500 yuan or less 5 0

• A progressive income taxation
requires high-income people to pay 2 Over 500 to 2,000 yuan 10 25

a higher rate of taxation than low-

3 Over 2,000 to 5,000 15 125
income people. yuan

4 Over 5,000 to 20,000 20 375

• Mr. Knight suggests that other types yuan

of taxes could be adopted to deal 5,6,7 … … …

with income inequality 8 Over 5,000 to 20,000 40 10 375
yuan

9 Over 100,000 yuan 45 13 375

Income inequality in China: Causes and Policy Responses Yixiao Zhou1 , Ligang
Charity
Jack Ma Foundation
• In 2014, he raised funds by using his own
personal property along with Alibaba Group
and some of Ma’s business partner in
healthcare, education and especially Ma’s
hometown.
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