China: Class 5The Distribution of

Well-Beingwithin China

Good source

Kahn and Riskin. 1998. Income and inequality in China, China Quarterly.

Data sourcesTwo household sample surveys

conducted by an international team of economists using standard international definitions. 1988 (20,000 households)1995 (15,000 households)

definition of “income” is disposable income, net of taxes. Tried to be comprehensive (e.g. housing subsidies)

Rural HouseholdsIncome source 1995 % 1988% Real growth

rate(annual %)

Total income 2,309 yuan 4.7Individ. Wages 22.4 8.7 19.8Receipts fromenterprises

6.1 2.4 19.5

Net income (arm &non-farm householdactivity)

55.1 74.2 0.62

Income from property 0.43 0.17 19.4Rental value of ownedhousing

11.61 9.67 7.48

Net transfer from state& collective

-0.48 -1.90 -14.07

Other income 3.85 6.71 -3.29***Gross value of self-consumption of food

28.6 41.1 -0.61

Urban HouseholdsIncome source 1995 % 1988% Real growth

rate(annual %)

Total income 5,706 yuan 4.48Cash income ofworking members

61.3 44.4 17.3

Income of retired 11.7 6.8 12.8Private/individualenterprises

0.53 0.74 -0.31

Income from property 1.27 0.49 19.6Housing subsidy inkind

9.74 18.14 -4.40

Other net subsidies 1.25 20.94 -69.82Rental value of owner-occupied housing

11.39 3.90 21.78

Other income 2.84 4.53 -2.30

Income distributionGini index. Higher the value

the greater the inequalityContribution to inequality of an

income source. Will depend on:distribution of that income sourcesize of that income source

relative to total incomeFraction of total income to

different decile groups

Rural Income Inequality, 1988 1995

Gini index of inequality .338 .416Contrib. of wages 18.3 39.7Contribution of income from householdactivities

61.8 37.9

Proportion of all income held by:-----bottom 10th .023-----top 10th .339Proportion of wage income held by:---bottom 10th .004-----top 10th .646Proportion of farm income held by:-----bottom 10th .033-----top 10th .185

Urban income inequality1988 1995

Gini index of inequality .233 .332Contrib. of cash income of working 33.9 45.6Contribution of housing subsidy 24.2 15.1Contribution of other subsidies 16.9 1.1Proportion of all income held by:-----bottom 10th .034-----top 10th .274Proportion of cash income by workingmembers held by:---bottom 10th .039-----top 10th .203

Summary Gini indexes.China (1995) .452

China (1988) .382

Thailand .462

Malaysia .484

Philippines .407

Brazil .634

Mexico .503

Chile.565

Regional Inequalitywithin China

Major Chinese Regions

Two basic measures of the level of regional economic

inequality are typically used

• Standard Deviation--a measure of the ABSOLUTE level of inequality

1/)( 2 NYYS•Coefficient of Variation (V)

)/( YSV

Background Considerations

Inheritance of lop-sided economystrong commitment to more

balanced distribution of productive capital and income

substantial redeployment of productive capacity>2,000 large enterprises established

in West and Central China (1956-78)efficiency sacrificed for equity

Provincial and regional CVs for per capita income pre reform period

0

0.2

0.4

0.6

0.8

1

1953-57

1958-62

1963-65

1966-70

1971-75

1976-80

Inter-provincial CV

Inter-regional CV

Why the increasing regional inequality???

• A lot of investment was modestly productive

• Chinese ‘Price Scissors’ policy– deliberately underpriced energy,

agriculture and other primary goods– poor provinces were natural resource

based– price policy transferred profit/income

out of these regions

emphasis has shifted to efficiency

UNDP’s Human Development Report (1994) expresses concern about excessively large regional gaps.

Since 1978

Regional Inequality

Good source:

Wang and Hu. 1999. The Political Economy of

Uneven Development: The Case of China.

The Province is the basic unit of analysisconstitute functional, economic,

administrative and political unitsTwo separate analyses. With and

without Beijing, Shanghai and Tianjin. 3 major metro. areas.

per capita GDP is primary indicator of regional economic welfareuse region-specific GDP deflators to

express values consistently in 1978 yuan.

1978 provincial per capita GDP values range from 46% to 179% of national average.

1994 values range from 43% to 176%.In both periods, B,S,T are totally off

the scale (250% to 650% of the national average)

Clear regional patterning espec. in 1994. All the high income provinces (120%+) are in the Eastern Region.

Trends in the level of regional inequality?

Excluding Beijing, Shanghai,Tianjin

Using a relative measure

With and without metro areas

INTERNATIONAL COMPARISONS

0 0.2 0.4 0.6 0.8 1

China(with BST)

Greece

Germany

Canada

Italy

Britain

South Korea

Indonesia(incl. Jakarta)

CV

India

U.S.

Portugal

Japan

France

Spain

China (without BST)

Alternative indicators of well-being

Indicator CV Correlation withper capita GDP

TV sets per 100 rural households 33.46 .68Newspapers (copies per person) 27.50 .75Telephones per 100 persons 93.89 .97Illiteracy rates (%) 54.21Mean school years (year) 19.65Medical personnel per 100,000 45.65Hospital beds per 100,100 36.85Infant mortality per 1,000 live births 65.25Life expectancy at birth (years) 5.19