Why Is Income Inequality an Important Issue for the Chinese Society and Its Future Economic Growth?

Topics: Economic inequality, Gini coefficient, Poverty Pages: 7 (2207 words) Published: May 13, 2013
Why is income inequality an important issue for the Chinese society and its future economic growth?

Nowadays, China has become the second largest economy in the world. The GDP (gross domestic product) of china was growing at 9.7% per year in average since 1978, which the year of Chinese “open door” politic founded. China also has become the biggest producer and consumer in many key agricultural and industrial markets and the largest FDI recipient among the developing countries. The performance of china in developing of economy is called “china’s economic miracle”, which be studied by many economists. However, there are also bad results with the development of economy in china such as environment disruption, corruption and income inequality, which have been seen as important issues to Chinese society and its future economic growth.

The income inequality in china
The rising income inequality in china is seen as the most important issue to Chinese society and its future economic growth by many economists recently. The income inequality in china is complex and multi-dimensional, which is divided to four aspects that rural-urban income inequality, regional inequality, marginalisation and class formation.

The rural-urban income inequality actually has been existed in china since 1949. However, with the economic focus from agriculture shift to industry, the rural-urban income inequality gets large increased from 1984. These data which followed significantly showed the huge increasing of urban-rural income inequality in china

Figure 1 Urban and rural incomes per capita (1978-2006)

Figure 2 Ratio of urban/rural incomes per capita (1978-2006)

As shown in figure 1, the urban-rural income inequality per capita increased from 200 Yuan at 1978 to about 8,000 Yuan at 2006. The figure 2 also showed about the increasing urban-rural income inequality that the ratio of urban to rural income per capita increased from 2.5 at 1978 to 3.3 by 2007 though it lower to 1.8 at 1984.

The regional income inequality is mainly caused by the “open door” policy. The provinces near coast in china such as Guangdong, Jiangsu and Zhejiang have geographical advantage to get FDI (foreign direct investment) and export products. At the same time, the Chinese government made these places as special economic zones, which provided preferential tax policy to foreign investors to “make a few people rich first”. As the figure 3 showed below, the east only accounted for 42.8% population but get 86.9% FDI and 92.6% exports in china. The centre and west just get very little FDI and exports. Therefore, this policy tendency and geographical advantage made a deep gap between regional areas, mainly the southeast and northwest areas. Figure 3 Regional income inequalities in GDP, FDI, and exports in China in 2006

Figure 4 Regional income inequalities in per capita GDP, 1992 and 2007 at current prices

As shown in figure 4, the regional income inequality in per capita GDP was not significant in 1992 except few cities like Beijing and shanghai. However, the data showed that in 2007, there is an obvious income inequality per capita GDP between east and west, which the highest number is 7 times to the lowest number.

The Marginalisation and class formation are the other important aspects of income inequality in china. Economists usually use the Gini coefficients to describe the income inequality in a significant way. The Gini coefficient can range from 0 to 1; it is sometimes multiplied by 100 to range between 0 and 100. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, while higher Gini coefficients indicate more unequal distribution, with 1 corresponding to complete inequality. Generally, the income inequality is acceptable if the Gini coefficient range from 0.2-0.4, and we can see the Gini coefficients of China bellowed.

Table 1 Gini coefficients of the rural and urban...
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