Launching Ceremony and Workshop of Status-Quo of China’s Income Gap and Impact Evaluation of Relevant Policies

On July 2, 2012, CDRF releases in Beijing its research report titled China’s Income Distribution at a Turing Period. This report analyzes the status-quo of China’s income distribution and its future trend, and evaluates how dozens of Chinese major reforms affect income distribution over the past decade, aiming to provide valuable reference for China’s institutional reform of income distribution in the next stage. As a key research project in CDRF, this project succeeds in gaining support of dozens of scholars from authoritative research institutes, such as the Development Research Center of the State Council, Chinese Academy of Social Sciences, Taxation Science Research Institute of State Administration of Taxation, Beijing Normal University, Renmin University of China, Peking University, Tsinghua University and the World Bank. 

Income distribution is one of the most important issues that attract nationwide attention. China has achieved remarkable growth since it initiated reforms and opening-up, but witnessed widening gap of income distribution over the past decades. According to CDRF report, China’s Gini Coefficient for residents’ income registered less than 0.3 in early 1980s, climbed to 0.45 in 2001 and further increased to 0.48 in 2007. A big income distribution gap is usually considered as a crucial cause for imbalanced economic structure and social injustice. Apparently Chinese government has realized the importance of this issue. Ever since the 1990s, particularly after 2003, China has launched a series of policies favorable for narrowing down income distribution, such as the strategies for balanced regional development, the campaign to intensify poverty alleviation, construction of new socialist villages, expanded supply of public service in sectors like public health and education. So what is the trend of China’s income distribution in recent years? To what degree do the above-mentioned policies help to curb the expansion of income distribution gap?

CDRF’s report holds that China’s income distribution has entered a turning period. During the past decade, China’s income distribution witnesses a widening gap while at a slower pace, and is expected to stabilize in the coming three to four years. What is encouraging is that rural-urban gap and regional gap, which dominate China’s income distribution gap, have recently shown a clear trend of narrowing-down. Many index, such as the ratio of urban/urban resident income and regional per capita GDP, have dropped to the level around 2002. However, what is worrisome is that urban resident income gap accelerates its pace of widening, which results in unjustified property income and sector monopoly. In addition, a few people manage to seize super-high income via corruption or other illegal ways, which brings about substantial uncertainty to the trend of urban and even national income distribution. 

“The fact that China’s income distribution enters a turning period does not mean that China will soon see its income gap narrowed down.” Said Mr. Lu Mai, CDRF Secretary General and head of the research team, “During the turning period, there is a stronger momentum for a declining gap due to many factors, including urbanization, changing labor supply/demand, and industrial gradient transfer among different regions, while on the other hand, those factors contributing to widening income gap will not disappear in a certain period of time which indicates that the high income gap will sustain for a while before it drops. How long this period will be depends upon China’s policy choices in the future.”

The research indicates that many institutional reforms and polices launched over the past decade or so succeed, more or less, in curbing the worsening gap, including strategies for balanced regional development, construction of new villages, poverty alleviation strategies, construction of social welfare system, reform of Hukou (registered permanent residence) and labor market, lifting the restrictions of agricultural product prices, land transfer policies, reform of eliminating agricultural taxes and income taxes, financial transfer payment policies and universalized education. To a great extent, these policies address the unequalization-oriented institutions and policies, such as urban/rural dual systems. However, Hukou system reform, agricultural land, social welfare system and factors liberalization are not in place yet. 

According to Mr. Lu, “China’s income distribution reform at the next stage should give first priority to primary distribution. It should promote urbanization and integrated labor market via Hukou system reform, deepen the reform of factor market and enforce the strategy of human capital development. At the same time, the government should bring into full play the role of redistributive tools, such as social welfare system, structural tax reduction, Central-local transfer payment. In addition, more efforts should be devoted to intensifying anti-corruption campaign and relevant institutions. This is an important precondition to carry out the reform of income distribution in a smooth way.”

Ushered into the new millennium, lots of Latin American countries have witnessed a substantial narrow-down in their income gap, which arouses the worldwide attention. Therefore, CDRF invites Prof. Nora Lustig from Tulane University, the expert on Latin American income distribution, to join the research and share in the workshop Latin American experience of closing income distribution gap by developing basic education, integrating fragmented labor market and financial transfer payment.