A short review of income inequality in China Branko Milanovic Graduate Center, CUNY, Spring 2014 Have a look at my vignette “Will China survive in 2048?” in The haves and the have-nots Branko Milanovic

Data on income inequality in China Almost nothing before when the first “new” surveys are conducted Surveys existed before the Cultural Revolution but they are lost There are some fragmentary, provincial data going back to the 1930s and 1920s Surveys done separately for urban & rural areas but from 2013 a single unified survey The issue of “floating population”, not well included in surveys Also, China CASS surveys (5 surveys) Kanbur & Zhang use mean R/U provincial incomes as inequality proxy Branko Milanovic

Standard political periodization Revolution & land reform “Great Leap Forward” Post-famine recovery Cultural Revolution Rural reforms Post Urban reform, decentralization, trade openness Post De facto capitalism, Jiang Zemin “The 3 represents” Branko Milanovic

Basic policy outline since the reforms “Responsibility system” in rural areas and 14 special economic zones (Shenzhen the most famous) Large increases in rural incomes, declines in absolute poverty & moderate increase in Gini 1990s. Urban reforms. Urban incomes take off, U/R gap increases, poverty reduction more moderate (but also due to China becoming richer) 2000s. Rising U/R gap, increasing share of K income among urban population, corruption & new wealth Branko Milanovic

Inter-personal inequality Branko Milanovic

Urban and rural Ginis, Based on official published fractiles for rural and urban household surveys All 30 provinces included 30-40,000 HHs in urban, 60-70,000 in rural areas From Xu and Perloff (2004) Unusual to have greater Gini in rural areas From wu_perloff_weichu.xls Branko Milanovic

Urban and rural Ginis from official surveys (based on World Bank POVCAL) From ruralurban_Ginii_88_10.xls Branko Milanovic

Urban Ginis , alternative calculation Gini calculated across individuals with non- zero incomes, not household per capita income Based on micro data from HS From Wei Chu, JCE, 2012 From wu_perloff_weichu.xls Branko Milanovic

Top income shares in China and India, Rising top (1%) income share in both countries Still lower in China India: based on fiscal data with v. different income cut-off points and compliance From Banerjee and Piketty, 2004 China: from HH surveys Branko Milanovic

Wealth inequality: BRICS and the US From Forbes2013.xls Branko Milanovic

Regional, costal-inland and urban-rural inequality Branko Milanovic

Infant mortality rate in 2005 (from Kanbur and Zhang) 73/1000 3/1000 Urban/Rural IMR = 2.2 Inland/Coast IMR = 2.1 Branko Milanovic

GDGDP per capita in 2008 (from Kanbur & Zhang) $1,000 $10,000 Urban/Rural income=3.3 Inland/Coast income=2.2 Branko Milanovic

Richer provinces also grew faster: China ( ) Red: fast growth (1σ above the mean) Yellow: average Light yellow: slow (1σ below the mean) North to South Shandong Jiangsu Zhejiang Fujian Guangdong Branko Milanovic

Inland-coastal gap & trade openness (from Kanbur & Zhang) Planning eraReform era Openness Branko Milanovic

Decentralization and regressive tax pressure further exacerbate regional inequality (from Kanbur & Zhang) Branko Milanovic

China: Uneven fiscal burden across provinces from Zhang (2006) Zhang (2006) Branko Milanovic

Putting geographical and inter- personal inequality together Branko Milanovic

China and India compared (Gini points) China 2000India 1997 Inequality between provinces/states 2422 Rural-urban inequality137 Inequality within R/U areas 79 Total inequality4438 Urban-rural ratio From IndiaChina.xls file; China: based on HBS data; India based on state GDIs, italics: estimates Branko Milanovic

Illustration of Concepts 2 and 3: China, inequality according to HS data Branko Milanovic

Decomposing total inequality in China Based on Ravallion & Chen (2004), Kanbur & Zhang (2002), Milanovic (2004) Branko Milanovic

China has many unique features Rising inequality in all its dimensions: between people overall, between provinces, between coast and inland regions, between urban and rural (e.g. US has only 1 of these dimensions) U/R disparity is the most significant; highest in the world A part of population lives in urban area but not registered there Rural Gini as high as urban Gini Rapid increase in inequality accompanied by rapid growth and decrease in poverty Nominal Communist country with rising share of capitalists and K income Branko Milanovic

What is not so unique Gap in pay and benefits between public & private enterprises Chinese inequality might have gone up along the rising slope of the Kuznets curve (as the US did in ), but now ready to go down now (aging, welfare reforms) Pro-Western regional reforms, anti-corruption drive attempt to redress some of these imbalances Branko Milanovic

China vs. USA: a short comparison Branko Milanovic

Chinese and US distribution on the same scale twoway (kdensity log10inc if contcod=="USA") (kdensity log10inc if contcod=="CHN", xlabel(2.477 "300" 3 "1000" 4 "10000" 4.7 "50K" 5 "100k") legend(off) xtitle(per capita income in PPP dollars) ytitle(density) text(0.9 3 "China") text( "USA")) Using final08.dta Branko Milanovic

Inequality in China and the United States Branko Milanovic

Different countries and income classes in global income distribution in 2008 From calcu08.dta USA India Brazil China Russia percentile of world income distribution country percentile Branko Milanovic

Share of US and China in world GDP (according to World Bank data) twoway (scatter relGDP year if contcod=="USA", connect(l)) (scatter relGDP year if contcod=="CHN", connect(l) legend(off) text( "USA") text( "CHN")) using gdppppreg4.dta Branko Milanovic

Share of private household consumption in GDI twoway (scatter consgdp year if contcod=="CHN", connect(l)) (scatter consgdp year if contcod=="IND", connect(l) legend(off) text( "India") text( "China")) Branko Milanovic

Top 1% and top 10% shares in China and the US (according to Saez, and Piketty and Qian) Top 1%Top 10% China %27.9% United States %50.0% Source: China: Piketty and Qian, in PikettyQian_AJEPP2009.xla (whole_countries\China0 USA: Saez, strikiing it richer, 2008 in ydistr\usa\saez-ustopincomes-2006prelpdf Branko Milanovic