The Distribution of Household Income in China: Inequality, Poverty and Policies

This article examines recent trends in inequality and poverty and the effects of distributional policies in China. After a discussion of data and measurement issues, we present evidence on national, as well as rural and urban, inequality and poverty. We critically examine a selection of policies pursued during the Hu-Wen decade that had explicit distributional objectives: the individual income tax, the elimination of agricultural taxes and fees, minimum wage policies, the relaxation of restrictions on rural-urban migration, the minimum living standard guarantee programme, the "open up the west" development strategy, and the development-oriented rural poverty reduction programme. Despite these policies, income inequality in China increased substantially from the mid-1990s through to 2008. Although inequality stabilized after 2008, the level of inequality remained moderately high by international standards. The ongoing urban-rural income gap and rapid growth in income from private assets and wealth have contributed to these trends in inequality. Policies relaxing restrictions on rural-urban migration have moderated inequality. Our review of selected distributional policies suggests that not all policy measures have been equally effective in ameliorating inequality and poverty.