Volatility and Inequality: Household Vulnerability as Uncertain Welfare in Rural China

Rural households in China have experienced higher consumption levels combined with uncertainty associated with increasing volatility and growing relative inequality of their levels of consumption. This raises the possibility that the overall effect – from welfare-increasing rises in average consumption and welfare-reducing increases in uncertainty – has been to make households worse rather than better off. This article finds that, overall, despite substantial poverty reduction, rural Chinese households experienced growing relative welfare losses between 1989 and 2006. Eighty per cent was driven by relative inequality. This suggests that China’s growth-oriented policy has not been entirely successful in improving rural households’ welfare.