New Patterns in China’s Rural Poverty

The purpose of this chapter is to understand the structure of rural poverty in China. On the basis of CHIP data for 1988, 1995, 2002, 2007, and 2013, the authors analyze poverty trends and the structure of poverty, comparing the recent period to earlier periods. Factors that raise household income, factors that reduce the need for household expenditures, and other factors related to China’s poverty alleviation goals are considered. The analysis finds that although the absolute poverty rate continued to decline, the poverty gap and relative poverty increased after 2007. An analysis of the reasons for poverty reveals some positive effects of the rural social welfare policies; however, health problems among the elderly, among children below the age of 15, and among disabled adults continued to be a key source of poverty.

China’s Emerging Global Middle Class

This chapter examines China’s middle class by using CHIP data for 2002, 2007, and 2013. “Middle class” is defined as having income high enough not to be regarded as poor but not so high as to be regarded as rich if living in a high-income country. Based on this definition, China’s middle class was extremely small in 2002; grew but was still less than 10 percent of the population in 2007; and by 2013 had expanded to one-fifth of China’s population, roughly 250 million people. Further analysis shows that China’s middle class is largely urban, lives in the East, and has other distinctive characteristics. Simulations reveal that past growth of China’s middle class was due to across-the-board, shared income growth rather than a redistribution of income. As of 2020 China’s middle class should double in size, constituting a majority of urban residents but still a small minority of rural residents.

Income and Poverty Gaps between Han and Ethnic Minorities in Rural China

This chapter uses the CHIP 2002 and 2013 rural data to investigate incomes and poverty among ethnic minorities who live outside of China’s five ethnic autonomous regions. Although the incomes of these rural minorities remained below those of the Han majority, the income gap narrowed during this period. A decomposition analysis finds that the income gap between the Han and the ethnic minorities was mainly due to household characteristics and residence location rather than due to ethnicity. From 2002 and 2013 absolute poverty declined and relative poverty increased for both the Han and the ethnic minorities. Furthermore, the minority-Han poverty gap narrowed. Regression analysis suggests that the poverty gap between the Han and the ethnic minorities was mainly because the ethnic minorities lived in less-developed regions. After controlling for region, research revealed that poverty among the Han was more serious than that among the ethnic minorities. The findings also reveal the importance of education for ethnic minorities.

Social Policy Reforms and Economic Distances in China

Using CHIP data for 2002, 2007, and 2013, this chapter examines the effects of social policy reforms on the economic distance between rich and poor households in the urban, rural, and migrant sectors. In the urban sector, pensions consistently narrowed economic distances, whereas other social benefits—health insurance, social assistance, supplementary income, and in-kind benefits—had little redistributive impact. Social benefits in both the rural and migrant sectors changed from being regressive in 2002 to becoming progressive in 2013. In the rural areas, benefits in 2013 from agricultural and livelihood subsidies played the most significant redistributive role; private transfers also narrowed economic distances. Among migrants in 2013, health benefits and taxes and fees narrowed economic distances, although less so than among rural residents. Despite the expansion of social policies during this period, in both urban and rural China market forces trumped the redistributive effects of the social benefits.

Consumption Inequality in Urban China

Compared to income or wealth, household consumption expenditures can reveal households’ real economic well-being derived from income and other material resources. This chapter uses the CHIP data from 1995, 2002, and 2013 to investigate the structure and inequality of consumption expenditures in urban China. Overall inequality in urban household consumption expenditures as measured by the Gini coefficient decreased slightly from 1995 to 2002 but then increased to 2013. The percentile ratio of p90/p10, however, increased continuously during these years. Basic food consumption inequality was much smaller than inequality of overall consumption, and as consumption grew over time, the food share of consumption fell steadily—from 34 percent in 1995 to 24 percent in 2013. Housing consumption inequality was much larger than overall consumption inequality but it decreased over time. Housing’s share of total consumption, however, rose markedly from 23 percent in 1995 to 38 percent in 2013.

Unequal Growth

This chapter investigates inequality and poverty among formal urban residents in China by using CHIP data from 1988 through 2013, with a focus on the period from 2007 to 2013. It begins with an overview of changes in the urban economy and relevant public policies. Analysis of the data reveals a slowdown but still fairly rapid growth of urban household incomes from 2007 to 2013, as compared to earlier periods. This slowdown reflects slow growth in urban wage income, the main component of formal urban household incomes. From 2007 to 2013 growth in urban incomes was mainly due to increases in pension income and in the imputed rent from owner-occupied housing. Inequality among formal urban residents increased from 1988 to 1995, but thereafter it did not follow a clear trend. From 2007 to 2013, however, inequality increased slightly. Estimates of urban poverty show ongoing large declines in absolute poverty but an increase in relative poverty.

Overview

This chapter presents national estimates of incomes and inequality for 2007 and 2013. It begins with discussion of the CHIP datasets and measurement issues. It then reports core estimates of income and inequality, which indicate a modest decline in inequality during this period. Estimates are reported separately for formal urban residents, rural residents, and rural-to-urban migrants, with discussion of the effects of migration on inequality. Incomes and inequality are decomposed among the different sources of income; the urban/rural and regional income gaps are investigated. Alternative estimates of national inequality—using different income definitions, inequality indexes, and prices—are reported, as well as estimates that adjust for the underrepresentation of incomes in the top tail of the income distribution. The estimated decline in national inequality survives some but not all of these alternative calculations and thus raises questions about the magnitude and long-term sustainability of the inequality decline.

Changing Trends in China’s Inequality

This chapter examines the major trends in Chinese household incomes and inequality from 2007 to 2013 and highlights key, cross-cutting findings from the book as a whole. It begins with an overview of economic and policy developments during the period and of data and measurement issues. It reports the central estimates of China’s national income inequality, with comparisons to other studies. The chapter then discusses six cross-cutting findings from the book: 1.) after 2007 national income inequality declined, a marked change from past trends; 2.) the urban/rural income gap declined, also a change from past trends; 3.) income gaps between the East, West, and Central regions were no longer a substantial source of inequality; 4.) household wealth grew markedly and unequally; 5.) the number of Chinese households with incomes comparable to middle-class households in the developed world grew rapidly; and 6.) absolute poverty in China continued to decline and by 2013 it was quite low.

The Increasing Inequality of Wealth in China

The inequality of wealth in China has increased rapidly in recent years. Prior to 1978 all Chinese households possessed negligible wealth. China therefore presents a fascinating case study of how inequality of household wealth increases with economic reforms, marketization, and capital accumulation. Wealth inequality and its growth are measured and decomposed by using data from the CHIP 2002 and 2013 survey datasets. Techniques for estimating the top tail of the income distribution by using a Pareto approximation are applied to measure the sensitivity of wealth inequality to plausible assumptions about the underrepresentation of the wealthy and underreporting by the wealthy. The rising wealth inequality is explained in terms of the relationships between income and wealth, house price inflation, and differential savings.

Public Policy and Long-Term Trends in Inequality in Rural China

This chapter examines long-term changes in rural household incomes, inequality, and poverty in China from the late 1980s to 2013, with a focus on changes in public policy and the structure of rural incomes from 2007 to 2013. Implementation of pro-rural (huinong) policies during the first decade of the 2000s marked a historic shift in public policy, which previously was heavily biased toward the urban areas. Rural income growth accelerated between 2007 and 2013 mainly because of an upsurge of wage earnings, asset income, and imputed rent from owner-occupied housing. The share of agricultural income in total income fell to a historic low. These shifts contributed to the increase in rural income inequality from 2007 to 2013. During this period rural poverty continued to decline. The implementation of pro-rural public policies after 2000 led to small but significant improvements in the redistributive impact of public transfers.