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What is China’s income inequality?

What is China’s income inequality?

China

 In China, income inequality is always a serious issue. Compared with metropolises such as ShangHai and BeiJing, my hometown is a relatively low-development province and there is not enough money or support to develop the economy because the government pays more attention to security. I want to know how to narrow the gap between these poor areas and the rich areas, which is the reason why I chose this topic.

Before I chose this topic, I did have some background information that I already knew, for example, Gini coefficient is a figure to evaluate the justice for yearly income, which is 0 to 1. 1 is the least fair meaning annual income is controlled by one person (others have no income). 0 is completely fair, meaning everyone in the society has the same income. Some historical information is also needed.

After introducing the “Economic Reform and Open-Up ” policy, which was the future decision about the China development in 1978, cities that were influenced by this policy got a great benefit because they had more opportunity to trade with outside than cities that did not get any benefits. Even if this policy made some cities and China have a great development, it increased the income inequality and the gap between the rich and the poor simultaneously. 

What is China’s income inequality? What is China’s income inequality?

I also have some parts that I do not know, for example, what should the government do to eliminate or reduce the income inequality in China, how did other countries solve income inequality, and what are drawbacks and advantages for the Gini Coefficient. The gap between the rich and the poor is an important and significant part of healthy development for a country. The number of the poor is much more than the rich so that if China wants to become an overall developed country, it is necessary to narrow the gap between the rich and the poor.

And, it is hard for people to figure out individually, meaning to say that the government needs to involve and support the majority-the poor. After reviewing and finding sources, I think it is hard to focus on one single province in China. So, I decided to pay more attention to income inequality in China and use the information from income inequality to analyze the gap between the rich and the poor. Most of the papers are looking at income inequality so that I can find my sources easily. These make me change my ideas and topic’s main point.

Search

     At first, I directly searched what I wanted in one sentence by Google but I normally cannot get what I really need for this question, and also the content is not quite professional and reliable for the paper. After I finished initial research, I changed my methods to searching keywords rather than one whole sentence in Google, which helped me to narrow my search topics down to get a precise research result. Finally, I searched for keywords in google scholar. It is really professional and helpful because of highly professional information for papers.

I think it is the best way to search for me. Even if I found a suitable way for myself, there are some problems with my research questions. Initially, I tried to search “the gap between the rich and the poor in China,” but I only found some personal views or news which are not reliable. I modified my topic to the income inequality in China because it makes the word be more academic, and I gained lots of relative professional sources like the paper and government document. In my view, word choices are extremely important when we are searching.

For myself, two sources related to income inequality influence and income inequality measurement are coming from google scholar and another one (Malaysia government reactions to the gap between the rich and the poor) is directly coming from google. All in all, In the future, I will find information depending on content and background, If I just need some easy answers or personal views, directly searching in Google is helpful enough, but, if I want to something academic or professional, Google scholar or other academic search engine and using terminology are more useful and suitable.

Sources 

     Before I started searching sources, I had some basic background information about the Gini Coefficient so I searched for some information related to the gap between the rich and the poor in other countries and the Gini Coefficient. In Young’s paper, there is a graph about the Gini Coefficient in different countries and taxable income. The text below compares the Gini Coefficient and taxable income showing that the Gini Coefficient in Malaysia just changes little, but some other countries drop. This phenomenon shows that Malaysia needs to modify something to reduce its Gini Coefficient. The ideas and governmental reactions in this article are crucial and helpful for me to support my point of view.  Meanwhile, the Gini Coefficient is not pretty helpful to do that because the Gini Coefficient is a general figure that does not include the region or physical truth. 

     After finding the Gini Coefficient is not quite helpful, I started to find some alternatives to measure income inequality, which is the reason why I used Maio’s paper. According to Maio, in order to consider some social judgments and different regions, he introduced the Atkinson Index to measure income inequality, and different income scales should have different measurements (Maio,850). In conclusion, it is better to use some relative methods in different areas and for different people groups. On the other hand, there are some terminologies that are complicated for some readers to understand used in some specific parts of a journal, and some mathematical methods are introduced even if they use simple methods I still can not understand deeply. After measuring income inequality, I started to think about the reason why they have income inequality and the influences of income inequality.

What is China’s income inequality? What is China’s income inequality?

     Anneli Kassa, Lecturer of Economics, Ph.D., University of Tartu, Faculty of Economics and Business Administration, wrote a paper called “Factors of Income Inequality and Their Influence Mechanisms: A Theoretical Overview.” This article provides plenty of information about the income factors and the information is highly useful for me but there are no graphs or pictures for readers to have a deeper understanding so that it is humdrum and hard to read and give the conclusion.

On the other hand, the article is a little bit out of date, published in 2005. Between 2005 and 2019, there is a big change in the world so that some information is not useful anymore.

Three sources have some similarities in solving income inequality.

Tax is an important part to control income inequality, but in Fernando’s work, these solutions are too sophisticated and professional to talk about. On the other hand, this kind of paper is reliable for readers because of plenty of figures, which other sources do not have. Young’s work is not pretty detailed but linked with reality so that there is exactly evidence for each point of view. This evidence is helpful for my paper, making my point of view more and more effective. Kaasa’s work is more detailed than other sources when describing the influences and causes of income inequality. Each point of view is given a long paragraph to explain, each point of view is illustrated in several different aspects. This source is really an overall comprehensive source. It provides lots of useful background information, aspects and inspirations for me.

Findings

     Income inequality is a serious issue in current time and age. It will cause so many potential social issues such as influencing overall economic development, internal class contradictions, and government policy. It is necessary to deal with income inequality to fulfill overall development because if a country has a large number of absolutely poor people, this country may not have enough labor force for production. All in all, solving income inequality is significant for both the economy and a country. Especially for China, there are so many absolute poor people that it is necessary to let them follow the developing steps to have overall development. 

     In 2014, Gini coefficient on market income (before taxes and transfers) in both Malaysia and Sweden are 0.43, but Gini coefficient on disposable income (after tax and transfers) for Malaysia is 0.41 and for Sweden is 0.26. From figures above, we can see that there is little change for Malaysia Gini coefficient and a significant decrease for Sweden, which means even if people lived in Sweden have a great difference between the rich and the poor, the government still can modify the policy about the tax revenue to satisfy the relatively fair.

What is China’s income inequality? What is China’s income inequality?

After that, according to “World Bank’s latest Malaysia Economic Monitor, over 80% of total households got at least Bachelor’s degree staying middle or upper classes, and those members earn more than average. In the long run, investing in children also is crucial to narrow the educational and income gap(Yoong,1). In my personal view, China and Malaysia have similar national conditions and problems so that some methods or conclusions might be helpful for China. 

     According to Ning Ji Zhe, Director of the National Bureau of Statistics, supporting the poor is necessary for China because of a large number of poor people. After 2012, China had eliminated 6000 thousand poor people turning them into citizens who have sound money. In 2017, the Gini coefficient in China is approximately 0.4, and the urban-rural gap, classes gap still are significant.

The government still needs to work on resource allocation, modifying salaries policy and prices. To achieve high-quality development that is Shared by all, we must address the most immediate and practical issues about the interest of the people, such as making continuous progress in providing education, education, employment, medical care for the sick, supporting for the elderly, housing and assistance for the weak. (Para.1). In China, the top 50 wealthy people doubled their wealth even tripled from 2010 to 2017, which means that for 90-95 percent people, income inequality is reducing, but when you involve the high-income group, income inequality is not fit so we need another way to measure income inequality. 

     In Fernando’s work, the Gini coefficient is just a general method, but there are so many limitations for this one that he introduces the Atkinson index. He says that inequality cannot, in general, be measured without introducing social judgments” and “More precisely labeled a family of income inequality measures, the Atkinson index allows for varying sensitivity to inequalities in different parts of the income distribution.”

For the Atkinson index, it contains some sensitivity parameter (Epsilon) which ranges from 0 to infinity. 0 means researchers ignore income distribution, and infinity means researchers only care about the income position of the lowest income group. This index is much more objective to illustrate income inequality so that when evaluating income inequality, people need to choose figures or methods depending on different situations. 

What is China’s income inequality? What is China’s income inequality?

     In order to solve income inequality, the factors and influences should be discussed. The factors are divided into 5 parts which are. Economic development, demographic factors, political factors, cultural. And environmental factors, and macroeconomic factors. Along with the development of economics, there must be some improvement for technologies. The changes in technologies cause skilled workers to get higher wages and some machines replace unskilled workers’ jobs, which is structural unemployment. In China, the population is a serious issue.

Due to stereotypes, there is a high birth rate reducing the income per person and increasing income inequality. Meanwhile, government spending on education will increase and result in a decrease in other activities’ funds. For political factors, there is a wide range of influences, for example, government control the birth rate to reduce population and income gap, government set up rule to support the poor area giving poor people more opportunity to success, and government change the tax revenue for different income group to narrow the gap between the poor and the rich.

What is China’s income inequality? What is China’s income inequality?

There are few sources about the cultural factors, but there is some information about the shadow income. According to Kaasa, income inequality will increase if there are more and more shadow economies because of decreasing inflowing tax and opportunity for redistribution. Inflation is a part of the macroeconomy, and the inflation rate has some connection with income inequality.

“If most of the government’s expenditure is addressed to more well-to-do people, government expenditure can, on the contrary, increase income inequality”(P.17).

     To decrease income inequality, the government has lots of things to do: Education, economy, social welfare, and related policy.  Education can become seen as a long-term investment, which is a kind of investing in the future. If the government paid more money, resources, and attention to rural education, the gap between rural and urban areas would become narrowed in a few decades. China gets great benefits from the “Economic Reform and open-up” policy, which reminds us that it is important to keep communicating with the outside and hold opportunities.

The coastal area is able to trade with America, and the northwest part of China is the center of Eurasia, which is easier to trade in land with countries in the Middle East area. Furthermore, the government needs to provide better social welfare in medical, infrastructure, employment, pension, and housing. These actions are able to significantly increase social belonging and decrease income inequality. The government also can set up policy related to tax revenue: Higher tax rate for higher-income people and use a part of the tax to support the poorer. In my personal suggestion, the different provinces should use their advantages to get better development, the different provinces should help and cooperate with each other to have an overall development.

What is China’s income inequality? What is China’s income inequality?

References

Kaasa, Anneli. “Factors of Income Inequality and Their Influence Mechanisms: A Theoretical Overview.” University of Tartu Faculty of Economics and Business Administration Working Paper No. 40. November 4, 2005. DOI: http://dx.doi.org/10.2139/ssrn.868491.

Maio, Fernando G De. “Income Inequality Measures.” Journal of Epidemiology & Community Health, BMJ Publishing Group Ltd, 1 Oct. 2007, https://jech.bmj.com/content/61/10/849.short

Ning, JiZhe. “Implementing New Development Concepts and Promoting High Quality Development.” QSTHEORY, 31 Jan. 2018, www.qstheory.cn/dukan/qs/2018-01/31/c_1122337619.htm

Pui, Yoong Shen. “How to Narrow the Gap between the Rich and Poor in Malaysia?” East Asia & Pacific on the Rise, 2 Feb. 2015, http://blogs.worldbank.org/eastasiapacific/how-narrow-gap-between-rich-and-poor-malaysia.

What is China’s income inequality? What is China’s income inequality?