By Han ZhuOuYang

February, 25, 2017

After the Chinese economic reform, China starts to enter a highway with rapid economic growth. There is no doubt that the Chinese citizens’ living standards continue to rise. The viewpoint was provided by the Figure (1), the Engel’s Coefficient continues to decrease in China, meaning that the Chinese citizens start to pay more money for entertainment parts rather than food expenditure.

Figure 1: China’s Engel’s Coefficient of Urban and Rural Households (%)

Meanwhile, GDP of China still increased, in 2015, GDP is $10.4 trillion, per capita GDP is 8000 dollars, equivalent to 52000 yuan.

Figure 2: China GDP Since 1960

On the other hand, although the Gini coefficient continued to decline in the past seven years, it still managed to stay at 0.474 for 2012. China has over 0.4 international police line, which shows that it is a significant inequality in China. Although the Gini coefficient of China has a decreasing tendency, we still can’t ignore the fact that there is high-income inequality in China, and I think that three reasons lead to the inequality.

The figure 3: Gini coefficients, Maximum income inequality=1

  • The income inequality, poor people get more poor

The core features of the gap between wealthy and poor in China are mainly the poor get poorer for a decade ago. At the beginning of Chinese economic reform, China has a massive poverty population. In 1978, the rural poverty population of China had 250 million people. Because of the economy development unbalance, most people from the rural area are poor. However, rural populations is a quarter of the total population in China, which worsens the issue. Moreover, because the price of agriculture goods is so weak, their income is much lower than urban people. Undoubtedly, one of the primary roots of economic inequality is income. Figure 4 shows that the increase in per capita disposable income in rural and urban areas in China over the past two decades. We found that rural and urban areas together rise their income. However, while urban income is increasing rapidly, agricultural income is growing slowly. Therefore, it causes a gap between the two groups.

Figure 4

China is a powerful, agriculture oriented and most populous country in which rural population constitutes the utmost, and farmer proportion in total population proportion is 62%. From the income difference with urban and rural residents. In 1990, per capita, the disposable income of urban households is 1510 yuan, and per capita, the disposable income of rural is 686 yuan, their proportion is 2.2 times. Until 2007, the percentage to more than 3.7 times. Meanwhile, the goods price still increases in the market, the living cost of rural people also increases, and it leads to a huge gap between urban and rural areas.

  • Inequality in chance

Richer people have more chance to get richer. It is easier to earn higher salaries in the major cities, leads to a trend that poor people from the rural would try to move to the urban area and work. However, in my opinion, chances of being able to make progress to the cities are relatively small. Firstly, Rich people have a higher income. With higher income, they have an initial capital to help them get richer, such as investing in real estates. The rich hold more and more land. Over the past decade, the property of the Chinese market experiences a golden development, such as Beijing, Shanghai, and Shenzhen. Their housing price rose by an average higher than 10%. Rising house prices not only make the wealthy families own value of the real estate but also encourage wealthy families to buy more property, which leads to higher prices of the house. On the contrary, poor people almost are unable to buy their house. Some would spend the earning of their entire life just to buy one house in the urban. This phenomenon backs up my opinion that most people in the rural area are unable to move to large cities.

Figure 5

Secondly, there is a common Chinese saying “Knowledge changes a life.” However, with conditions nowadays, urban(rich) people will acquire better education than rural(poor) people, in China. A good education background could almost guarantee a better job and a higher income. Urban people acquire better education and better training environment. Their families are willing to pay more expenditures on education rather than food or live costs, the following figure 6, the blue line is the proportion rural students of total Chinese students, and the red line is the percentage Chinese rural people of whole people.

Figure6

Finally, The National Working Committee on Aging has published the main data report on the survey of the urban and rural elderly population in China. The Average per capita pension in China’s rural areas is only 74 yuan per month, which is only 5% of the average monthly premium. The third survey of the living conditions of the elderly after 2000 and 2006 is also the only scientific investigation of the status of older persons approved by the National Bureau of Statistics. For the elders in rural, they almost don’t have money to maintain their health at a proper level. In China, if you have a better job, you will accept a better health insurance, the company will prepare a comprehensive insurance to every employee, and a higher income people will pay more attention to their health to help them increase their living standard.

  • Economic globalization

There is no doubt that we are living in a society of globalization, firstly we need not ignore the advantages of economic globalization: greater free trade; more significant movement of labor, increased economies of scale, increased investment, etc. However, some economic policies of globalization are unfairly different in developing countries than in developed countries. For example, smiling curve, in the diagram, “the most lucrative value area focus on both ends of the value Chain-R&D and marketing. The only thing can do just agency or OME without R&D capability, which earns a little money; without marketing ability, the product will only be treated as rubbish over disposal period.” (From Diagram illustration of Wikipedia)

On the actual situation, the developing countries at the bottom curve, their worker belong to a low-income worker. Instead, the development countries worker at the top of the curve, they manage the patent & Technology and Brand &service of a company, they belong to higher income worker. On account of China is a developing country, so most of the Chinese citizen have to work at fabrication part in the curve, so they are living in the bottom of smiling curve, just earn lower income, and a little of citizen work to earn high income, it leads that widely gap between rich people and poor people, continuous increase inequality.

 

On the conclusion, although China has entered a highway of rapid economic growth, we still can’t ignore the sociality problem- wealth inequality. Under the background of economic globalization, the poor people have become poorer, and the rich people richer. The population of poor is so tremendous that even though the government has taken actions to solve the issue, the problem remains. China will face more arduous task, and severe test as the inequality has become the most importance social issue.

The Ultimate Problem that We Have to Face “Wealth Inequality in China and The Gap Continues to Increase”