Association for Public Policy Analysis & Management

China’s income inequality is well documented. While many studies discuss the rapid rise of China’s income inequality, very few studies suggest that inequality in China has peaked or is declining in recent years. Our study will fill the gap by offering some new evidence.

Using grouped household income data from China Statistical Yearbooks, we estimate the trend of China’s income inequality from 1981 to 2013, by rural and by urban separately. As we found, China is confronting a severely imbalanced economic situation. Both rural and urban areas witness a rise of income inequality, which emerged in early 1980s and peaked around 2004. The level of income inequality in urban areas is relatively lower than the inequality level in rural areas. However, the urban inequality has increased at a dramatically faster speed than the rural inequality. Since 2008, income inequality in both areas has shown an evident declining tendency, which resonates the findings of another our study on China’s pay inequality using different methodology and data source.

These findings encourage us to explore the driving forces behind the rising and declining trend of China’s inequality in the context of economic development. We would also like to investigate whether the decline of China’s income inequality after the crisis is temporary phenomenon or it is a long-term outcome driven by both economic and policy factors. An original estimate of China’s income inequality using grouped data will be provided as the starting point of this analysis. Studying China will provide a unique laboratory for studying inequality after the crisis. The China’s experience will be also good for studying economic development in other developing countries which have been undergoing the similar transition.