Income Distribution and Economic Growth in China During Past Three Decades Xie Jing Renmin...

Income Distribution and Economic Income Distribution and Economic Growth in China During Past Three Growth in China During Past Three

DecadesDecades

Xie Jing Xie Jing Renmin University of ChinaRenmin University of China

Main pointsMain points

• Introduction of the problem of China’s Introduction of the problem of China’s growth and income distributiongrowth and income distribution

• Main problems of income distributionMain problems of income distribution

• How does income distribution affect How does income distribution affect China’s economic growthChina’s economic growth

• ConclusionsConclusions

Introduction of China’s growth and Introduction of China’s growth and income distributionincome distribution

• During 2001 to 2003, Chinese economy increased by 10During 2001 to 2003, Chinese economy increased by 10% every year; but the real income of the 10% poorest p% every year; but the real income of the 10% poorest people decreased by 2.4%. China’s gini coefficient has reople decreased by 2.4%. China’s gini coefficient has reached 0.45.(world bank)eached 0.45.(world bank)

• Russia’s economy increased by 6% from 1999 to 2006, Russia’s economy increased by 6% from 1999 to 2006, and the total salaries and individual income increased and the total salaries and individual income increased by 500%. Considering the inflation, real salary income iby 500%. Considering the inflation, real salary income in Russia increased more than 200%.n Russia increased more than 200%.

• The lowest living standard in Moscow is 5124 ruble (170The lowest living standard in Moscow is 5124 ruble (1700 RMB) per month, while this number in Beijing is 448 R0 RMB) per month, while this number in Beijing is 448 RMB, 26% of Moscow. In Harbin, the capital of Heilongjia MB, 26% of Moscow. In Harbin, the capital of Heilongjia province which borders on Russia, this number is 200 Rprovince which borders on Russia, this number is 200 RMB. This standard was made in 1997, and had not been MB. This standard was made in 1997, and had not been changed till now.changed till now.

Introduction of China’s growth and Introduction of China’s growth and income distributionincome distribution

• The income of top 20% people is eighteen times of that The income of top 20% people is eighteen times of that of the lowest 20% people. (Chinese Academy of Social Sof the lowest 20% people. (Chinese Academy of Social Science)cience)

• According to UN’s poverty standard (1 dollar consumpAccording to UN’s poverty standard (1 dollar consumption per person a day), there are still 200,000,000 poor ption per person a day), there are still 200,000,000 poor people in China, the second largest number in the world, eople in China, the second largest number in the world, just a little smaller than India.just a little smaller than India.

• In 2006, salaried persons contributed 60% of the whole In 2006, salaried persons contributed 60% of the whole tax income, while the rich contributed only 10%.tax income, while the rich contributed only 10%.

Introduction of China’s growth and incIntroduction of China’s growth and income distributionome distribution

• Did the income difference stimulate Did the income difference stimulate China’s economic development, or China’s economic development, or will it harm the future growth in will it harm the future growth in China?China?

• Unequal income distribution and Unequal income distribution and poverty has been the main obstacles poverty has been the main obstacles of China’s growth.of China’s growth.

Main Problems of Income DistributionMain Problems of Income Distribution

.24

.28

.32

.36

.40

.44

.48

80 82 84 86 88 90 92 94 96 98 00 02 04

GINI

Ceaseless widening of the income Ceaseless widening of the income gapgap


Household property income distribution

45%

1%

54%

top 10%l ast 10%the rest

Concentration of amassed wealthConcentration of amassed wealth

Main Problems of Income Main Problems of Income DistributionDistributionConcentration of financial wealth in urban Concentration of financial wealth in urban family(%)family(%)

Classified Classified according to according to

financial assets financial assets valuevalue

First groupFirst group

20%20%Second Second group group

20%20%

Third Third groupgroup

20%20%

Forth Forth groupgroup

20%20%

Fifth Fifth groupgroup

20%20%

TotalTotal

100%100%

Total financial Total financial assetsassets

1.31.3 4.94.9 9.89.8 17.617.6 66.466.4 100100

RMB financial RMB financial assetsassets

1.41.4 5.25.2 10.210.2 18.518.5 67.467.4 100100

DepositDeposit 1.21.2 5.05.0 10.410.4 18.718.7 64.864.8 100100

BondBond 0.30.3 3.03.0 8.48.4 15.815.8 72.572.5 100100

EquityEquity 0.40.4 3.03.0 6.26.2 15.415.4 74.974.9 100100

Foreign assetsForeign assets 0.30.3 0.90.9 4.94.9 5.85.8 88.188.1 100100

DepositDeposit 0.20.2 0.90.9 4.34.3 5.45.4 89.189.1 100100

CurrencyCurrency 2.72.7 0.90.9 27.927.9 14.114.1 54.554.5 100100

EquityEquity 0.00.0 0.00.0 0.00.0 26.826.8 73.273.2 100100

Main Problems of Income Main Problems of Income DistributionDistributionMost of rural families get low incomeMost of rural families get low income

Pure income of different regions (RMB)Pure income of different regions (RMB)

regionregion 19901990 19951995 19991999 20022002

Whole countryWhole country 686.3686.3 177.74177.74 2210.342210.34 2253.422253.42

Beijing Beijing 1297.051297.05 3223.653223.65 4226.594226.59 4604.554604.55

Shanxi (north-Shanxi (north-west)west)

603.51603.51 1208.301208.30 1772.621772.62 1905.611905.61

Anhui (central)Anhui (central) 539.16539.16 1302.821302.82 1900.291900.29 1934.571934.57

Shandong Shandong (east)(east)

680.18680.18 1715.091715.09 2549.582549.58 2659.202659.20

Sichuan (south-Sichuan (south-east)east)

557.76557.76 1158.291158.29 1843.471843.47 1903.601903.60

HainanHainan 696.22696.22 1519.711519.71 2087.462087.46 2182.262182.26


YearYearAbsolute valueAbsolute value Comparative contribution(%)Comparative contribution(%)

Urban Urban Rural Rural Between Between urban and urban and

ruralrural

Urban Urban Rural Rural Between Between urban and urban and

ruralrural

19901990 0.030.03 0.130.13 0.170.17 7.887.88 38.9038.90 52.2252.22

19911991 0.030.03 0.130.13 0.180.18 7.817.81 38.1238.12 54.0754.07

19921992 0.030.03 0.120.12 0.170.17 8.438.43 37.7737.77 53.8053.80

19931993 0.030.03 0.120.12 0.190.19 8.468.46 35.4435.44 56.1056.10

19941994 0.030.03 0.110.11 0.210.21 9.479.47 31.5431.54 58.9958.99

19951995 0.040.04 0.110.11 0.230.23 10.3010.30 29.4529.45 60.2560.25

19961996 0.040.04 0.110.11 0.230.23 11.4611.46 28.8128.81 59.7359.73

19971997 0.040.04 0.120.12 0.220.22 11.2011.20 30.6230.62 58.1858.18

19981998 0.040.04 0.110.11 0.200.20 12.2512.25 31.5131.51 56.2456.24

19991999 0.050.05 0.110.11 0.200.20 12.7412.74 31.5331.53 55.7355.73

20002000 0.050.05 0.100.10 0.220.22 13.8613.86 26.8226.82 59.3259.32

20012001 0.060.06 0.110.11 0.230.23 14.0414.04 27.5727.57 58.3958.39

Extraordinary Gap Between Urban and Rural FamiliesExtraordinary Gap Between Urban and Rural Families

Urban-rural gap and its contribution to general income Urban-rural gap and its contribution to general income differencedifference


• The average income in China's east has been 2.26 times The average income in China's east has been 2.26 times that of the west and it saw a three times difference that of the west and it saw a three times difference between the highest and the lowest. between the highest and the lowest.

• In 2005, disposable income of west urban people was In 2005, disposable income of west urban people was 66.7% of that of east, while in 2004 this rate is 69.7%.66.7% of that of east, while in 2004 this rate is 69.7%.

• In 2005, disposable income of west rural people was 44.2% In 2005, disposable income of west rural people was 44.2% of that of east, while in 2004 this rate is 48%.of that of east, while in 2004 this rate is 48%.

• In 2005, total regional economic growth rate in the west In 2005, total regional economic growth rate in the west reached 12%.reached 12%.

Increasing Division Among different regions with rapid Increasing Division Among different regions with rapid economic growtheconomic growth

How does income gap affect Chinese growth?How does income gap affect Chinese growth?

• Two opinions: income difference improves Two opinions: income difference improves economic growth; income difference harms economic growth; income difference harms economic growth.economic growth.

• Different analyzing method and empirical Different analyzing method and empirical model.model.

• First analyze the channels through which First analyze the channels through which income gap affects economic growth.income gap affects economic growth.

• Then test whether the income gap explain Then test whether the income gap explain the different growth performance of regions.the different growth performance of regions.

How does income gap affect Chinese How does income gap affect Chinese growth?growth?The formation of human resourceThe formation of human resource

Yield of education (by year)Yield of education (by year)

How does income gap affect How does income gap affect Chinese growth?Chinese growth?

The formation of human resourceThe formation of human resource

Yield of education (by educated level)Yield of education (by educated level)

Primary school

high school

technical school

college

University

How does income gap affect Chinese How does income gap affect Chinese growth?growth?

Gap between deposit and loan increased from 1995 (billion)Gap between deposit and loan increased from 1995 (billion)

The over deposit and over production effect

19951995 19919999

20020033

20042004 20020055

20062006

1010 150150 400400 570570 920920 10671067


• social capital formation was mainly driven social capital formation was mainly driven by governmentby government


fi scal i nvestment (mi l l i on)

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

fi scali nvestment


Excess producing capability, decreasing CPI and PPIExcess producing capability, decreasing CPI and PPI(last year=100)(last year=100)


19919933

19919944

19919955

19919966

19919977

19919988

19919999

20020000

20020011

20020022

20020033

20020044

20020055

CPICPI 114.114.77

124.124.11

117.117.11

108.108.33

102.102.88

99.299.2 98.698.6 100.100.44

100.100.77

99.299.2 101.101.22

103.103.99

101.101.88

PPIPPI 124.124.00

119.119.55

114.114.99

102.102.99

99.799.7 95.995.9 97.697.6 102.102.88

98.798.7 97.897.8 102.102.33

106.106.11

104.104.99


• Laid-off people, unemployment, lack of Laid-off people, unemployment, lack of social security reduced the general social security reduced the general consumption desire.consumption desire.

• Income gap between urban and rural area Income gap between urban and rural area distort the structure of macro-economy.distort the structure of macro-economy.

• Unequal income distribution pattern Unequal income distribution pattern encourages corruption and injustice, encourages corruption and injustice, intensifies social conflicts.intensifies social conflicts.

Unstable social and economic circumstances

How does income gap affect Chinese How does income gap affect Chinese growth?growth?--------Empirical Analysis--------Empirical Analysis

Explanatory Explanatory variablesvariables

Dependent variable: growth rate of GDP per personDependent variable: growth rate of GDP per person

2000-20042000-2004 1996-20001996-2000 1991-19951991-1995

GDP per person at GDP per person at beginningbeginning

0.0031990.003199（（ 0.7980510.798051 ））

-0.027275-0.027275（（ -0.809678-0.809678 ））

0.0175960.017596

(0.506685)(0.506685)

EducationEducation 0.0986930.098693（（ 0.7980510.798051 ））

0.1572920.157292（（ 1.2584461.258446 ））

0.123330.12333

(0.986422)(0.986422)

Rate of Rate of investment to investment to income income

0.1863660.186366（（ 1.9420651.942065 ））

0.1397220.139722

(1.442046)(1.442046)

Gini coefficientGini coefficient -0.027945-0.027945（（ -2.467765-2.467765 ））

-0.023614-0.023614

(-2.092666)(-2.092666)

R-squaredR-squared 0.451566 0.451566 0.389314 0.389314 0.5130120.513012

Included Included observationsobservations

8787 8787 8787

Income difference effects on economic growth (panel Income difference effects on economic growth (panel data)data)

conclusionsconclusions

• The conclusion made by Barro(2000) that the The conclusion made by Barro(2000) that the enlargement of income difference is harmful to the enlargement of income difference is harmful to the economic growth in the country with per capita economic growth in the country with per capita GDP lower than 2000 dollars is correct.GDP lower than 2000 dollars is correct.

• Behind the rapid increase of growth rate there do Behind the rapid increase of growth rate there do exist some problems of income distribution which exist some problems of income distribution which can not be neglected. can not be neglected.

• Large income distribution gap is to be the serious Large income distribution gap is to be the serious obstacle of China’s healthy economic development.obstacle of China’s healthy economic development.

• To make the virtuous circle of economic growth and To make the virtuous circle of economic growth and impartial income distribution has been the impartial income distribution has been the important task for China.important task for China.

Resolutions Resolutions

• Establish the redistribution system based on the Establish the redistribution system based on the benefit of disadvantaged group.benefit of disadvantaged group.

• Improve the taxation system, and reduce the Improve the taxation system, and reduce the burden of low income group.burden of low income group.

• Break the separation in regions and sectors, Break the separation in regions and sectors, improve the reasonable market competition.improve the reasonable market competition.

• Improve the social security coverage in urban and Improve the social security coverage in urban and rural families.rural families.

Income Distribution and Economic Growth in China During Past Three Decades Xie Jing Renmin...

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