Chapter 8
The high-speed railway
8. Economic Growth and
Income (Re)distribution
8.1 Macroeconomic performance
8.2 Understanding economic growth
8.3 Income distribution and inequality
8.4 Income redistribution and social
security
Keywords:
•
•
•
•
•
•
•
•
•
•
economic growth,
total factor productivity,
underground economy,
income distribution,
egalitarianism,
income inequality,
Gini coefficient,
redistribution policy,
poverty,
social security
8.1 Macroeconomic
performance
8.1.1 How large is China’s
economy?
8.1.2 Is Chinese GDP (under)
over-estimated?
Chinese GDP could be
underestimated:
• Real estate sector (10 percent),
• Government, science and technology,
education, culture and health care sectors (4
percent),
• Self-service within enterprises (3 percent),
• Rural construction (2.2 percent) and other
rural economic activities (2 percent), and
• National defense and underground economic
activities (10 percent).
Source: Asia-Pacific Economic Times (1996).
Determinants of underground
economy
• The level of taxes and regulations.
• The determination of the authorities
to catch up with evaders, and the
severity of the punishments for
those found out.
• The size of the service sector relative
to the manufacturing sector.
• The proportion of the population
that is self-employed.
Figure 8.1 China’s economic growth rates, 1950-80
Figure 8.1 (cont’d)
Table 8.1 A comparison of Chinese, Japanese, and U.S. GDPs, 2010
United
Indicator
China
Japan
States
Nominal GDP ($ billions)
5,824
5,461
14,660
GDP in PPP ($ billions)
10,203
4,299
14,660
Nominal Per Capita GDP ($)
4,440
43,060
47,260
Per Capita GDP in PPP ($)
7,770
33,900
47,260
Source: Economist Intelligence Unit (www.eui.com).
8.2 Understanding
economic growth
8.2.1 Literature review
8.2.2 Factors contributing to
growth
Table 8.2 Decomposition of the Chinese economic growth (%)
1953- 1961- 1979- 199160
78
90
99
Average annual GDP growth rate 9.40 4.70 9.00 10.30
Average annual GDP growth rate 6.63 3.31 8.50 8.10
(adj.)
Factor contribution to average
annual GDP growth rate (adj.)
Capital contribution
2.90 2.40 4.85 5.45
Labor contribution
0.84 0.84 0.99 0.48
Human capital contribution
0.58 1.32 1.32 0.40
TFP contribution
2.31 -1.25 1.34 1.77
Notes: GDP=gross domestic product; TFP=total factor productivity.
Source: Wang (2000).
8.3 Income distribution
and inequality
8.3.1 How (un)equal is the Chinese
society?
8.3.2 Income inequality: causes
8.3.3 Income inequality: consequences
8.3.4 Poverty alleviation
Table 8.3 China’s income Gini coefficients, selected years
Year
Rural area
Urban area
China as a whole
1952
0.230
0.165
0.255
1979/80
0.310
0.160
0.330
1988
0.338
0.233
0.382
1995
0.381
0.280
0.437
2002
0.366
0.319
0.454
2007
0.370
0.399
0.496
Sources: (1) World Bank (1983, pp. 83 and 92) for 1979/80; (2) Zhao
(2001) for 1988 and 1995; (3) Li (2004) for 2002 and (4)
www.ahpc.gov.cn for 2007.
70
60
50
40
30
20
10
Brazil
0
1950
1955
1960
Mexico
1965
1970
United States
1975
1980
China
1985
1990
United Kingdom
1995
2000
2005
2010
Figure 8.2 Gini coefficients since World War II, selected nations.
Table 8.4 Determinants of income inequality for the reform era
Item
1. Economic growth or development
Faster growth of urban nonstate-owned
economy
Faster growth of rural nonagricultural
economy
Development of agriculture
2. Economic reform or institutional changes
Order changes
Price reform in rural areas
Household responsibility system in rural areas
Internal migration of rural laborers
Commercialization of urban housing
Disorder changes
Rent-seeking activities
Insider controlc
Monopoly
Corruption
3. Economic policy and its changes
Low purchasing price for agricultural products
Taxation on agricultural products
Extra-taxational burden peasants
Personal income tax
Reduction of urban subsidies
a) Per head
b) By position
Transfer of urban residents’ benefits to private
property
Access to the WTO
Inequality within
Inequality between
urban or rural areas urban and rural areas
+
+
?a
+
-
?b
+
+
+
+
+
+
?
+
+
+
?
?
?
+
+
?
+
?
+
+
+d
Notes to Table 8.4:
(1) Usually, if an item is related to urban (or rural) areas, its effect
on inequality is also related to the urban (or rural) areas. (2) “+”
denotes increase of inequality; “-” denotes decrease of inequality;
“?” denotes difficulty to judge. (a) According to Li et al. (1997),
although inequality within rural areas had slightly increased from
1979 to 1984, it is hard to attribute this result to the development
of agriculture. (b) Generally, internal migration of rural laborers
has enlarged income differentials within rural areas as a whole,
but it has narrowed the gap in some specific rural areas (Zhao,
2001, p. 38). (c) ‘Insider control’ is described here as a
mechanism through which public assets can be appropriated to
serve the interests of particular departments, regions, work units
and individuals (Massahiko and Qian, 1995, p. 17). (d) Based on
Li and Zhai (2000). However, Wei and Wu (2003) conclude with
a negative relationship between urban-rural disparity and the
trade/GDP ratio.
Source: Zhao (2001, p. 36) except those that are noted otherwise.
China‘s provinces can be classified into five
groups by the incidences of ‘broad poverty‘ :
(i) The incidences of ‘broad poverty‘ are lower than
2% (including Beijing, Jiangsu, Zhejiang, and
Guangdong)
(ii) The incidences of ‘broad poverty‘ range from 2% to
4% (including Shanghai, Fujian, Hunan, Guangxi,
Yunnan, Anhui, and Jiangxi)
(iii) The incidences of ‘broad poverty‘ range from 4% to
6% (including Hebei, Hubei, Guizhou, Chongqing,
Qinghai, Shandong, and Sichuan)
(iv) The incidences of ‘broad poverty‘ range from 6% to
8% (including Tianjin, Inner Mongolia, Liaoning, Jillin,
Hainan, Xinjaing, Shanxi, Heilongjiang, and Gansu) and
(v) The incidences of ‘broad poverty‘ are higher than
8% (including Henan, Shaanxi, Ningxia, and Tibet)
Source: Asian Development Bank (2002)
8.4 Income redistribution
and social security
8.4.1 China’s existing tax system
8.4.2 Personal income tax
8.4.3 Social security
Source: NBS, 2010.
Figure 8.3 Ratios of enterprise and personal income taxes to GDP
Annex: The Gini Coefficient:
Mathematically, if the area between the line of
perfect equality and the Lorenz curve is A, and the
area under the Lorenz curve is B, then the Gini
coefficient is A/(A+B). Since A+B=0.5, the Gini
coefficient becomes A/(0.5)=2A=1-2B.
Figure 8.4 The
Lorenz curve
Case study 6
Transition and growth: A tale of two
companies
The full version of this research is available at:
http://www.elsevierdirect.com/companions/9780123978264
Table 8.5 Level, composition and inequality of earnings per worker, December
Guangzheng
Chuangda
1997
2001
1997
2001
Excl.
Excl. laidAll staff laid-off
All staff
off staff
staff
Total earnings
490.64
723.39
735.54
493.97 528.20
660.63
(yuan)
（100.0） （100.0） （100.0） （100.0） （100.0） （100.0）
(%)
Wages (yuan)
490.64
552.07
563.63
493.97
447.14
566.38
(%)
（100.0） (76.3) （76.6） （100.0） （84.7） （85.7）
Share bonus
171.32
171.91
81.06
94.25
NA
NA
(%)
（23.7） （23.4）
（15.3） （14.3）
Of wages
Basic wage (yuan) 340.36
376.60
384.48
354.90 260.86
330.42
(%)
（69.4） （52.1） （52.3） （71.8） （49.4） （50.0）
Bonus (yuan)
49.89
50.95
NA
NA
NA
NA
(%)
(6.9)
（6.9）
Subsidy (yuan)
150.28
125.58
128.20
139.07 186.28
235.96
(%)
（30.6） （17.4） （17.4） （28.2） （35.3） （35.7）
Earnings inequalities (Gini coefficients)
Total earnings
0.265
0.345
0.326
0.186
0.414
0.276
Wages
0.265
0.362
0.320
0.186
0.405
0.247
Share bonus
NA
0.595
0.601
NA
0.592
0.590
Of wages
Basic wage
0.355
0.423
0.411
0.247
0.394
0.233
Subsidy
0.524
0.387
0.373
0.419
0.594
0.461
Samples
229
390
382
36
437
345
Notes:
(1) monetary values are represented by current
prices. From 1997 to 2001, the consumers
price index (CPI) decreased by 2 per cent
(NBS, 2002, p. 296).
(2) “NA” denotes not available.
(3)The samples of Chuangda only come from
office workers in 1997, which are not
comparable to those in 2001.
Table 8.6 Average earnings by groups of workers (yuan/person, December)
1997
Wages
2001
Wages
Total earnings
Guangzheng
Chuangda
490.64
493.07
552.07
447.14
723.39
528.20
Male
582.46
533.42
709.67
475.11
933.65
576.55
Female
435.93
404.29
358.03
390.76
501.26
437.13
College (3 and 4 years)
509.46
562.69
1163.06
857.61
1348.53
1198.52
Senior high or technical
school
493.76
442.17
671.03
402.36
916.99
492.77
Junior high school
513.45
530.89
469.07
415.19
637.66
460.38
Primary
484.90

533.42
733.65
740.60
787.82
Others
467.75

498.05
505.04
560.71
506.25
20 year or younger

277.90
426.27

426.27
24.17
21-30 years
494.85
339.28
584.80
345.76
679.72
389.63
31-40 years
493.48
512.43
511.22
485.55
665.72
582.45
41-50 years
614.23
560.30
660.64
465.48
1018.20
549.90
50 years or older


572.72
356.36
688.50
429.91
Physical workers
477.66
515.52
438.46
515.38
581.00
563.99
Technical workers
515.10

534.25
433.80
699.17
482.88
Office workers
312.38
348.21
777.17
640.24
1036.71
703.18
Middle-ranking staff
1066.96
457.90
1742.14
754.04
2910.69
1056.02
High-ranking staff
1416.65
885.02
2281.74
1654.73
2575.06
2721.39
All staff
Guangzheng Chuangda Guangzheng Chuangda
Position
Age group
Education
Sex
Chapter conclusion:
This chapter sets out to examine various factors (sources)
contributing to China’s rapid economic growth. While
China’s reform since the late 1970s has been a strong
driver of its economic growth and of the increased levels
of income, it has also caused a series of socioeconomic
problems. In the initial stage of the reform, the policy of
‘letting some people get rich first’, adopted to overcome
egalitarianism in income distribution, to promote
efficiency with strong incentives and ultimately to
realize common prosperity based on an enlarged pie, has
quickly increased income gaps between different groups
of people. This chapter test, qualitatively and
quantitatively, the causes and consequences of China’s
increasing income inequalities. Finally, China’s poverty
reduction and social security are briefly discussed.
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