Forget debt, the next big issues that will dominate discussion about China’s future progress will be on how to fix the problem of income inequality and whether or not China can escape the middle-income-trap.
The paper highlighted this week looks at the first issue and rather than suggest a fix aims merely to quantify the problem. As the researchers, Haiyan Ding and Hui He writing in an IMF Working Paper Series report point out, everybody knows there’s an issue but very little work has been done on the scale of the problem.
One particularly noteworthy aside in the paper is to remind just how enormous the changes to Chinese society have been over the study period. The table below is an extract from one of their survey sources and it speaks volumes.
They also note a curios feature of the Chinese experience is consumption inequality has been rising in line with income inequality and this is at odds with findings in other economies.
In terms of how much inequality has risen they conclude, using a blend of measures, it’s increased threefold over the study period.
It’s not all bad news though. Over the period the forced closure of SOEs and the rise of private enterprise, where income is higher but more erratic, may be significant factors affecting the trends. Since these changes are one-offs it could be that the issue is, as they describe it ‘..the growing pain associated with.. economic transition.’ Growing or not, pain is still pain.
You can access the paper in full via the following link Inequality in Urban China.
Happy Sunday.