CHINA: Income inequality and
poverty in transition.
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1. Introduction
2. Health & Well-being
3. Evolution of income inequality
4. Evolution of poverty
5. Taxation systems
6. Welfare systems
7. Policy discussion
* Note on information
General background
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
1 Introduction the situation before 1978
2 Rural reform in china
2.1 The first stage (1978—1984) focus on
decollectivizing agriculture by introducing
household responsibility system
2.2 The second stage started from 1985,
change away from agriculture sector to the
rural industrial sector
2.2.1 Develop non—farm enterprise
2.2.2 Explain the reasons for income inequality
in rural during these periods
General background

3 Urban reform in china
3.1 Before 1980s , little had changed in urban
3.2 From the early 1990s, factor market reform
proceeded gradually
3.3 Since 1995, urban economic reform has
taken a sharp turn

4 Poverty in transition in china
4.1 Before 1978, vast poverty occurred in rural
4.2 The situation of poverty in china after 1978
4.3 Eighth Five-Year plan
CHINA: Income inequality and
poverty in transition.







1. Introduction
2. Health & Well-being
3. Evolution of poverty
4. Evolution of income inequality
5. Taxation systems
6. Welfare systems
7. Policy discussion
Evolution of Health Conditions
Table 2.1: Evolution of health indicators.
1959
1970
1980
1990
1995
2001
35
61
67
67,36
67
69
225
-
64
49
46
39
17
14
10
Life expectancy
(years)
Under-five mortality rate
(per thousand live births)
Under-five malnutrition
(%)
Infant mortality rate
(per thousand live births)
-
-
42
30
38
38
-
0,49
0,55
0,62
0,68
0,72
Human development index
(UNDP measure)
Source: Kingsley, G. (2003), Shenggen, F et al. (2002), Asian Development Bank, UNICEF and UNSTATS.[1]
Evolution of Health Conditions
Table 2.2: leading selected risk factors for death and disability
High-mortality
Low-mortality
developing countries
developing countries
Developed countries
1
Underweight
Alcohol consumption
Tobacco consumption
2
Unsafe sexual practices
High blood pressure
High blood pressure
3
Unsafe water, poor
sanitation and poor hygiene
Tobacco consumption
Alcohol consumption
4
Underweight
High cholesterol level
5
Indoor smoke from solid
fuels
Zinc deficiency
Overweight
Overweight
6
Iron deficiency
High cholesterol level
7
Vitamin A deficiency
Low fruit and vegetable intake
Low fruit and vegetable
intake
Physical inactivity
8
High blood pressure
Indoor smoke from solid fuels
Illicit drug use
9
Tobacco consumption
Iron deficiency
Unsafe sexual
practices
Source: The Medical Journal of Australia
Evolution of Health Conditions
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Malaria, tuberculosis
HIV/AIDS
SARS
Tobacco use
Alcohol use
Air pollution
CHINA: Income inequality and
poverty in transition.







1. Introduction
2. Health & Well-being
3. Evolution of poverty
4. Evolution of income inequality
5. Taxation systems
6. Welfare systems
7. Policy discussion
Poverty in China
1978: +/-250 million people
1985: +/-125 million people
2002: +/- 72 million people
 Urban versus rural poverty
1. Urban poverty:
– Low poverty (migrants excluded)
– General trend: no decline in period of reform
– Different sources, different information

2. Rural poverty
Evolution of rural population in China under the
poverty line
350
300
250
200
Poverty line
150
Poverty line +10%
100
50
0
1978
1980
1981
1983
1985
1988
1990
Income inequality in China

Definition Gini coefficient
1984: gini 0.30
1989: gini 0.35
1995: gini 0.42

Dimensions:
–
–
–
Rural versus Urban inequality
Inequality within rural and within urban areas
Coastal areas versus inland regions
Evolution of inequality between and
within urban and rural areas
Ratio of urban to rural income
3,50
3,00
2,50
2,00
Reeks1
1,50
1,00
0,50
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
0,00
Evolution of rural and urban Gini coefficients (1978-1997)
0,400
0,350
0,300
0,250
0,200
0,150
0,100
0,050
0,000
Gini Rural
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
Gini urban
Regional income gap
Per capita national income gap between Coastal and
Inland regions
2500
2000
1500
Coastal (a)
1000
Inland (b)
500
0
1952 1957 1965 1970 1975 1978 1980 1985 1988 1990 1991 1992
28%
37.9%
45.2%
CHINA: Income inequality and
poverty in transition.







1. Introduction
2. Health & Well-being
3. Evolution of poverty
4. Evolution of income inequality
5. Taxation systems
6. Welfare systems
7. Policy discussion
Taxation Policy - Introduction
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

First mentioned in the 1949 National Taxation
Policy.
First Individual Income Tax Law was passed on
Sep.10th, 1980
Amended on Oct. 31st, 1993 and re-issued on
Jan. 28th, 1994
The working mechanism

The formula for computing the amount of tax
payable is:
Monthly taxable income = Monthly aggregate
wages/salaries - 800 yuan
Monthly amount of tax payable = Monthly
taxable income ×Applicable rate - Quick
deduction
Inequality between Coastal and
Inland Regions
Per capita national income gap between Coastal and
Inland regions
2500
2000
1500
Coastal (a)
1000
Inland (b)
500
0
1952 1957 1965 1970 1975 1978 1980 1985 1988 1990 1991 1992
Suggestions on How to Revise the
Individual Income Taxation (1)
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
greater tax should be levied on higher income
earners and a higher tax rate should be set
low-income earners should be given tax reduction
or exemption, and the low-income limits should be
gradually raised, expense deduction items should be
increased and expense deduction standard be lifted.
Suggestions on How to Revise the
Individual Income Taxation (2)


the current classified tax collection system should
be turned into a mixed tax levying system as
quickly as possible
former base of individual income tax 800 yuan
should be raised to build up people's purchasing
power
CHINA: Income inequality and
poverty in transition.







1. Introduction
2. Health & Well-being
3. Evolution of poverty
4. Evolution of income inequality
5. Taxation systems
6. Welfare systems
7. Policy discussion
Pension reform and inequality
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Frequent changes in the pension policy  very
fragmented and municipality-based PAYGO system

Pension coverage – narrow; growing inequality accross
social groups and regions
Number of employees with and without pensions at the end of 1998
With Pension
Without Pension
Total
- urban cities and towns
100
107
207
- rural areas
100
393
493
- total
200
500
700
Working population (million):
Unequal allocation of pension funds with
respect to place of employment
Year
Total
Funds of
Pension state-owned
units
Funds of
urban
collective
owned units
Funds of
other
ownership
units
Per
capita
funds
(yuan)
Per capita
funds of
state-owned
units
1980
5.04
4.34
0.70
-
714.0
781.0
1983
8.73
7.40
1.33
-
726.0
787.0
1984
10.61
8.46
2.12
0.03
766.0
815.0
1990
39.62
31.97
7.47
0.18
1760.0
1907.0
1992
57.85
47.43
10.08
0.34
2300.0
2493.0
1993
75.93
62.32
12.39
1.22
2824.0
3029.0
1995
130.56
109.31
18.24
3.01
4335.0
4701.0
1998
207.37
172.60
22.90
11.48
5972.0
6369.0
Differences by
province
Health insurance reform

Decline in total insurance coverage for most
socioeconomic and demographic groups

Narrowing coverage differentials between
urban and rural areas, across provinces,
occupations and genders
Insurance rates with respect to occupation
Insurance rates across stratas
100
80
70
60
50
40
30
20
10
0
1989
80
1991
60
1993
1997
40
20
0
1989
City
Neighborhood
Suburban
Village
Tow n
Rural Village
Neighborhood
1991
1993
1997
Senior Profession/Manager
Low profession/Clerical/ Skilled w orker
Farmer/Fisherman
Unskilled w orker
Service Worker/Driver
Other/Unknow n
Insurance rates with respect to the education level
Insurance rates for men and women
100
30
80
25
60
20
40
Male
15
20
Female
10
0
1989
1991
1993
1997
No Schooling
Some Primary
Finish Primary
Finish Low Middle School
Finish Up. Middle School
Beyond Up. Middle School
5
0
1989
1991
1993
1997
CHINA: Income inequality and
poverty in transition.







1. Introduction
2. Health & Well-being
3. Evolution of poverty
4. Evolution of income inequality
5. Taxation systems
6. Welfare systems
7. Policy discussion
Policy discussion
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Broad-based economic growth strategy alone is
not sufficient
Regional differences  area focused
infrastructure
encouraging private sector & participation
trade policy and FDI
International community
Infrastructure

! long-term economic growth

Roads & Railways
Energy (electricity)
Water
…
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[75% rural]
Private sector

= engine for economic growth
 living conditions , poverty 
JOB CREATION !
(15-28 mio/y + 10 mio SOE + 150 mio rural)
Private sector

Necessary conditions
 rule of law (legal and regulatory framework)
 revising - taxing system (illegal + arbitrary fees )
- administrative laws and regulations, red tape
- accounting and audit standards
TRANSPARENCY
 removal infrastructure bottlenecks
 removal inter-provincial trade barriers
 acces to $$$
Trade policy and FDI
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Large inflows of FDI prospered eco growth
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International trade x 3 (since 1980)
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Openness … WTO-rules
* International involvement:
ADB, UN, ILO, WB, NGOs,…
Challenges
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Budget constraints
Institutional capacity & HR limited
Lack of national structure – urban poverty
Health system & social security
Education – rural!
Open-mindedness