China Economic Update: April 2017

China’s income inequality improving but still some long term challenges.

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Overview:

  • There has been an increased focus on inequality in income and wealth in major economies in recent times, with these themes influencing the outcome of the 2016 US Presidential Election and having an impact in this year’s European elections – supporting the rise of populist candidates. China’s income inequality grew rapidly as the country industrialised, but has narrowed more recently, a positive for both social stability and the transition towards a consumption based economy.
  • A range of factors have contributed to the narrowing in China’s income inequality in recent years – including policy measures implemented by governments (such as minimum wages) and broad demographic and development trends (reducing the level of surplus rural labour).
  • Although trends in income inequality have improved in recent years, it is worth remembering that the overall level of inequality remains extremely high – particularly in comparison to the majority of advanced economies. Further improvement will help to support China’s economic transition from an investment based economy to a consumption based one.
  • There are some structural constraints that could limit further reductions in inequality. China’s intergeneration mobility – the capacity for individuals to move up into higher income groups – is particularly low, and has worsened over time. A major contributor to this has been education – with higher income households locking in access to the highest quality education, perpetuating a cycle of disadvantage for lower income households. Greater government investment in education may be necessary to improve intergenerational mobility.

For further details, please see the attached document: