Modern China's Income Distribution: A Quantitative Study

Income distribution, along with economic growth, describes the most important features of an economy. It also has very close relationships with other aspects of our society, such as morality, politics, and social stability. Due to its importance, concern with income distribution has been a considerable part of economics since the very beginning. David Ricardo (1817) opened the study of functional distribution referring to the shares of national income among the owners of primary factors of production: land, capital and labor. This approach then dominated the study of income distribution from the Classical, Marxian, Neo-Keynesian and Neoclassical schools until the 1950s, and is still broadly applied in contemporary studies. After 1950s, partly thanks to the famous article by Kuznets (1955), partly because of the better description of social equality and welfare analysis, size distribution, which had been originally brought forward by Vilfredo Pareto, was adopted by more and more researchers on social welfare shares by different income levels.A boom of income distribution studies took place after the 1970s, mainly because of extensive disappointment at the weakness of the so-called trickle-down effect. Besides the large numbers of investigations and research supported by UN and World Bank on almost all developing countries, more and more empirical studies have also been made by many economists around the world, especially on reforming China. These studies have covered almost all kinds of perspectives, including econometric measurements of income distribution, the income distributive effects of economic growth, education, financial markets, foreign trade, migration, exchange rates, public policy and redistribution, gender inequality, etc.To get a better understanding of the trend in income distribution, the long term or historical perspective was also adopted. However, due to the data imperfection and language restrictions, the above historical studies were only made for developed countries in Europe, North America and Japan during recent centuries, excluding modern China.Methodologically, Adelman and Robinson (1978) first adopted the newly developed CGE model in the study of Korean income distribution, which was defined as extended functional income distribution, the third concept of income distribution besides the functional and size ones. This approach was soon accepted and applied by some other studies such as Taylor, Bacha, Cardoso and Lysy (1980), because of its distinctive advantages in income studies disaggregated by various sectors and modes of economy, such as urban and rural groups, importers and exporters, and regional comparison. Thus is very helpful in research measuring influences on selected items from certain factors. Due to its special design, the extended functional distribution is also more sensitive to exogenous shocks such as price, government policy, migration and other institutional and historical factors than size distribution. Therefore, different from the nationwide study of functional distribution and size distribution, extended functional distribution shed light on the importance of disaggregated studies in spite of data limit, allowing us to consider modern China's income distribution in regional and sectional perspectives despite imperfect data.Following the ideas of extended functional distribution, I will adopt a sectional perspective in this study. The whole book will be divided into three parts; each studies the income distribution in rural area, urban area, and the fiscal and foreign factors' influences on income distribution.An empirical study of the status and moving trend of modern Chinese income distribution in rural areas will be presented in Part I (chapter 1-3).Chapter 1 introduces the income gap between each classes and different regions. The handicraft income appears to be an important reason for the enlargement of the income gap between different regions. And the emigration of absentee landlords and rural intellectuals explains why the income difference between each class was not very remarkable. Chapter 2 studies the consumption, household balance and debt in rural area. The Engel Coefficients by class does not differ a lot. The proportion of deficient households was found to be about 1/3, and the indebted proportion almost 1/2, including some landlords and rich farmers. Within all the rural debts, more than 70% of them were used in non-productive purpose such as subsistence necessity, wedding consumption and bereavement cost. Land is the most important factor in rural production. Chapter 3 studies the land distribution by region. The Gini coefficients vary a lot, but no adequate evidence is found supporting that the land?distribution gap is getting larger.Partâ…¡(chapter 4-7) concentrates on the urban areas and the Dual Economy Transition between urban and rural areas.Chapter 4 first reviews the compradors' income and compares it with the income of traditional merchants, then analyses the scale, location and profit rate of national industry. Chapter 5 studies the income of middle class in modern Chinese urban areas, including high level intellectual, government officers, military officers, engineers and managers.Chapter 6 studies about the income and consumption level of different kinds of workers from modern factory, mine, and railway. Chapter 7 first observes the income level of common townsfolk, including government staffs, school teachers, coolies and etc. Based on above studies, the serious unemployment and the failure of Dual Economy Transition in modern China will also be reviewed.Partâ…¢(chapter 8-9) is trying to give to fiscal and foreign reason to the above income distribution status. Chapter 8 studies about the central and local government financial status, partly explains the failure of Dual Economy Transition and the worsen of rural living condition. Chapter 9 attempts to widen our research scope to observe modern China from a global perspective. This design was based on two reasons. On one side, modern China was highly influenced and shaped by international political and economic factors, whose distributive influences must be taken into account during our study to gain deeper understanding of modern China's income distribution. On the other side, it might be theoretically beneficial to include the case study of modern China from late 1840 to 1949 into the globalization-income distribution framework.Some deductions of income distribution in modern China are given in the last chapter; however, it is far not a conclusion. More and deeper studies will be needed to explore this topic.