We document the evolution of the income distribution in rural China, from 1987 through 1999,
with an emphasis on investigating increases in inequality associated with transition and economic
development. With a backdrop of perceived improvements in average living standards, we ask whether
increases of inequality may have offset, or even threaten welfare gains associated with economic reforms.
The centerpiece of the paper is an empirical analysis based on a set of household surveys conducted by
the China’s Research Center for Rural Economy (RCRE) in Beijing. These surveys permit us to construct
a set of comparable estimates of household income and consumption from a panel of over 100 villages
from nine Chinese provinces. We provide a variety of summary statistics, including Gini coefficients, as
well as more nonparametric summaries of the income distribution (i.e., Lorenz curves). In addition, we
decompose the sources of inequality, exploring the contributions of spatial inequality to overall
inequality, and the role of non-agricultural incomes in explaining rising dispersion of incomes.
We find that the distribution of income improved by most measures during the early part of the
period, as average incomes rose substantially with only a modest increase in inequality. However, the
distribution has worsened significantly since 1995, with rising inequality, and falling absolute incomes,
especially at the bottom end of the income distribution. We attribute most of the recent decline in welfare
to collapsing agricultural incomes, probably brought about by lower farm prices. At the same time,
increasing non-farm incomes have widened the gaps between those with and without access to nonagricultural
opportunities. Based on explorations with different data sets, our RCRE-based results
probably understate the divergence due to non-agricultural income growth and the increase in inequality
over time. Our results highlight the need for further evaluation of the role of farming as a source of
income in the countryside, and also underline the limitations of a land-based (and essentially grain-based)
income support and redistribution mechanisms.