Much recent research on the Chinese economy has centred on analysing
changes in the personal distribution of income in China since 1978. The
purpose of this research has been both to delineate the trend in income
inequality over time, and to “decompose” this trend into its component
parts.1 The central conclusions to emerge are that income inequality has
increased sharply during the transition era, and that spatial factors –
particularly a rise in inter-provincial income differentials and an increase
in the urban–rural gap – have played a key role in the process. The policy
conclusion which has usually been drawn is that the Chinese state needs
to dismantle the remaining restrictions on labour mobility because these
have served to prevent the fruits of growth from “trickling down” from
urban areas and the eastern provinces to the Chinese hinterland. It is
argued that such a policy would raise rural wages and reduce urban
wages, thus reducing the urban–rural income gap. The removal of
obstacles to labour migration would also serve to reduce the income gap
between the coastal provinces and those of the interior.
The purpose of this report is to scrutinise the quality of the survey data
on which these conclusions are based. It will be argued that, even afterthe adjustments to the State Statistical Bureau survey data made by (inter
alia) Khan, Zhao and Riskin, the data on China’s personal income
distribution still provide too fragile a basis for firm policy conclusions.
There is no question that income inequality has increased dramatically
since 1978, but both the extent of the increase and its underlying causes
are still very far from clear.