Previous research using data from the China Household Inocme Project (CHIP) has shown
that income inequality among urban residents in China increased rapidly between 1988 and
1995, whereas changes between 1995 and 2002 were small and in the opposite direction. In
this paper we report that the 2002-7 period differs in several respects from previous periods.
Levels of income increased more rapidly than previously, particularly at the top of the income
distribution, and so this period saw a new episode of increased income inequality. During this
period poverty among urban residents assessed by various poverty lines decreased to rather
low levels; however, ever larger fractions of urban residents fell below a poverty line defined
as a fixed percent of median income.
A main task of this chapter is to better understand why urban income inequality is again on
the rise and how various categories of persons and households have fared. Using inequality
decomposition by income source, we find that rapid increases at the top of the distribution of
imputed rents from owner-occupied housing and incomes from the private sector both
contributed to the increased urban inequality. We also analyze how various groups have
fared. We find substantial differences across cities. China’s urban poverty problem is
disproportionally concentrated in low-income cities, whereas well-to-do households are more
prevalent in high-income cities. China’s children grow up in households with rather different
economic situations and the elderly also face a wide variation in economic well-being.