Economic Inequality and Poverty in P.R. China Talk at Department of Social Work University of Gothenburg November 5, 2010 Björn Gustafsson, University.

Economic Inequality and Economic Inequality and Poverty in P.R. ChinaPoverty in P.R. China

Talk at Department of Social Work Talk at Department of Social Work University of Gothenburg University of Gothenburg

November 5, 2010November 5, 2010Björn Gustafsson, Björn Gustafsson, University of University of

Gothenburg Gothenburg

Type of questions?

• Is China becoming more unequal? • What explains changes (or lack of changes)? • How unequal is China compared to other

countries? • Which role do the urban to rural income gap play

for inequality in China? • Has poverty in China been reduced? • What role do public policy play for inequality and

poverty?

Publication

• Gustafsson, B., Li S. and Sicular, T. (Eds) (2008): ”Inequality and Public Policy in China”, Cambridge: Cambridge University Press. Chinese version available.

• Journal articles, Working Papers.

• We report results from a project collecting household data for large parts of rural as well as urban China 2002.

• This was coordinated with similar studies in 1988 and 1995.

• Now we analyze a survey for 2007.

The approach

• Large surveys covering many provinces in rural as well as urban China.

• Data collected for 1988, 1995, 2002 and 2007.

• Collaborative research.

• Publications in English and Chinese.

The talkThe talk

ContextContext Research method – data Research method – data Inequality Inequality Poverty Poverty Human capital and it’s formation Human capital and it’s formation Concluding comments Concluding comments

Context – The 1950s

• Urban China: The Soviet system was introduced in urban China.

• Work units (danwei) - from the cradle to the grave.

Planning.

No unemployment.

• Rural China: Collectives.

• Increased education, but low private consumption.

• Underemployment.

Urban and rural China as two different societies

• The hukou system separates effectively since the beginning of 60s urban and rural China.

• Very large differences between rural and urban areas.

• Rural born and urban born persons faces rather different life chances.

Transition towards a market economy

• Rural China at the end of the 70s.

• Family responsibility system.

• Initially increased income.

• Urban China at the beginning of the 80s.

• Markets for goods.• Opening up the east

6th 5-year plan (1986 – 1990).

• Foreign trade and foreign investments.

Rapid spatially unbalanced economic growth.

The hukou system has survived

• Possibilities for rural people to move to the cities, although not having hukou – Perhaps 140 million.

• Young manual workers. A segregated labor market. Migrants work many hours, many send back remittances.

• Permanent migrants: China’s unknown migrants – around 100 million. Well integrated.

Restructuring of work units in urban

China during the second part of the 90s • Market allocation – firms

make losses which leads to redundancy, lay offs and unemployment.

• The transition from youth to adulthood becomes problematic.

• Early retirement becomes common, particularly among women.

• From January 1996 to November 2001 (ILO Conventions):

• LFP – 8.6 %.• Unemployment rates:

from 7.1 % to 12.5%.• Employment rates:

- 12.2 %.• Thereafter:

Improvements.

Large progress in collecting Large progress in collecting household data for China. household data for China.

Different methods Different methods Researcher Researcher

initialized initialized strategy.strategy.

Use of data Use of data collected by collected by NBS.NBS.

The combined The combined strategystrategy..

See Gustafsson, B. See Gustafsson, B. and Li, S. (2006) and Li, S. (2006) ”Three Ways to ”Three Ways to Obtain Household Obtain Household Income Data” in Income Data” in Heimer, M. and Heimer, M. and Thogersen, S. Thogersen, S. (Eds) (Eds) Doing Doing Fieldwork in Fieldwork in ChinaChina, NIAS Press, NIAS Press..

Researcher initialized strategy

• The researcher formulates research questions, design and planning fieldwork, supervise fieldwork, coding, data cleaning and finally analyses.

• Can lead to high quality data that fit the research questions.

• Requires long term commitment and resources.

• Difficult to apply if trying to study large parts of China or changes over time.

Use of data collected by National Bureau of Statistics

• Division of labour: The researcher concentrates on analysis.

• The ideal: Impartial, high quality data that fits research questions well and are easy to access.

• Has potential to study differences across large territory as well as changes over time.

* Which questions are asked?

• Access? • Quality?

NBS system for collecting household data

• One rural survey, one urban survey. • Sampling: several stages.• One problem: Rural people living in urban

areas are not in the sampling frame.• Sampled households are followed for

more than one year, they keep detailed records and are visited by assisting enumerators.

• Problems of non response in urban areas.

The combined strategy to collect household data for China

• Researchers formulate questions, make some cleaning and analyzes.

• NBS is responsible for the fieldwork.

• Not a single researcher project.

• Questions to respondents can match research questions.

• Coverage over space and over time.

• Access. • Requires good

relations with NBS.

Examples of the combined strategy – CHIP

• The surveys for 1988, 1995, (1999) and 2002.

• Basically the same design all years.

• 8 000 – 10 000 rural households each survey.

• 7 000 – 9 000 urban households each survey.

• In 2002 also:One survey of 2 000

rural households living in urban areas without hukou.

One survey to cadre in the 961 administrative villages where rural households live.

A closer look at design. Number of provinces covered in three studies.

1988 1995 2002

Rural sample

28 19 22

Urban sample

10 11 12

Migrant sample

12

Books

• Griffin and Zhao (1993) The Distribution of Income in China.

• Riskin, Zhao and Li (2001) China’s Retreat from Inequality.

• Khan and Riskin (2001) Inequality and Poverty in China in the Age of Globalization.

• Li and Sato (2006) Unemployment, Inequality and Poverty in Urban China.

• Gustafsson, Li and Sicular (2008) Inequality and Public Policy in China.

• A new book in preparation.

InequalityInequality

Variables: Variables: Earnings in Earnings in

urban China. urban China. Wealth.Wealth. Income. Income.

Changes over Changes over time – increase? time – increase?

Levels – Levels – compare with compare with other countries.other countries.

Urban vs rural.Urban vs rural.

Changes in real earnings in urban China

• Average wages increased by 58 percent from 1995 to 2002.

• This corresponds to an annual increase of 6.8 percent.

• The Gini increased from

22.9 percent in 1988.

30.7 percent in 1995.

to

37.0 percent in 2002.

Gender differences in the urban labour market

• Increased negative effect of being a women on wages.

A wage function analysis controlling for age, education etc show increased effect:

- 10 percent in 1995.- 16 percent in 2002.- 26 percent in 2007.

• Women more often than men were in 2002 non-employed.

As a consequence are married women more dependent on their men’s income than earlier.

Income dependency among couples

Country and year

Women has no earnings %

Women earns less than men %

Equality in earnings %(40 – 60 %)

Women earns more than men %

Women sole earner %

Sweden 1995 8.7 57.9 15.5 12.3 5.5

Germany 1994

33.5 39.2 9.6 6.3 11.5

Netherlands 1994

39.8 41.2 7.6 2.5 7.8

Urban China 1995

1.0 32.2 59.9 7.9 0.1

Urban China 2002

7.6 40.5 38.7 12.0 1.2

The distribution of wealth in rural China

• Components in 2002:

Housing 43 %

User to land 31%

Financial assets 12 %

Rest 14 %

• Rather equally distributed, but becoming more unequal.

Ginis:• 1988: 31.1 %• 1995: 35.1 %• 2002: 39.9 %

Wealth in urban China

• Composition in 2002

Housing 64 %

Financial assets 26%

Durables 7%

Housing reform took place during the 90s.

Often benefited earlier tenants.

• More unequal than in rural China, but did not become more unequal between 1995 and 2002.

• Ginis:

1995 50 %

2002 48 %

A international comparison of wealth inequality

Country Year Gini coefficient Percent

USA 1983 79

(West) Germany 1988 69

Canada 1984 69

Italy 1987 60

Japan 1984 52

Sweden 1985 59

China as a whole 1995 40

Urban China 1995 50

Rural China 1995 33

We now turn to income

• Income is not only earnings but also possibilities to consume farm products, imputed rents of owner occupied housing and transfers.

• Income measured at the household level.

• We adjust for household size

• We use individuals as unit of analysis

Income inequality

Income inequality in entire China =

Income inequality in urban China

+ Income inequality in rural China

+ Between urban and rural inequality

[if we use a additively decomposable index]

Gini coefficients in 2002. Percent

Urban China 32

Rural China 37

China as a whole 47

Income growth in urban China 1995/1988, 2002/1995 and 2007/2002. Annual changes

0.0

5.1

.15

Inco

me

gro

wth

0 20 40 60 80 100Percentile

1988-1995 1995-20022002-2007

Comments on urban income inequality

• Housing reform took place gradually and the best off households had already benefited in 1995.

- Once for all effect.

• Most urban elderly enjoy pensions.

A large fraction live in separate households and are not under privileged.

• Employment in private enterprises have increased, as has self-employment.

Annual changes in real income for various deciles in rural China 1988 / 1995, 2002/ 1995

Figure 2a: Growth for deciles 1988/1995 and 2002/1995 -- rural area

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10

Deciles

Gro

wth

rate

(%)

1995/1988

2002/1995

Comments on rural income inequality

• Very much of rural income inequality is spatial.

For example much more than in India.

Differences in mean income across : regions, provinces, and counties.

• Between 1995 and 2002 did differences in mean income between provinces in the east diminish.

Economic growth has spilled over within the eastern region.

Annual changes in real income for various deciles China as a whole 1988 / 1995, 2002/

1995

Figure 1: Growth in income for deciles for the period 1988/1995 and 2002/1995

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10

Decile

Grow

th r

ate

(%) 1995/1988

2002/1995

Comments on income inequality in China as a whole

• Income inequality is high by international standards.

• It has not increased, nor decreased between 1995 and 2002.

• Very much of income inequality in China is spatial.

If Chinas provinces were countries (HDI):

Shanghai and Beijing similar to Greece and Hungary.

Guizhou and Tibet like Morocco and Namibia.

Urban to rural inequality

1988 1995 2002

Urbanization rate

26 % 29% 39%

Urban to rural income gap

2.7 3.1 3.1

Between urban to rural inequality as % of total

inequality

37% 41% 46%

Comments on the rural to urban income inequality

• The urban to rural income gap is large in international comparison.

• Urban people are better educated, but this can only explain a smaller part of the gap.

• There are very large incentives for rural people to urbanize.

• How to deal with the large migration pressure is a very big issue.

PovertyPoverty

Rural povertyRural poverty

Has been very large.Has been very large.

After first reforms did it After first reforms did it decrease rapidly. decrease rapidly.

1988 to 95 vas a period 1988 to 95 vas a period of disappointing of disappointing development but development but later new progress. later new progress.

Urban poverty Urban poverty

From very low to a From very low to a new problem.new problem.

Rural poverty

• According to World Bank: China has the second largest poverty population in the world. (Under 1 USD PPP person and day).

• Very large reductions following the first reforms.

Changes 1988 to 1995.

No reductions in the west.

If considering expenditures on education and fee, no progress.

From 1995 to 2002:

General reductions.

Rural poverty policy in PRC

Government designated poor areas (counties).

Measures are targeted to the poor areas.

Not a policy targeting poor households.

• Problems:

Leakage: Non- poor (> 50 percent of inhabitants in poor areas) benefit.

Under coverage: Measures do not reach poor living elsewhere.

The definition of poverty in rural China

• Official poverty line is lower than 1 USD PPP. 627 Yuan per person and day (in 2002) .

• ”Low income line”, similar to 1 USD. 879 Yuan per person and day).

• What does the population think?

The SPL methodology.

We find that the answer depends on where one lives.

• Guizhou 1 016 Y• Zheijang 1 741 Y

The extent of rural poverty in China

• Poverty rates according to:

World Bank in 2001: 16.6 percent.

Gustafsson and Yue (2006) for 2002: 15.3 percent.

• Examples for 2002: Eastern region: 10 %.Western region: 21 %.

Jiangsu 4 %.Guizhou 33 %.

Poor areas 31 %.Non poor areas 10 %.

Ethnic minorities are disproportional located to rural western China

• PRC recognizes Hahn and 55 ethnic minorities.

• Ethnic minorities make up 8.4 percent of the population – 104 million persons.

• Typically minorities live in villages inhabited with other minority persons.

• Between 1988 and 1995 did the minority – majority gap increase rapidly.

• Minorities have higher poverty rates than the majority.

• Minority villages in the south-west have rather low income.

Poverty among rural to urban migrants

How to conceptualise (and measure)?

Refer to rural or urban population? – Do they need less money than residents?

Access to public services and housing

- Do they need more money than residents?

How to consider that they work many hours?

- Several would have been considered poor if working as many hours as residents.

Poverty among urban residents affected by joblessness

• In our urban data from 2002 were:

8 percent of persons in the Labor force are unemployed.

22 percent lived in a household with at least one member unemployed.

• Implications:

- Income from working household members are rather important for alleviating poverty.

- Joblessness affect many urbanites.

Individual consequences of joblessness

• Re-employment, but wage losses compared to others (scaring).

• Receive early retirement benefits.

• Receive Unemployment Insurance Benefits.

• Xia gang – keeping ties with the work unit. Now phased out.

• Need for a new safety net.

Di Bao – Social assistance

• Existing local programs were put in a new legal frame in 1999.

Households can apply. Income and asset tests. SA line differ by city, on

average: 1 872 Yuan a year and

person in 2005.

• Number of household receiving increased from 2 million in 1998 to 22 million in 2002.

• 3.7 percent of urban residents (migrants are not entitled).

(Sweden 2005 4.5 percent)

Comments on Dia Bao

• Di Bao receipt closely linked to joblessness (which vary by city) and lack of financial assets.

• Well-targeted, alleviate poverty for many, but often to small to make the households people live in cross the poverty line.

Human capital and human Human capital and human capital formationcapital formation

Education and Education and Schooling. Schooling.

Large increases Large increases in the education in the education levellevel

of the population. of the population.

Health and Health and health care.health care.

Large increases Large increases in life in life expectancy (due expectancy (due to economic to economic growth). growth).

Education

• Rates of return to education was low during the planning period.

• Clear evidences of increased rates of return to education:

- For earnings in the labour market

- For household income.

- To escape rural poverty.

Incentives to have a long education have increased.

Schools requires fees.

Further: To put a child through school can means loss of family income.

Importance of parental background for adult success has probably increased.

Compare the chances of a:

- urban boy living in eastern China having longer educated parents.

- minority girl living in the west having low educated parents.

Health and health care

• Most rural households are not covered by health insurance.

• Rural health care is mainly paid out of pocket.

• Problems:

- Under-use.

- Risk for economic collapse for households.

Funding of health care in PRC

• Many urban people receive disbursements of health expenditures from work units.

• PRC rates very low among countries when WHO rate fairness in health finance.

• The better off urbanites (particularly in the east) benefit dissproportionally from subsidies to health care.

• Systems of reform of health care funding in rural China on the agenda.

Concluding commentsConcluding comments

China is China is becoming more becoming more unequal unequal according to according to many indicators.many indicators.

But this is not a But this is not a continuous continuous process. process.

Compared to other Compared to other countries is the countries is the distribution of income distribution of income in China is rather in China is rather unequal. unequal.

But this is not (yet) But this is not (yet) the case for the the case for the distribution of distribution of household wealth.household wealth.

Spatial factors are rather important for inequality in China • Rural to urban gap is

a very largest issue.

• Inequality in China would almost half if mean urban income is equal to mean rural income.

• How to address the urban to rural divide is a very big issue – the hukou system.

• Large migration pressure.

Poverty in China has changed

• Rural poverty has decreased impressively, but still exist.

• Urban poverty has appeared due to:

- In-migration of rural inhabitants.

- Structural change leading to joblessness.

Some global consequences of Chinas rapid income growth

• Inequality in income among inhabitants in the world has reduced.

• World poverty has decreased.