Inequality in modern China and the effects of contemporary Chinese governmental policy and development

1 May

China was once a country of great equality, though great poverty, in the communist era due to rural communes and equal pay and a communist welfare system. However, since the introduction of economic capitalism, inequality has risen in modern China and the government has been trying to address the balance ever since through contemporary welfare and development policies.

Rural inequality has grown since 1993; the ratio of mean urban income to mean rural income was 2.7 in 2007, according to the World Bank, and about 90% of all the poor were rural residents in 2007, according to the National Bureau of statistics of China, 2009. The government has launched programs to try and address rural inequality, though they have been limited but have reduced the equality gap between rural and urban areas. Since 1986, the Chinese government has launched a large-scale program to alleviate rural poverty, investing billions of dollars in regionally targeted investment projects. However this this does not target all areas, is subject to lobbying and political status. In mid-1999, the central government approved the ‘development the western region’ strategy. In 2000, the office of the leading group for western region development was established to reduce western Chinese inequality, it extended infrastructure, ecological development, environmental protection, technology and education and skills and it promoted reform and openness; though economic inequality remains high. The 10th 5 year plan sought to help farmers get out of poverty; it removed any unreasonable taxes on farmer’s income and also restructured production to favour more economic crops and fewer staples. In 2001, the government reformed the urban residency registration for small cities and towns to promote urban residency for farmers. This sought to increase migration from rural to urban in order to combat poverty, but there were unequal rights for urban and rural residents.

Additionally, urban poverty is a great source of inequality within urban areas, despite the rise in urban income; the new poor became visible in urban areas in late 1990s as urban unemployment was the main cause of urban poverty. High rates of unemployment have been left over from SOEs and due to the financial crisis unemployment is still high, those who left the labour market found it hard to be employed in the technology-based market on the east coast, as it required different skills from their labour-focussed work. Furthermore only 41% of urban employees were covered by unemployment insurance in 2008, and less than 12% were covered for rural workers. The urban poor have also been hit by housing; since the housing reform launched in the 1990s, the large part of public housing has been privatised, through selling apartments to private tenants, this has led to higher housing prices. Between 1988 and 2002, the urban households living in public housing as a percentage of all households in surveys decreased from over 80% to less than 20%. Additionally, local governments stopped providing subsided housing to urban households since the late 1990s, as a result poor and low-income households and millions of rural migrant households cannot afford urban housing. The current program, the housing accumulation fund has failed to address unaffordable housing. It works in that each employee in formal sector such as civil servant and worker in SOEs holds an individual account of housing accumulation, both employee and employer should contribute 10% of their wage as accumulation fund. But this means that higher income earners obtain more subsidies and therefore low-income houses receive lower subsidies.

Contemporary governmental policy reform has aimed at addressing social and economic inequality through new welfare systems which are funded by the government instead of enterprises, as previously done. Welfare reforms since the late 1990s have included unemployment insurance, medical insurance, worker’s compensation insurance, maternity benefits, communal pension funds, individual pension accounts, universal health care and a carbon tax, and since 2000, the central government has started to prepare for a more universal welfare system with national treasury accounts. Minimum wage was introduced in 1993, 195 Yuan per month in 1995, 616 Yuan in 2008, according to the Ministry of Civil Affairs of the PRC, Dec 2007. However a law approved as of February 2013 will mandate a minimum wage at 40% of average urban salaries to be phased in fully by 2013, attempting to alleviate urban poverty and reduce inequality within urban areas. Similarly, MLSG, the minimum living standard guarantee, has contributed to attempts to address economic inequality. Introduced in 1993, it has spread to in urban areas since 2001 and rural areas since 2005.  However rural-urban migrants suffer from regionalisation, as they are registered as rural workers not urban workers. Contemporary government policies have failed to gain equality, though they are pursuing greater reductions in the difference in wealth between the rich and the poor.

Despite this governmental policy and development, the system fails because of its fundamental flaws which, until addressed, will mean that economic equality will be out of reach for the Chinese poor, and the gap between the rich and poor will remain in modern and future China. The lack of a centralised tax system means the central government is unable to combat poverty. Most funding comes at local levels from local governments, meaning that there is inequality in welfare between regions, with usually more poverty in western China. In 2000, 2 billion 966 million RMB Yuan were used as social relief paid to low income groups including the unemployed, however, of this total funding, only 800 million RMB Yuan came from the central government. Regional inequality also affects those in urban areas; a survey by the National Bureau of statistics and Ministry of civil affairs discovered 10 million urban people in poverty could not get covered due to lack of funds in local government, allowances also excluded too many because of budget. Finally, Post 1999, article 14 of the Chinese constitution stipulates that the state “builds and improves a welfare system that corresponds with the level of economic development”, thus this system still distributes welfare in favour of those areas with greater economic development and does not provide fairer blanket coverage and will continue to maintain the gap between the rich and the poor, making equality impossible to reach, in a country which is famed for its historical pursuit of equality.



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