Transcript Chinas-Gradual-Economic-Reform-in-Light-of-Income-and

China’s Gradual Economic
Reform in Light of Income
and Wealth Distribution
by Zhao Renwei
Institute of Economics, CASS
(2008-11-24)
Contents
1. Introduction
2. The characteristics of China’s economic
reform
3. Income distribution: from prevailing
egalitarianism to high inequality
4. Wealth Distribution: from nearly no
personal property to wide disparity
5. Concluding Remarks
2
1.Introduction
• China’s economic reform has lasted nearly
30 years.
• In order to reduce the costs we took the
gradual way in the economic reform.
• The disparity of income and wealth increased
rapidly in last two to three decades.
• How to check the costs of economic reform
in the light of increasing inequality ?
3
2. The characteristics in
China’s economic reform
4
Three characteristics
of Asian pattern
Professor Dwight H. Perkins noted that there are
three characteristics of Asian pattern of reform
of socialist economic systems:
• Economic reform precedes political reform.
• The socialist countries in Asia are much poorer
than their counterparts in Eastern Europe and
the former Soviet Union.
• The majority of people in Asian socialist
countries are employed in the agricultural
sector.
5
Five more characteristics
of china’s economic reform
I’d like to plus five more characteristics
（related to above three characteristics)
of China’s economic reform:
•Low coverage rate of the Planned
economy .
•The starting point of China’s economic
reform is lower than that of the former
Soviet Union and Eastern European
countries. (See Figure 1)
6
•Economic reform in China was more
closely related to economic
development than was the case in the
former Soviet Union and Eastern
Europe. (See Figure 2).
•Economic reform and economic
development go hand in hand. (See
Figure 3 and Figure 4).
•The gradual way of economic reform
to reduce the costs.
7
Figure 1. The starting point of economic reform in China
Plan ( Centralization)
War
Communist
Economy
QuasiWar
Communist
Economy
Mark（Decentralization)
Planned
Economy
(Stalinist
Model)
Revised
Planned
Economy
Regulated
Market
Economy
Free
Market
Economy
Starting Point of
China’s Reform
8
Figure 2. China’s Economic Reform and
Economic Development
Autarky economy
Dual economy
Development
Planned
Economy
Reform
Market Economy
Modern Economy
9
Figure 3. Reform at The Cost of Development
Output or
Consumption
S
O
R
G
Time
10
Figure 4. Reform in Step with Development
Output or Consumption
S
O
Time
11
About the gradual way of
China’s economic reform
• The sequence of the economic reform:
from rural to urban, from coastland to
inland, from private sector to public sector,
from outside to inside, ……
• So the gradual reform used to be defined
as “ incremental reform” by many
economists.
12
• Generally speaking, we have taken the
gradual way in China’s economic reform
except the rural reform in the early 1980s
and price reform in 1988 with which there
were some radical elements.
• Even Prof. W. Brus and Prof. J. Sachs
recognized in the 1990s that China’s
gradual way was a success.
13
3. Income distribution:
From prevailing egalitarianism
to high inequality
14
China was an egalitarian society in
pre-reform stage
• The Gini coefficients in China:
Urban areas: Below 0.2
Rural areas: 0.21-0.24
• The Gini coefficients in other developing
countries:
Urban areas: 0.37-0.43
Rural areas: 0.34-0.40
（See Table 1 and Table 2)
15
Table 1. Some Estimates of Income Inequality
(Gini coefficients) on Pre-reform China
Urban
Rural
National
Estimator
0.16 （1980）
0.31 （1979） 0.33（1979）
World
0.185（1980）
0.237（1978）
Li chengrui（1983）
0.16 （1978）
0.212（1978）
Ren Fangcai（1996）
0.165（1978）
0.222（1978）
Irma
Bank（1983）
Adelman（1978）
16
Table 2. The Income Inequality in Some Asian
Developing countries (Gini coefficients)
Countries and Years
Rural
India(1975/76)
0.34
Bangladesh（1985/86）
0.36
Indonesia（1976）
0.40
Thailand（1975/76）
0.39
Philippines（1985）
0.37
Korea（1971）
0.325
Urban
National
0.42
0.37
0.37
0.47
0.43
0.43
0.36
17
Table 3. The increasing inequality
since the reform (Gini coefficients)
1978
The National
Bureau of
Statistics
Rural
Urban
National
Institute of
Economics,
CASS
Rural
Urban
National
1988
0.21
0.16
0.338
0.232
0.382
1995
2002
0.342
0.280
0.365
0.320
0.381
0.280
0.437
0.366
0.319
0.454
18
Some different estimates
of overall Gini coefficients
• Low
estimate: around 0.40
(National Bureau of Statistics)
• Median estimate: around 0.45
(Institute of Economics, CASS)
• High
estimate:
around 0.50
(Nankai University in Tianjin)
19
Figure 5. The ratio of urban to rural
per capita income
Urban/Rural ratio
3.5
3
2.5
2
1.5
1
1978
1985
1990
1994
2003
20
Some different estimates of
Rural/Urban income ratio
• Around 1: 3
(National Bureau of Statistics)
• Around 1: 4
(World Bank)
• Around 1: 5
(Mr. Song Xiaowu)
21
How to evaluate the costs of
gradual reform in the light of
increasing income inequality ?
In my point of view, we have paid the
necessary costs, but we also have paid the
over high costs. For example:
• In the land trade since 1990s, there were a lot
of rent-seeking and rent-creating activities. The
costs were very high.
• The public cars are still used in the old way
and run counter to the gradual reform.
22
A controversial issue: How to
calculate the amount of rent income
and gray income?
• By Mr. Hu Heli’s calculation, the amount of rent
based on dual price system in1988 was 356.9
billion Chinese yuan, accounts for 30%of GDP.
• By Mr. Wang Xiaolu’s calculation, the amount of
gray income in 2005 was 4800 billion Chinese
yuan, accounts for 26% of GDP.
No body can deny the big amount of the rent
and gray income, even the data and
methodology of above calculations have been
queried.
23
4. Wealth Distribution:
From nearly no personal
property to wide disparity
24
The distribution of wealth has become a new focal
point. Because:
• Chinese people have experienced rapid
accumulation of wealth in last two decades.
• The distribution of wealth becomes more and
more unequal.
• The people’s well-being depends on not only the
income status but also the wealth status.
• The inequality of wealth becomes one of the
causes of income inequality.
25
The composition of
overall wealth
• Housing
57.88%
• Financial assets
21.79%
• Land
9.35%
______________________________
89.02%
(See: Table 4)
26
Table 4 . Mean and composition of overall wealth ,2002
Wealth & Composition
Total wealth（net value）
Of which：
Land value
Financial assets
Net value of housing
Fixed productive asset
Durable consumption
goods
Estimated value of other
assets
Non-house liability
Mean value
(yuan)
Percentage of
total（%）
25897.03
100
2420.767
5642.684
14989.26
1037.309
1784.31
9.35
21.79
57.88
4.01
6.89
241.6361
0.93
-218.9326
-0.84
27
The distribution of overall wealth
• The ratio of highest 20% to lowest 20%:
Housing:
62.7:1
Financial assets 29.13:1 (See Table 5)
• The concentration ratio:
housing:
0.6302
Financial assets: 0.6291
(Gini coefficient of total wealth: 0.55)
(See Table 6)
28
Table5. Percentage of wealth of National
Population in decile groups,2002
Decile groups
1（ lowest）
2
3
4
5
6
7
8
9
10（highest）
Total
wealth
（net
value）
Land
value
Financ
ial
assets
Net
value
of
house
Fixed
product
ive
assets
Value of
durable
consum
ption
goods
Estima
ted
presen
t value
of
other
assets
Nonhouse
liability
0.68
2.12
2.95
3.81
4.84
6.23
8.32
11.76
17.89
41.41
4.43
8.67
11.03
13.86
15.01
15.76
14.05
8.34
5.84
3.00
0.997
1.31
1.80
2.12
3.16
4.41
7.16
11.87
19.40
47.80
-0.18
1.23
1.93
2.59
3.62
5.09
7.63
12.15
19.30
46.54
2.82
4.52
5.40
8.07
8.90
11.80
10.74
10.12
13.92
23.72
2.84
2.81
3.49
3.88
4.94
6.08
8.96
13.02
18.22
35.77
0.96
0.78
0.63
1.11
1.55
3.04
6.64
12.35
24.16
48.80
30.39
8.39
5.97
5.78
6.94
6.82
8.64
5.07
10.95
10.80
29
Table 6. The overall distribution of wealth,2002
Wealth
Total wealth（net value）
Of which：
Land value
Financial assets
Net value of housing
Fixed productive assets
Durable consumption goods
Estimated PV of other asset
Non-house liability
Mean value
（yuan）
Percentag
e of total
（%）
Gi
Ci
Contribution
percentage
25897.03
100
0.550
0.550
100
2420.767
5642.684
14989.26
1037.309
1784.31
241.6361
-218.9326
9.35
21.79
57.88
4.01
6.89
0.93
-0.84
0.6686
0.7404
0.6736
0.8373
0.6431
0.9669
0.9674
-0.0452
0.6291
0.6302
0.2963
0.480
0.6885
-0.1749
-0.77
24.92
66.32
2.16
6.01
1.16
0.27
30
An international comparison
How to make a comparison with the other
countries in wealth inequality ?
•The developed countries:
Gini coefficient of wealth 0.5 to 0.9
Gini coefficient of income 0.3 to 0.4
•China:
Gini coefficient of wealth 0.55
Gini coefficient of income 0.454
The issue of personal property and
its income has brought the decision
makers’ attention.
The 17th Congress of CPC
pointed out that we must “ create the
conditions to let more people can get
the property income”.
I think this recognition has great
significance:
32
•Points out the great importance of personal
property (wealth): reflects the idea of storing
the wealth among the people；also embodies
the spirit of constructing Xiaokang society.
•Makes clear that the people not only can earn
the labor income but also can earn the
property income. Thus the people can fine
multi-channels to increase their income.
•Of course, pay great attention to the property
income doesn't mean that we can ignore the
labor income.
33
According to <The Report on China’s
Enterprises Competitiveness(2007)>, the
proportion of labor payment accounts for
53.4% of the GDP in 1990; but dropped to
41.4% in 2005. In other words, dropped 12
percentage points in 15 years.
I think that is why the 17th Congress of
CPC also pointed out that “ increase the
proportion of the labor payment in the income
distribution”.
34
Wealth and income distribution in
urban and rural china
•
•
•
•
Wealth distribution in urban areas
Wealth distribution in rural areas
Income distribution in urban areas
Income distribution in rural areas
(the percentage of residents)
(See: Table7 and Figure 2)
• The explanation of above results.
35
Table 7. Distribution of Income and wealth of
Urban-Rural China in decile groups,2002(%)
Per capita income
Per capita wealth
Decile groups
Rural
residents
Urban
residents
Rural residents
Urban residents
1（the lowest）
98.73
1.27
75.26
24.74
2
97.26
2.74
89.78
10.22
3
94.96
5.04
89.41
10.59
4
90.64
9.36
90.63
9.37
5
79.36
20.64
83.03
16.97
6
62.18
37.82
72.63
27.37
7
43.87
56.13
55.02
44.98
8
22.48
77.52
29.21
70.79
9
12.69
87.31
18.08
81.92
10（the highest）
6.91
93.09
5.99
94.01
36
Figure 6. Income-wealth distribution
in Urban and rural China
100
population share(%)
90
80
70
60
50
40
30
20
10
0
1
2
3
4
5
6
7
8
9
10
decile groups
Percentage of rural residents in each income decile
Percentage of urban residents in each income decile
Percentage of rural residents in each wealth decile
Percentage of urban residents in each wealth decile
37
5. Concluding Remarks
38
•Deepen the reform. The increasing
inequality is not the error of market
oriented reform, but is the phenomena
of increasing costs of the gradual
reform, therefore, deepening the reform,
not only the economic reform, but also
the political reform, is necessary. Only
in this way, we can decrease the rentseeking, rent-creating and powermoney deal activities.
39
•Pay close attention to the interaction
between income distribution and the
wealth distribution: avoid the vicious
circle; promote the virtuous circle.
•Strengthen the redistribution function of
the government, especially overcome
the inverse (reversed) redistribution.
(The end)
40
Thank you!
41