Income Distribution in China in a Comparative Perspective

If household-level data for our small sample of North China villages are an accurate indication of the difference between the Gini coefficient for household incomes and household incomes on a per capita basis in other parts of

the country—the Gini coefficient for the rural sector as a whole was probably in the vicinity of 0.38.^[50] What tentative conclusions can we draw about the degree of inequality in the rural sector and China more generally on the basis of these data? In other words, how does the distribution of incomes in China compare with that in other low-income countries? Are there reasons to believe that incomes in rural China were exceptionally unequal? Given recent suggestions in the People's Republic of China that the degree of rural inequality, as measured by the Gini coefficient, be controlled within 0.30 to 0.40, perhaps not.^[51]

Although much more work is required before these questions can be answered exhaustively, some comments are in order. Ideally, we would like to compare the distribution of income observed for China with that estimated for other low-income countries in the 1930s. Short of this, we would like to compare our estimate with contemporary estimates for low-income countries similar in key respects to the China of the 1930s. India is an obvious candidate. Comparisons such as these are hampered by data limitations, however.

On the one hand, estimates of the degree of dispersion of rural incomes are almost always for households rather than households on a per capita basis. As we argued earlier, the latter is the preferred basis for measuring the distribution of economic welfare. Unless one is willing to assume that the influence of the size distribution of households on income distribution is constant over time and space, comparisons on a household basis can be misleading.

With this caveat in mind, in Table 6.7 we report Gini coefficients for rural household incomes in several Asian countries. And here we observe a degree of dispersion very similar to that estimated for China. Only in the case of Taiwan, which after World War II benefited from an income-leveling land reform, is it consistently markedly lower. Moreover, for nine of the 16 provinces that we provide estimates for (see Table 6.3), the degree of concentration compares even more favorably. In light of this finding, it seems highly unlikely that inequality was rising over time; if it was, extrapolation would imply a degree of concentration of incomes before the turn of the century that would be considered exceptionally low by international standards.

[50] This estimate was obtained by subtracting the average difference between the Gini coefficient for household incomes and household incomes on a per capita basis for the three Hebei villages from the Gini coefficient for the pooled sample in Table 6.3. One indication that in the aggregate household incomes on a per capita basis were more evenly distributed than household incomes is that cultivated area per household on a per capita basis was more evenly distributed than cultivated area per household. This is reflected in data provided by Buck on the size distribution of farms. The fact that Buck oversampled larger farms is not a point here. While the largest farms were almost 20 times larger than the smallest, on a per capita basis the difference was only one third of this. The same is true for data on land ownership. These relationships also hold separately for each of the eight regions Buck surveyed. See Buck, Land Utilization in China: Statistical Volume , pp. 289, 291, 300.

[51] "Nongcun you meiyou liangji fenbu?" Banyuetan 22 (1987): 20–21.

On the other hand, the few estimates that we have for the dispersion of household incomes on a per capita basis are for the rural and urban sectors combined, while our estimate for China is for the rural sector alone. This is not as great a problem as at first it might seem. In the 1930s, the rural sector—the focus of the National Land Commission survey—constituted between 85 percent and 90 percent of the entire population. The urban sector, although growing at a rate of 2–3 percent per annum, was still very small. The critical question is, how does the addition of data for household incomes in the expanding urban sector influence our overall assessment of income distribution in the Chinese economy? Is there any reason to believe that the distribution for the entire economy differs markedly from that for the rural sector alone?

It was once widely believed that income distribution tends to worsen initially with the growth of the modern/urban sector. Kuznets cites two primary reasons for this belief: (1) a tendency to pay substantially higher wages in the modern/urban sector than in the rural sector and (2) an increasing concentration of capital in the modern/urban sector.^[52] More recent work on a host of countries casts some doubt on this relationship. Nevertheless, for China Kuzent's hypothesis would seem to imply that incomes were more concentrated nationally than they were in the rural sector.

Data on the distribution of incomes in the urban sector presently do not exist. Nonetheless, it seems to us that any upward revision to the estimates obtained separately for the rural sector would actually be relatively modest. Despite the absolute doubling of China's urban population in the early twentieth century, it still amounted to no more than 10–15 percent of the total. As for incomes, it is important to remember here the small size of China's modern sector, almost all of which was located in the cities. Estimates by Ta-chung Liu and Kung-chia Yeh suggest that even as late as the mid-1930s the modern sector constituted no more than 6–8 percent of the gross domestic product.^[53] Because agriculture's contribution to total GDP was two thirds and rural households earned an additional 20–25 percent of their income from nonfarm sources, the percentage of national income going to the urban population could not have been much more than 20 percent and was probably slightly less.^[54] Moreover, an examination of budgetary surveys for

[52] Simon Kuznets, "Economic Growth and Income Inequality," American Economic Review 45 (Mar. 1955): 1–28.

[53] Ta-chung Liu and Kung-chia Yeh, The Economy of the Chinese Mainland (Princeton, 1965), p. 66.

[54] Assuming that 10 percent of income from agriculture went to absentee landlords residing in urban areas (based on the assumptions that 35 percent of land was rented, 60 percent by absentee landlords, and that rental payments constituted 45 percent of output on rented land), then 60 percent of total gross domestic product would have been going to rural households in the form of income from farming. If we add to this the income earned by farming households from nonagricultural activities—estimated by Buck to have been approximately 15 percent of total household income—plus the income earned by the 10–15 percent of the rural population classified as nonagricultural (under the assumption that their average incomes equaled that of the farming population), the percentage of total income going to the urban sector would have been roughly 1 - {((0.90*0.67) / 0.85) / 0.125} = 0.165, or 16.5 percent. With slightly in excess of 10 percent of the population classified as urban, the ratio of average urban-to-rural incomes would have been approximately 1.5 to 1.

working-class households in such cities as Shanghai, Wuxi, and Tianjin reveals a level of per capita income very similar to that observed for the rural sector.^[55] This is consistent with empirical work of Thomas B. Wiens, who found that "despite considerable regional variation in the monetary wage levels of farm laborers and industrial workers in various industries . . . nationally . . . farm wages appear to be slightly below the level of wages of the least skilled urban occupations, as might be expected."^[56]

Although examples can be provided of accumulation of great wealth by some Chinese families, the above considerations lead us to believe that the Gini coefficient for household incomes on a per capita basis for all of China was probably not much in excess of 0.40. How does this compare to that for other countries? In Table 6.7, we report estimates of the Gini coefficients for the distribution of household incomes on a per capita basis for several countries. The sample is small, but the degree of concentration of incomes in China does not appear to be high by comparison.

Finally, what can we say about the concentration of incomes and landholdings in the aggregate? Excluding the holdings of absentee landlords, the Gini coefficient for rural landholdings was 0.72. Making allowances for these landholdings by assuming an average holding of 100 mu suggests a Gini coefficient for rural landholdings in the vicinity of 0.80. This, of course, excludes urban landholdings, which, by all indications, were even more concentrated, implying a still higher degree of concentration. Compared to the Gini coefficient for incomes, it becomes obvious that even in a primarily agrarian economy like China's, the link between land concentration and income distribution is tenuous at best.