Originally presented as conference papers supported by the World Institute for Development Economic Research of the United Nations University, the book is a collection of ten essays assessing China's inequality. This book focuses on the inequality that emerges from China's rapid economic growth and the factors that produce it. The book also shows the harmful effects of poverty and recommends poverty reduction. This book can be divided into three parts. The first part is a test of the inequality–growth nexus in China (chapter one) and the applicability of the Kuznets hypothesis to China (chapter two). From chapter four to chapter nine, this book analyses the various factors influencing inequality, including development strategies, financial system, inter-provincial gap, geographical factors, innovation capabilities and education opportunity. The third part is a discussion of poverty reduction (chapter three) and poverty accounting (chapter ten). The argument is that inequality is harmful to society in the short or long run, and growth alone does not diminish poverty. Thus, the government has to design efficient policies to prevent the deterioration of inequality and poverty.
There are two notable features in this book. First, the editor provides a theoretical framework based on the inter-relationships of a poverty–growth–inequality triangle (PGI): growth or improved distribution can reduce poverty, but inequality can be increased or decreased by growth; meanwhile, the level of poverty and growth depends on the current level and dynamics of inequality. The implication of PGI is that any poverty change can be accurately indicated by the mathematics function of change of growth and equality. The reciprocal relationship helps to solve the dilemma to prioritize growth or inequality in the design and execution of economic policies. Furthermore, this book illustrates that inequality in China is multi-dimensional, as evident in personal variations in income, regional variations in income, education inequality. Together they provide a wealth of knowledge of the diverse inequality in contemporary China. Previous studies have often focused on the measurement of inequality and discussed inequality, growth and poverty separately. The theoretical framework and comprehensive discussion in this book transcend the trivial and narrow discussion of inequality. Thus, this book demonstrates a deeper understanding of inequality and a more comprehensive profile of equality in China.
Despite the theoretical appeal of the book, some of the indicators used are not convincing. In chapter two, the author attempts to understand what factors influence income inequality. The author hypothesizes that there are four groups of factors: growth, income redistribution and social security systems, provision of public goods and infrastructure, and institutional arrangements. The growth is measured by economic growth rate, investment ratio, level of FDI, trade dependence, urbanization ratio, labour migration and registered urban unemployment rate. The income distribution and social security systems are measured by the net transfer payment amongst provinces through the fiscal system, the medical insurance system and the unemployment insurance system. The provision of public goods and infrastructure are tested according to the “average years of schooling, the density of highway and railroad network, and the telephone coverage rate” (p. 21). With regard to the institutional arrangements, the author points out that inappropriate government intervention may affect income inequality and he develops three variables to measure. The grey income index is one of the three variables. The author gives the definition of grey income: “grey incomes, not necessary illegal, refer to income that recipients are unwilling to disclose” (p. 21, footnote). Indeed, the author notices the role of grey income in influencing inequality, but he just notices the people who work in government have grey income. First, the author ignores that some special occupations can receive grey income, which influences inequality. For instance, doctors can receive “a red envelope with money” (hongbao) from patients, and tourist guides can receive a fee of acting as intermediary between buyer and seller (huikou). If the author overviews this proportion of grey income, it is difficult to know the real factor which influences inequality. Second, the definition of grey income is too broad and is hard to distinguish from black income. The author assumes that illegal earning is proportionally related to corruption. So we can see that the definition of grey income provided by the author includes corruption. It is more suitable to categorize corruption into black income which is different from the real grey income in some special occupations. In fact, only those who have power are likely to make big illegal income. So readers must be cautioned against the impact of institutional arrangements because it overlooks the proportion of real grey income.
Taken together, the book is a valuable read for scholars concerned with the relationship between economic growth and inequality. This book is timely because the rapid growth of inequality in China has caused domestic demand to diminish and poverty to expand.
