Economic Inequality and Poverty in P.R. China

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

2. 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?

3. 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. Publication

4. 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.

5. The talk • Context • Research method – data • Inequality • Poverty • Human capital and it’s formation • Concluding comments

6. 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. Context – The 1950s

7. Urban and rural China as two different societies • The hukou systemseparateseffectively 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.

8. 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. Transition towards a market economy

9. 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.

10. 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. Restructuring of work units in urban China during the second part of the 90s

11. Researcher initialized strategy. Use of data collected by NBS. The combined strategy. See Gustafsson, B. and Li, S. (2006) ”Three Ways to Obtain Household Income Data” in Heimer, M. and Thogersen, S. (Eds) Doing Fieldwork in China, NIAS Press. Large progress in collecting household data for China. Different methods

12. 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. Researcher initialized strategy

13. 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? Use of data collected by National Bureau of Statistics

14. 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.

15. 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. The combined strategy to collect household data for China

16. 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. Examples of the combined strategy – CHIP

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

18. 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.

19. Variables: Earnings in urban China. Wealth. Income. Changes over time – increase? Levels – compare with other countries. Urban vs rural. Inequality

20. 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. Changes in real earnings in urban China

21. 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. Gender differences in the urban labour market

22. Income dependency among couples

23. 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 % The distribution of wealth in rural China

24. 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 % Wealth in urban China

25. A international comparison of wealth inequality

26. 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 We now turn to income

27. 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]

28. Gini coefficients in 2002. Percent

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

30. 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. Comments on urban income inequality

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

32. 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. Comments on rural income inequality

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

34. 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. Comments on income inequality in China as a whole

35. Urban to rural inequality

36. 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. Comments on the rural to urban income inequality

37. Rural poverty Has been very large. After first reforms did it decrease rapidly. 1988 to 95 vas a period of disappointing development but later new progress. Urban poverty From very low to a new problem. Poverty

38. 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

39. 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. Rural poverty policy in PRC

40. 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 definition of poverty in rural China

41. 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 %. The extent of rural poverty in China

42. 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. Ethnic minorities are disproportional located to rural western China

43. 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.

44. 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. Poverty among urban residents affected by joblessness

45. 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.

46. 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) Di Bao – Social assistance

47. 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.

48. Education and Schooling. Large increases in the education level of the population. Health and health care. Large increases in life expectancy (due to economic growth). Human capital and human capital formation

49. 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. Education

50. 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. Incentives to have a long education have increased.