Fifty Years of Regional Inequality in China:
a Journey Through Central Planning, Reform,
and Openness
Ravi Kanbur and Xiaobo Zhang*
Abstract
The paper constructs and analyzes a long-run time series for regional inequality in China from the
Communist Revolution to the present. There have been three peaks of inequality in the last fifty years,
coinciding with the Great Famine of the late 1950s, the Cultural Revolution of the late 1960s and 1970s, and
finally the period of openness and global integration in the late 1990s. Econometric analysis establishes that
regional inequality is explained in the different phases by three key policy variables—the ratio of heavy
industry to gross output value, the degree of decentralization, and the degree of openness.
1. Introduction
The second half of the twentieth century saw a tumultuous history unfold in China—
the early years of communist rule in the 1950s culminating in the Great Famine, the
Cultural Revolution and its aftermath in the late 1960s and the 70s, the reform of
agriculture in the late 1970s and the 80s, and an explosion of trade and foreign direct
investment in the late 1980s and the 90s. All these events have affected the course of
economic growth and income distribution. However, while a large literature has
studied growth through these different phases of Chinese history (e.g. McMillan et al.,
1989; Lin, 1992; Fan et al., 2003), few studies have matched the evolution of inequality
over the long run with these different periods in Communist Chinese history over its
entire course.
This paper presents and analyzes the evolution of Chinese regional inequality since
the Communist Revolution right up to the present. Most studies on China’s inequality
(e.g. Hussain et al., 1994; Khan and Riskin, 2001; Chen and Ravallion, 1996;Aaberge
and Li, 1997; Tsui, 1998) have focused on relatively short periods, mostly during the
post-reform years, making use of the new household surveys that became available
during this period. Of the studies which come closest to the spirit of our interest in
Chinese inequality over the long run, Tsui (1991) stopped in 1985 and Lyons (1991)
stopped in 1987, just as the increase in trade and foreign direct investment was beginning;
Yang and Fang (2000) went up to 1996, but focused only on the rural–urban gap
at the national level; and Kanbur and Zhang (1999) disaggregated down to the
rural–urban level within provinces to calculate a regional inequality index, and present
a decomposition of regional inequality by its rural–urban and inland–coastal components,
but their study is only for the post-reform years of 1983–1995.
Using a dataset of provincial and national data covering the second half of the
twentieth century, we are able to construct a comprehensive time series of regional
Review of Development Economics, 9(1), 87–106, 2005
*Kanbur: Cornell University. Zhang: International Food Policy Research Institute, 2033 K Street NW,
Washington, DC 20006, USA. Tel: (202) 862-8149; Fax: (202) 467-4439; E-mail: x.zhang@cgiar.org. The
authors would like to thank participants at seminars held in George Washington University, IFPRI, Kansas
State University, and at the WIDER conference on Spatial Inequality in Asia.
© United Nations University 2005. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street,
Malden, MA 02148, USA
inequality in China, including its decompositions into rural–urban and inland–coastal
components, from 1952 to 2000.We find that changes in regional inequality match the
phases of Chinese history remarkably well, as do its rural–urban and inland–coastal
components. The peaks of inequality in China have been associated with the Great
Famine, the Cultural Revolution, and the current phase of openness and decentralization.
We further use econometric analysis to establish that regional inequality is
explained to different degrees in different phases by three key policy variables: the
share of heavy industry in gross output value, the degree of decentralization, and the
degree of openness.
2. Constructing a Long-run Time Series for Regional Inequality in China
Ideally, for an analysis of the evolution of inequality over Communist Chinese history
we would have available representative national household surveys over the entire
period. Unfortunately, while such surveys have been conducted throughout the last 50
years, they are available to researchers only for the post-reform period, and in any case
sporadically, for restricted years with varying but limited coverage. Thus, for example,
Chen and Ravallion (1996) had access to official household survey data but only for
four provinces between 1986 and 1990. Aaberge and Li (1997) analyzed urban household
surveys for Liaoning and Sichuan provinces for the same period, while Tsui (1998)
analyzed rural surveys for 1985, 1988, and 1990, but only for Guangdong and Sichuan.
Yang (1999) analyzed both rural and urban parts of the household survey for four years
between 1986 and 1994, and for Guangdong and Sichuan. This different coverage
across studies reflects the differential access to official data. Researchers have also conducted
and analyzed independent surveys—for example, Hussain et al. (1994) did one
for 1986, Rozelle (1994) for township and village enterprises between 1984 to 1989 in
Jiangsu province, and Khan et al. (1993) conducted a household survey for 1988.
The inequality analysis that has been done on household surveys for the late 1980s
and 90s has been extremely valuable in illuminating specific aspects of the distributional
dimensions of Chinese development. In general these analyses decompose
inequality by income sources but few have aligned the patterns of inequality with
national development policies. The bottom line is that researchers simply do not have
access to comprehensive household surveys which are national and which cover the
entire, or even a substantial part of, the half-century sweep of Chinese history that is
of interest to us in this paper.
In the face of this data restriction, we are forced to look for data availability at higher
levels of aggregation than at the household level. As it turns out, certain types of data
are indeed available at the province level, disaggregated by rural and urban areas,
stretching back to 1952. This paper constructs a time series of inequality by building
up information on real per capita consumption in the rural and urban areas of 28 of
China’s 30 provinces (unfortunately, data availability is not complete for Tibet and
Hainan provinces).1
With these sub-provincial rural and urban per capita consumption figures, and population
weights for these areas, a national distribution of real per capita consumption
can be constructed, and its inequality calculated, for each year between 1952 and 2000,
thus covering the vast bulk of the period from 1949 to the present. Of course what this
means is that overall household-level inequality is being understated, since inequality
within the rural and urban areas of each province is being suppressed. Moreover, we
cannot say anything about the evolution of household-level inequality within these
areas. Our measures do provide a lower bound on inequality over this entire period.
88 Ravi Kanbur and Xiaobo Zhang
© United Nations University 2005
But the fact remains that our study of inequality is essentially a study of regional
inequality.
A detailed discussion of our basic data is provided in the Appendix. A number of
studies have used province-level data to study regional inequality in the past. Many
of them used Soviet-type statistics, largely because long-term data series existed for
these (Lyons, 1991; Tsui, 1991), and they did not in general disaggregate by rural and
urban areas within provinces.With the availability of rural–urban disaggregations on
consumption per capita stretching back to the 1950s, these studies can be substantially
improved and extended in terms of time and space coverage. In the recent literature,
Yang and Fang (2000) used the same data sources as we have used, but focused solely
on the average rural–urban gap at the national level, and did not go into inequalities
across provinces.
Using the information available, we calculate the Gini coefficient of inequality using
the standard formula. But the bulk of our analysis is done with a second inequality
index, a member of the decomposable generalized entropy (GE) class of inequality
measures as developed by Shorrocks (1980, 1984):
(1)
In the above equation, yi is the ith income measured as Chinese yuan, m is the total
sample mean, f(yi) is the population share of yi in the total population, and n is total
population. For c less than 2, the measure is transfer-sensitive, in the sense that it is
more sensitive to transfers at the bottom end of the distribution than those at the top.
The key feature of the GE measure is that it is additively decomposable. For K exogenously
given, mutually exclusive and exhaustive groups indexed by g:
(2)
where
In equation (2), Ig is inequality in the gth group, mg is the mean of the gth group, and
eg is a vector of 1s of length ng, where ng is the population of the gth group. If n is the
total population of all groups, then fg = ng/n represents the share of the gth group’s
population in the total population. The first term on the right-hand side of (2) represents
the within-group inequality.The second term is the between-group, or intergroup,
component of total inequality. For simplicity, we present results in this paper only for
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FIFTY YEARS OF REGIONAL INEQUALITY IN CHINA 89