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Report of China Household Income Disparity

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image of Frontiers of Economics in China

Based on China Household Finance Survey (CHFS) data, China’s Gini Coefficient stood at 0.61 in 2010, above the global average of 0.44, according to the World Bank. The high Gini Coefficient represents a large income disparity of the country. It is understandable that a high Gini is common in fast-growing economies and can be reduced through government’s transfer payments given the experience of OECD countries. This paper illustrates the breakdown of China’s Gini, regional, rural and urban differences in household income. Specifically, it is found that poor health, insufficient social welfare and low education level are the main reasons for poverty of rural households. This paper also provides solutions to reduce the Gini coefficient. In the short term, China government can invest more on social insurance and implement large-scale transfer payments. The figure shows that China government has sufficient financial sources to strengthen secondary distribution to subsidize the low-income group. In the long term, government can increase overall educational level and reduce the opportunity inequality to narrow the income gap.


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