Source: Review of Income and Wealth

Comparison of China’s major regions shows that in official GDP per capita terms and for rural income and consumption, disparities appear large.  Furthermore, both over 20 years and over the 2000-05 five-year period, Chinese rural income and consumption disparities have increased, as measured by the ratios of per-capita rural household statistics representative for major regions.   Hence, regional rural household income and consumption levels in China are diverging (at least through 2005) and have been, whether measured since
1985 or 2000.

Correctly interpreting these results is an important challenge.  Although disparities are growing, the extraordinarily rapid improvement in rural household income and consumption levels in all regions over both longer-term (1985-2005) and more recent (2000-2005) periods is notable.  Average annual real growth in rural household income was at least 6.0 percent for all seven regions over the period 1985-2005, and for consumption the corresponding average growth rate was at least 6.5 percent over all regions.

Compared to static measure of well being, the sustained speed of improvement in income and consumption in all regions and provinces supports the conclusion that regional disparities are less severe than consumption levels make them seem.  This would be so if well being reflects something other than an absolute consumption level and is instead linked to timely satisfaction of expanding citizen expectations, regardless of the absolute level.  Giving significant weight to this dynamic indicator of well being must influence research conclusions about inter-regional inequality in recent decades.

A second qualification of conclusions garnered from measured consumption level differences obtains when household savings rates are high and increasing, as has been the case in China.  In such cases, paradoxically, slower consumption growth seems to indicate expansion of a short-to-medium-term cycle of saving for large expenditures.  Growing prevalence of such a savings pattern implies greater increases in well being than static consumption levels would indicate.  Households engaged in such savings patterns arguably enjoy greater well being than if they had neither the related consumption choices nor necessary savings mechanisms nor the higher incomes required in the first place.  Higher savings rates of this sort enable households to convert their increased incomes into consumption choices for expensive consumer durables, expected or potential medical and educational expenses, and costly family celebrations.  The paper argues more generally that a growing prevalence of such periodic or “transient” saving undermines the reliability of using consumption levels as a measure of shifts in poverty and well being.

In a third dimension, poverty incidence comparisons between coastal and interior provinces reveal clear differences in well-being in this context, especially when poverty incidence calculations use an appropriate poverty-line standard.  Revisions to the World Bank’s “dollar-a-day” poverty standard consistent with the December 2007 release of revised Chinese purchasing power parity statistics make this traditional poverty standard more useful than its unrevised predecessor.

Finally, an additional challenge for interpreting these data must consider how levels and trends in regional inequality provide incentives for voluntary labor migration from low-productivity areas to regions with higher-productivity and higher income work opportunities.  The persistence of high regional inequality also indicates that rapid rates of internal migration — and their potential for enhancing productivity and earned income growth —  could continue in China for some time.