Income Gap in China

As the second-largest economy in the world, China has been showing significant economic growth over the past decades, because of which, the gross national income has been increasing simultaneously. However, statics from the central bank of China, Renmin Bank, present that despite the rapid and continuous growth in the aggregate income, the differences in the individual income show no sign of decreasing. In the sense of macroeconomics, the fact that the income gap is being enlarged can be efficiently conducted as the inevitable result of a nation’s development. At the same time, the conclusion based on microeconomics provides a more detailed discussion of why and how to reduce the income gap in China.

From macroeconomics, the current income gap situation is caused by the difference in the base aggregate income between urban areas and rural areas. To be more specific, urban areas, with more business activities and higher-educated citizens, have a higher aggregate income in their base year than rural areas. Admittedly, rural areas show a higher income growth rate compared with the urban areas over the past 10 years, the value of the difference in the aggregate income between rural areas and urban areas is still increasing. However, as mentioned in the previous paragraphs, such differences are likely to be reduced or even reversed as long as the income continues to present the current pattern. However, the current increase in the income growth rate in the rural area is highly dependent on the favorable fiscal policy, hence the instability.

From the perspective of microeconomics, the income gap in China is mainly caused by the significant difference between the top 10% of the wealthy individuals and the rest of the society. Possible solutions have been brought up but the result of which is not as satisfying as the public may expect. Those solutions include the reformation of the education system which aimed to present citizens with equal access to educational resources, the improvement in the income tax which eases the tax pressure on the people with less income, and the favorable policies for minor companies and small businesses, etc. As far as I am concerned, the income gap in China is mainly caused by the fact that the lower-income group is too huge. That is, to reduce the income gap, policymakers should focus more on publishing policies that stimulate the economy in less developed areas in China by considering adjusting the current wealth distribution and resource allocation.

Y. Liu