Inflation and Inequality

It is a truth, Zhu Rongji acknowledged, that a country with a Gini coefficient above 0.4 may be at risk of social unrest due to severe income inequality. While China’s official figure has been hidden for over ten years, South China Morning Post’s Tom Holland notes a recent study putting it as high as 0.53, and explains why this matters: Such a fast-rising wealth gap is not just an academic pre-occupation; it inflicts real economic and social damage. The ADB estimates that if China’s economic growth between 1990 and 2008 had been achieved with no increase in inequality, an additional 110 million people would have been lifted out of extreme poverty. To put that another way, 110 million people – equivalent to the entire population of Guangdong – with all the inhabitants of Hainan thrown in for good measure – are still living on less than US$1.25 a day because a few of their more well-connected compatriots got very rich first. Naturally enough, these paupers have limited spending power, which is bad news for an economy looking to rebalance itself more towards consumption-led growth. Countries with widening income gaps, the ADB warns, also tend to have deteriorating growth prospects. Abolishing the hukou household registration system and giving farmers land ownership rights, he suggests, could go some way towards addressing the problem. A China Daily op-ed on Thursday similarly recognised the urgency of reducing income inequality, and launched its own flotilla of proposed remedies. For example: … [A] set of strict ownership definition standards should be set up to prevent the flow of State-owned assets to certain groups and individuals in the process of economic re-organization. At the same time, an effective monitoring system should be put in place to restrict or eradicate the power of individual local leaders in resource ...
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