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Narrowing the Gap: Rural-Urban Inequality in China

Tuesday, Sept. 24, 2013

By most measures, the income gap between urban and rural households in China is one of the largest in the world, with urban residents’ incomes more than triple those of their rural counterparts. Not surprisingly, then, improving rural incomes has become the main target of social welfare policies in China today, though it is too early to tell whether such policies will be enough to reduce the rural-urban income gap. The new social policies have also been introduced in the context of two long-term demographic trends of great significance: China's high-speed urbanization and the rapid aging of its population. China’s social welfare policies are in some respects responses to these trends—aimed at preventing both the formation of a vast urban underclass lacking access to basic means of social protection as well as the impoverishment of the elderly.

Regardless of their future effects on income inequality and urbanization patterns, China’s new social policies carry a political significance that is not well understood. The creation of very large social insurance programs, similar to those found in mature welfare states, is quickly eroding distinctions in access to social protections based on status and geography. Moreover, because social insurance involves people turning over some of their current incomes for future benefits, it has the potential to create in China, as it has elsewhere, powerful expectations for future state support and fierce resistance to government efforts to reduce promised benefits. The new social policies also carry the potential to promote a rebalancing of China's economy toward greater domestic consumption, even if their impact is not likely to be determinant. ...

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