According to the Asian Development Bank Institute, "before China implemented reform and opening-up policies in 1978, its income distribution pattern was characterized as egalitarian in all aspects.
"[1] A study published in the Proceedings of the National Academy of Sciences of the United States of America (PNAS) estimated that China's Gini coefficient increased from 0.30 to 0.55 between 1980 and 2002.
As of 2019[update], the official Gini coefficient in China was 0.465; inequality was at its highest in the 2000s, with numerous sources reporting a significant decline in the 2010s.
"[5] China is a newly industrialized country and an emerging economy, with quarterly GDP growth rates averaging 9.31%[6] for the past two decades, powered mainly by strong exports.
Despite steady growth of China's economy since economic reforms in 1978, the rural-urban income gap reached its widest in more than three decades in 2009.
[14] In 2019, China's official Gini coefficient was 0.465; various sources have debated the accuracy of this data, with the World Bank calculating 0.385 (2016) after factoring cheaper prices in rural areas while the World Inequality Database reporting higher numbers after factoring in pre-tax income and unreported income of richer segments.
[2] Research conducted by Dennis Tao Yang published in the journal of the American Economic Association indicates that the root of China's rural-urban divide "lies in the strategy of the centrally planned system that favored heavy-industry development and extracted agricultural surplus largely for urban capital accumulation and urban-based subsidies.
More specifically, research published in the Journal of Economic Modelling demonstrates that the Hukou system and absence of a fully functioning land market are two main drivers of rural-urban inequality.
[20] Research on inland-coastal inequality indicates that "since being a coastal province is a geographic advantage that will persist, this tendency for divergence will also probably continue," but institutional factors still have a significant effect.
Recently, the government has introduced policies that relax Hukou related restrictions in small and medium-sized cities, in an effort to encourage growth.
"[16] In other words, inland and rural inequality can help create a vicious cycle by funneling money towards the coastal cities and away from investments in human capital elsewhere.
This created a labor shortage, which in combination with the rapid expansion of industrialization served to increase income inequality.
"[24] It has been argued that income inequality is a menace to social stability, and that a shrinking of middle class capital could impede China's economic growth.
"[27] Instead, they recommend reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility, believing that this would result in a "more balanced growth with an investment-to-GDP ratio that is consistent with medium-term saving trends, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents.
"[27] With regard to labor mobility reform, research published in the journal of Economic Modelling suggests that reforms in the rural land rental market and Hukou system alongside efforts to increase off-farm labor mobility would dramatically reduce the urban-rural income ratio.
Additionally, the research states that "the combination of WTO accession and factor market reforms improves both efficiency and equality significantly.
"[17] WTO accession means that the economy will become more liberalized and open, "likely resulting in dramatic shifts in regional comparative advantages.
In order to enhance growth and fight poverty, it will therefore be important to improve access to basic education, especially in poor rural areas.