Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

IMF Working Papers, August 27, 2013

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The paper applies the Shapley Value decomposition technique to assess factors behind the rise of inequality in China.
Inequality "may have been an inevitable by-product of China’s investment and export-led growth model."
Between Chinese households, the most important factors explaining income inequality are:
- location
- education
- access to health insurance
- labor market variables, including the sector of employment and enterprise size
Across China’s provinces, divergences in per capita incomes are driven by:
- the relative level of capital-intensity
- public spending
- financial access
- privatization
- urbanization
Excess liquidity may have exacerbated inequality in the last decade by driving up property prices and the wealth gap.

Maintain prudent monetary and credit policies.
Implement a more progressive fiscal tax and expenditure system.
Increase public spending on health and education.
Undertake deregulation and reforms to increase competition.
Adopt measures to raise labor incomes and assist vulnerable workers.
Improve access to finance for both households and SMEs, including in rural areas.
Note: many of these reforms overlap with measures that would help rebalance the economy toward consumption and household incomes.

Source: Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China, IMF Working Papers 2013/185 (August 27, 2013).