Microsoft Word EcRefChina Oct06. doc

selective
opening of the country to the outside 
world, as well as the favoring of these areas as regards the allocation of infrastructure 
investment. 
76
The distribution of income has become more uneven also 
within 
provinces, rural areas and 
urban areas. According to a study by the Chinese Academy of Social Sciences (2002), the 
emergence and increase of entrepreneurial income has contributed to this development in 
75
As often pointed out, however, South Korea and Taiwan/China experienced rapid economic growth 
during several decades without much (if any) widening of the overall distribution of income (Maddison, 
2003). 
76
According to Jones et al. (2003), areas enjoying status as Special Economic Zones grew by 5 
percentage points faster per year than the average for provinces. 

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both rural and urban areas.
77
So have also the cuts in central government subsidies of 
basic consumer goods, such as food and clothing. However, in other respects the 
proximate sources behind the more uneven distribution differ between urban and rural 
areas.
78
According to the Academy, the increased 
share
of wage income in total income in 
rural areas has increased the dispersion of total income in these areas, because wage 
income is found to be less important for poor households than for other households. By 
contrast, changes in the 
distribution 
of wage income are found to have been the dominant 
explanation for the increased dispersion of income in urban areas. One important factor 
behind the latter development seems to be the huge increase in the wage gap across skill 
groups
79
, reflecting an increased return on investment in human capital since the late 
1980s (Zhang et al., 2005
).
The softening of the 
hukou 
system also helps explain the 
widening of the dispersion of wages in urban areas, since the supply of low-skilled labor 
thereby has been boosted in these areas. The rise in unemployment in urban areas – today 
unofficially often estimated at 8-11 percent
80
– has, of course, also contributed to widen 
the income gaps. 
The distribution of 
wealth 
is also rather uneven in China as compared to, for instance, 
other Asian countries (Nolan, 2004, Chapt. 1).
81
One plausible explanation is the absence 
of small and medium-sized private ownership of farmland.
82
Thus, although the 
egalitarian distribution of land-tenure contracts helped disperse the rapidly rising earnings 
in agriculture in connection with the agricultural reforms in the late 1970s and early 
1980s, the absence of private ownership of land has delayed the emergence of a large 
middle class of wealth holders (if we do not include the capital value of tenure contracts 
in the definition of wealth). “Asset stripping” in connection with privatization, as well as 
various forms of corruption, have presumably also contributed to make the distribution of 
77
Indeed, Benjamain et al. (2005) argues that the increase in rural inequality is largely a result of the emergence 
and increase in highly unequal earnings from family-run businesses. 
78 
According to UNDP (2005, pp. 27-31) the Gini coefficient of the distribution of household income increased 
from 0.22 to 0.37 in rural areas and from 0.17 to 0.34 in urban areas between 1978 and 2002.
79
According to Blanchard and Giavazzi (2005), the skilled-unskilled wage ratio has risen from 1.3 in 
1994 to 2.1 in 2003. 
80
The higher figure is found in a study by Giles et al. (2005), and the lower in, for instance,