Proportion in the highest income group and the

proportion in the highest-income group and the decrease of the population proportion in the
lowest-income group. However, after 1996 the income shares of the four lower-income
groups have been declining while the income share of the highest-income group has been
increasing, as a result the income ratio has been going up steadily and reaching over 22: times
by 2005 (Chen, 2013). The main characteristics of income inequality in China can be
analyzed through the rural-urban dichotomy and inter-regional differences (Li, 2016), as seen
in Table 2 and Figure 5.

Historical panorama of Income Inequality between Urban and Rural areas in China
Stage Description Urban Rural
First Stage
(1978-1984)
Gap between urban and
rural income declined
Urban reform had not yet
started (income of urban
residents still determined by
the state through planned
economy).
Rural economic reform (universal
implementation of the household
contract responsibility system)
and reform on the pricing of
agricultural products and the
advancement of agricultural
production technologies.
Second Stage
(1985-1994)
Inequality between urban
and rural incomes
witnessed a continuous
increase (income level of
urban residents increased
at a faster rate than rural
residents)
Economic reforms on the
micro level started (enterprises
were allowed to raise
employee wages, bonuses and
benefits).
Township enterprises rapid
development provided new
sources of income.
Third Stage
(1994-1997)
Gap between the
incomes of China’s
urban and rural residents
narrowed again
(non-agricultural
incomes of the rural
households increased at a
relatively faster rate)
Large-scale public enterprises
restructuring (adjusted the
interest relationship between
the enterprises and their
employees) and resulted in a
great number of layoffs and
emergence of a new urban
poor population.
Rural township enterprises went
through a similar reform and
promoted the development of the
rural non-agricultural economy.
Fourth Stage
(1998-present)
Urban-rural income gap
in expansion
The further development of the market economy aggravated
deep-rooted factors of urban-rural differentiation (education
disparity, migrant labor exploitation, etc..). Even though rural
households’ non-agricultural income has been increasing with the
expansion of rural migrants labor, their income growth rate
increase do not follow the faster pace of increase of the urban
resident’s income.
Possible Next
Stage
Re-migration of the
migrant workers to the
countryside
Increased remittances to rural areas coincide with narrowed income
inequality since 2008 due to reduction in gap between urban and
rural households. Mainly due to rural migrant workers’ wages
increasingly more quickly than those of skilled urban workers, and
to the social policies implemented in rural areas (Li, 2006: 4).