No.61, Urban Consumption Inequality in China, 1995-2013

Xia, Qingjie; Li, Shi; Song, Lina
Published: 2016/11/30 21:32:50    Updated time: 2016/11/30 21:32:50

Abstract: We use 1995, 2002 and 2013 CHIP data to investigate the urban household consumption expenditure inequality. The overall inequality of urban household consumption expenditure measured by Gini coefficient slightly decreases from 0.33 in 1995 to 0.32 in 2002, but increases to 0.36 in 2013. However, the percentile ratio of p90/p10 shows that consumption inequality increases all the time. Besides, the inequality of basic food consumption is much smaller than the overall consumption, its contribution to the overall consumption inequality decreases from 20% in 1995 and 2002 to 15% by 2013, and its share also decreases steadily from 34% in 1995 to 30% in 2002 and further to 24% in 2013, and finally its share steadily decreases as the overall consumption level moving up the distribution in each of the three years. The inequality of housing consumption is much larger than overall consumption but decreasing over time, its contribution to the overall consumption inequality increases 35% in earlier two years to 40% by 2013, and its share also sharply increases from 23% in 1995 to 30% in 2002 and further to 38% in 2013, besides its share shows upward sloping as overall consumption level increases in each of the three years.
Keywords: Consumption Inequality; Urban China

Authors: 

Xia, Qingjie (School of Economics, Peking University, Beijing, China)

Li, Shi (School of Economics and Management, Beijing Normal University)

Song, Lina (Business School, the University of Nottingham, Nottingham, UK)

1. Introduction

Stigilitz (2012) argues that the so-called trickle down effect never exists in reality, and economic growth would slow down during the period of inequality enlargement.1 Piketty (2014) further concludes that capital got too much and workers got too little in the rich countries. By 2016, these prophecies come true in the sense that British people chose Brexit and Donald Trump became the republic nominee for the American president election, for that in these two typical western countries economic globalization made capital and elite much richer, and working class much poorer. All these developments imply that wealth inequality matters enormously not only to a country’s economic prosperity but also to its political and social stability. This is also true in China in the way that all the changes of dynasties in the long Chinese history were caused by the severe wealth inequality and widespread poverty.

In the eyes of Amartya Sen (1992), there are many kinds of external inequalities2 among human beings, such as inequality of opportunity (education, medical care), income, wealth, etc. Just like poverty, those external inequalities are also multidimensional. To get a clear picture of a country’s inequality, one has to examine every dimension of its inequality. In this chapter, we intend to study the household consumption inequality in urban China by using China Household Income Projects’ (CHIPs) 1995, 2002 and 2013 urban household survey data. Consumption could more accurately reveal the real economic well being of people than income or wealth (Cutler and Katz, 1992; Deaton, 1997; Meyer and Sullivan 2011 & 2013, among others). Just as the income inequality, consumption inequality is also an ex post outcome of a country’s political, social and economic arrangements. It is the existence of a highly unequal distribution of income or consumption inequality that leads us to attach so much weight to ensuring that the political and social and economic institutions are fair, which also affect the equality of opportunity of our next generation (Atkinson, 2015, pp.10).

During the process of China’s rapid upgrading from a backward and poor agricultural economy to the world manufacturing hub and the second largest economy in the last 40 years or so, the frontier mode of the Chinese household consumption has also been shifting at a dazzling speed, first from “wristwatch and bicycle and sewing machine” of 1970s to “refrigerator and color TV and washing machine” of 1980s, then to “air condition and computer and video recorder” of 1990s, “apartment and car and large amount of bank deposit” of the first decade of 2000s, and further to the current “apartment and car and abroad studying and traveling”. Thus, it can be observed that while the riches are racing for taste, the poor have to put up with subsistence living, for there are still 700 million people in poverty in China, from which we might hypothesize that the consumption inequality in particular non-food consumption inequality of China has been increasing. As people getting richer, their scope of consumption is much widened and their consumption is much diversified.

The chapter is arranged as follows. Section 2 reviews the literature on consumption inequality. Section 3 introduces the data. Section 4 gives the results. Section 5 summarizes.

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1 However, in the past 40 years or so the income inequality grew together with the whole economy in China.

2 According to Sen (1992), there are also enormous internal inequalities among human beings, such as health, beauty, cognitive ability, etc.