The Evolution of Wealth Inequality in China

Abstract

Alongside the economic system reforms and the rapid development of the Chinese economy, wealth gap in China is widening, gradually evolving into an important issue that threatens the sustainable development of China. To comprehensively understand the evolution of wealth disparity in China and the underlying reasons behind its changes, we use CHIP and CFPS datasets to construct time series data of China’s wealth inequality. Based on that, we explore the main reasons of the wealth change through asset decomposition, urban–rural decomposition, and regional decomposition, which is followed by the analysis of the possible role of policies in this process. Our findings reveal a two-stage evolution of wealth inequality in China: from 1995 to 2010, there was a rapid escalation in wealth disparity; after 2010, the rate of increase in China’s wealth disparity was gradually mitigated, yet persisted at a heightened level. Net housing assets, urban–rural disparity, and regional disparity have been pivotal in this evolution. In recent years, financial assets have demonstrated significant substitutability for housing assets, progressively supplanting housing assets as the principal driver of wealth inequality in China. We scrutinize the evolution of it in conjunction with China’s real estate, land, and capital market policies, finding these policies to have played critical roles in shaping the trajectory of inequality evolution.