Homework No 12 PDF

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Homework No 12...

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Homework No 12: China: Income Inequality and Policy Choices 1) What is the unique feature of income inequality in China? Over the past fifty years, the rural–urban gap accounts for a large share of overall inequality in the whole period. The inland–coastal disparity has grown rapidly since late 1970s when China started its economic reform. Regional disparity is even larger at the provincial level. 2) What were the causes of urban-rural income disparity before the economic reform in China? Before the economic reform, the Chinese government adopted a heavy industry development strategy, which transfers resources from rural agricultural production to urban heavy industrial development through a central plan. The prices of agricultural products set at a very low level that is controlled by the government to make income of farmers self-sufficient. However, urban residents received price subsidies, especially for these workers in state-owned enterprises. 3) What was the cause of coastal-inland income disparity after the economic opening in China? Since the implementation of reform and opening up in 1978, the Chinese government has undergone a major change in its regional economic development strategy. It has shifted from a balanced development strategy to an unbalanced development strategy, giving priority to the development of coastal areas. Development policy is clearly inclined to coastal areas. In the 1980s, China's preferential policies for coastal areas, including investment, fiscal and taxation, foreign capital and foreign trade, finance, etc., enabled the rapid development of coastal areas and rapidly widened the economic development gap between the coast and the inland. 4) What are the policy options to improve the efficiency in China to combat with the slowing down of the economy? 1.Promote the development of labor-intensive small and medium manufacturing and service enterprises-The bottlenecks to development of SMEs are access to credit and market entry. 2.Deepen the reform of large SOEs and eliminate price distortions and administrative monopolies to make the market system operate more efficiently. 3.Introduce competition in monopolistic industries.

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