Rural-Urban Inequality in China: Spatial or Sectoral?

In recent years Chinese economic policy has re-emphasized agriculture and the rural areas because the gap between rural and urban incomes has widened again. This issue is also at the centre of the " Western development" strategy. However, it is not clear whether spatial factors determine the relative worsening of the rural position or whether there are still policy factors that discriminate against agriculture. This paper attempts to distinguish between sectoral and spatial aspects of inequality by applying decomposition analysis on a new set of prefecture-level data from1993, 1998 and 2003. The database allows researchers to operate on different levels of aggregation (belts, macro-regions and provinces) and to identify the relative impact of pure spatial factors on total inequality as compared to the impact of the distinction between the rural and the urban sectors. We can show that trends in inequality differ across macro-regions, with individual provinces performing very differently to one another. The data clearly supports the view that there are still strong sectoral factors that drive the trends in total inequality. Hence, regional policies that aim at spatial factors may fail to achieve their goals.