BEIJING—The increase in inequality in China has leveled off in recent years and could be less severe than previously thought, the Organization for Economic Cooperation and Development says, suggesting that Beijing is starting to make progress in tackling one of its biggest social problems.
The OECD, in its economic survey of China published Tuesday, said more welfare spending in rural areas and increased migration to cities helped to arrest a widening of the income gap. The Paris-based organization urged China to lower what is still a fairly high level of inequality by further boosting social programs and eliminating discrimination against rural residents.
The report is the OECD's second major study of China, which isn't a member of the organization. China's economy is on pace to surpass Japan this year as the world's second-biggest after the U.S. The OECD urged China to take a range of measures to liberalize its economy, such as freeing up interest rates to encourage banks to lend more to small companies, and privatizing state-owned enterprises. It also said that allowing the currency to appreciate would help the government manage the economy better.
China's breakneck economic growth of the past three decades has pulled hundreds of millions of people out of poverty. But the incomes of people at the top have risen much faster than the rest, creating new divisions in a once-egalitarian society. Tensions between property developers and dispossessed farmers, and between factory bosses and their rural work force, are often a flashpoint for social conflict. That has pushed China's government to narrow the gap, and officials have repeatedly said they will do more to boost incomes of the worst-off.
"We've already seen, in the last five years, a stabilizing of the disparities," said Richard Herd, a senior economist at the OECD, told a press briefing in Beijing. Much of that is due to an enormous movement of rural people off farms and into urban jobs, a change which allows them to raise their incomes significantly. "You've had a major adjustment in the labor market since the mid-1990s," he said.
China's income inequality as measured by the Gini index—a scale on which zero is perfect equality and 100 is perfect inequality—was at 49.6 in 2005, already greater than the U.S., according to the Chinese Academy of Social Sciences. But the OECD, using what it says are better estimates of price changes and the ranks of undocumented rural migrants in cities, puts the Gini index for 2005 at 41, and says the measure of inequality edged down to 40.8 by 2007.
The OECD's numbers indicate that inequality remains higher in China than in the U.S. and most other developed countries. But China's inequality remains less severe than that of South Africa, Brazil, Chile, Russia or Mexico. Many domestic commentators have urged China to narrow the income gap and avoid the so-called Latin Americanization of its economy, a reference to the region's wealth disparities.
Chinese officials often focus on the gap between the country and cities. Last year, per-capita annual income in urban areas was about $2,500, more than three times the $750 in rural areas—a ratio that has risen over the past decade.
But that comparison doesn't take into account the growing number of rural migrant workers in urban areas, or the fact that prices for most things are cheaper in rural areas. After adjusting for those factors, the OECD says, average urban incomes are actually closer to two times rural ones, not three.
Much of the remaining gap between urban and rural incomes comes from urban workers having more education than rural ones, Mr. Herd said. He urged China's government, which has already cut school fees, to make 12 full years of education universally available in the countryside.
