Explaining the changes of income distribution in China

China has experienced one of the most remarkable increases in inequality over the last decade: the Gini coefficient increasing from 25.7 in 1984 to 37.8 in 1992. Using the recent developments in the theory of income distribution [J. Polit. Econ. 101 (1993) 274; Rev. Econ. Stud. 60 (1993) 35.] and a new panel data set about Chinese provincial-urban-level income inequality, this paper finds that inequality increased with the reduction of the share of state-owned enterprises (SOEs) in GDP, high inflation, growth, and (less significantly) the increasing exposure to foreign trade. We also find some evidence for the Director's Law: income redistribution tends to shift resources from the rich and the poor to the middle class. We do not find schooling and urbanization to be a significant explanatory factor.