Income disparities in the transition of China: reducing negative effects by dispelling misconceptions

Despite some conflicting figures, the problem of income disparities has probably increased in China, especially in the recent years. Although income disparity may be a natural outcome of a market economy, there are specific factors in China making it more of a problem. The negative effects of income disparity may be inflated by certain misconceptions. Such misconceptions may be dispelled by some simple economic analysis. In particular, the Marxist theory of exploitation can be shown to be incorrect; the enrichment of a sector can be shown to be beneficial to others in its general thrust; and a slightly higher growth rate with greater income disparity may be beneficial to the lower income groups in the long run owing to the compounding effects, which are usually underestimated.