Polarization and the Middle Class in China: a Non-Parametric Evaluation Using CHNS and CHIP Data

The record economic growth of PRC since the 1990s has been accompanied by an increase in both income inequalities and polarization. We employ Relative Distribution tools (Handcock and Morris, 1998) on different datasets in order to provide a detailed analysis of Chinese income distribution during the last decade. The main result shows a hollowing out of the mid-range deciles with a corresponding fattening of the highest ones. Thus the analysis confirms the hollowing out---or perhaps even a prevention of the rise---of the middle class in PRC. Analyzing further the “pure distribution” effect (i.e., depurated by the growth one), we find that this typical polarization profile emerged mainly in the last decade. This findings can be explained by noting that the (negative) “pure distributional” effect has been, to some extent, mitigated by the impressive GDP growth. In other words, the growth effect considered without noticing the changes in the shape of distribution effect---i.e.---the shape effect--- hides distributive changes that materially occurred in the 1990s and in the 21st century so far. We need to take both growth effects and shape effects over time into consideration for a proper political economic assessment of Chinese economic performance. As growth slows, unless countervailing policies are undertaken, polarization will reveal itself more sharply. Given the existing inequalities, increasing polarization would seem to imply that distributional and related conflicts are likely in PRC. Policies to counteract these tendencies must be anti-polarization policies along with those of relatively more egalitarian growth.