Building an Olive-Shaped Society: Economic Growth, Income Distribution and Public Policies in China

Chapter 1 
From Pyramids to Olives

Abstract Since embarking on a path of economic reforms in the late 1970s, China 
has achieved two milestones in improving people’s livelihoods. First, China’s per 
capita income has risen rapidly, from US$156 to US$12,556 between 1978 and 
2021, making it one of the fastest growing economies in the world. Second, China’s 
poverty rate has declined dramatically. In the past 40 years, China has lifted 770mn 
rural people out of poverty, accounting for more than 70% of global poverty reduction 
in the same period. Despite China’s socio-economic achievements in development, 
we believe a sustained effort is still required to raise income levels and address 
economic inequality, in order to achieve inclusive growth. Currently, China still 
has a large low-income population, and the income distribution pattern represents a 
pyramid rather than an olive shape. China’s Gini coefficients in income, consumption, 
and wealth distribution are at a high level, and inequality is a prominent issue. China’s 
economy is still subject to urban–rural disparities; in fact, we can attribute nearly half 
of the income gap attributed to the urban–rural gap. In addition, wealth in China has 
continued to concentrate over the past 30 years. With housing assets becoming the 
main component of household wealth, rising urban housing prices are a major driver 
of wealth concentration in China. Based on the World Income Inequality Database 
(WIID), we find that based on certain income classification criteria, the shape of 
China’s income distribution represents a pyramid shape. This contrasts with that of 
Nordic countries, Japan, and the US, which are closer to an olive shape. The main 
reason for this difference is that China still has a large number of low-income people, 
and its middle-income population is not large enough to support the “waist” of the 
olive shape. In addition, the income level of China’s middle-income population is 
relatively low, and their weak risk resilience makes this income group vulnerable 
to a return to poverty. The focus of improving income distribution is not to create 
an olive-shaped pattern, but to raise the per capita income level and expand the 
population size of the middle-income group. We believe that China should continue 
to raise per capita income and deepen reforms and “opening up” policies, while at 
the same time implementing redistribution policies to reduce inequality.

 1.1 Measuring Inequality with Income, Consumption, 
and Wealth Gini Coefficient 
This section describes economic inequality in China using four data categories. Indi-
vidual income is defined by per capita household income and includes household 
members within the household who do not have income. For example, children with 
no income are not classified in the zero-income group, but in the income group corre-
sponding to the per capita income of their household. Thus, when measuring the size 
of the income group in a given income range, we are actually measuring all people 
whose household per capita income falls in that range. 
1. Data published by the National Bureau of Statistics (NBS) and other official agen-
cies in China: The NBS publishes relatively limited data on income distribution, 
mainly the Gini coefficient and the mean, median, and quantile of per capita 
disposable income. Among the various data on income disparity, we believe data 
from the NBS is the most trustworthy. 
2. Databases published by international organizations: These include the World 
Income Inequality Database (WIID), PovcalNet, and the World Inequality 
Database (WID). The raw data of these databases are official data obtained 
from countries and survey data from research institutions, some of which are 
adjusted for international comparison. The advantage of these databases is their 
high degree of international comparability. 
3. Household survey data released by academic institutions: Some academic insti-
tutions conduct sample surveys on the economic situation of Chinese households 
over a long period. These surveys in China include CHIP, CFPS, CGSS, CHNS, 
and CHFS, which describe household economic situations in detail. The draw-
backs of survey data are small sample size, statistical biases, and insufficient 
coverage of the very-high-income group. 
4. Income and property data on high-net-worth individuals (HNWIs) published 
by commercial institutions: For example, we refer to wealth management data 
provided by private banks. This type of data helps depict the HNWI population, 
but may be limited by its own sampling as well as modelling. 
1.1.1 The Income Gini Coefficient Has Steadily Decreased 
Over the Past Decade, but Remains at a High Level 
Despite various limitations, the Gini coefficient is still an important indicator for 
measuring inequality. Data from the NBS indicates that China’s income Gini coef-
ficient is at a relatively high level. The NBS, National Development and Reform 
Commission (NDRC), and international organizations have estimated China’s

Building an Olive-Shaped Society: Economic Growth, Income Distribution and Public Policies in China