1. Introduction

In 2008 did the Great Recession hit most high income countries. GDP fell and average household income decreased. Different from countries in the West in P.R. China GDP continued to grow with rates in the interval 7 to 10 percent per annum (World Bank, 2016). How does this period look like from the perspective of Chinese urban residents? More specific we ask: How did household income grow on average and at different parts of the income distribution? Did income inequality increase, stay constant or decrease? How did income poverty develop? How did different income component develop, and how were they related to disposable income?

In this paper we report new results based on data from the China Household Income Project (CHIP) for 2007 and 2013. As very similar data were collected for 1988, 1995 and 2002 we also use these surveys to put the development between 2007 and 2013 in perspective of China’s two and a half decades of rapid economic growth and transition towards a market economy. Over this long period did political priorities as well as leadership change several times. Policies under the leadership of Jiang Zemin 1989 to 2003 are often described as prioritising economic growth while more of equally considerations were taken in policymaking during the leadership of Hu Jintao and Wei Jinbao from 2003 to 2013.

The motivation for studying income at the household, not individual, level is that people typically live in households that contain other members with whom they share income. True,

for many households are earnings from paid work or self-employment the most important income source. However, a household often receives income from various sources. For example pension is the most important income source for the elderly. Levels and inequality of household income must not necessary develop as levels of earnings and earnings inequality among workers.

Several authors have studied how household income, income inequality and poverty in urban China have developed since the later part of the 80s. Rapid increases in income accompanied with increases in its inequality are typically reported in studies that analysed the first years since reforms started. One example is Meng (2004) who used data from CHIP 1988, 1995 and 1999. Another example is Wang (2008) who dealt with the development during the period 1986 to 2000. A third example is Cai et al (2010) who studied income as well as expenditure inequality 1992 to 2003 using Household and Expenditure Data from National Bureau of Statistics. Appleton et al (2010) is a study of income poverty during the years 1988, 1995, 1999 and 2002. Those authors report for example fewer households and persons falling under a poverty line which expresses a constant purchasing power across the year studied. However, authors who have analysed yearly rounds of NBS urban household surveys have pointed out that the movement towards fewer and fewer persons with income under a poverty line expressing the same purchasing power has not always been smooth.1

Studying the more recent years Gustafsson and Ding (2013) used CHIP data for 1995, 2002 and 2007 to investigate how larger proportions of those in work active ages were not earning an income. Those authors found that much of such lack of earnings were absorbed within the households. Deng and Gustafsson (2013) using CHIP data reported a rapid increase in urban income between 2002 and 2007 as well as an increase in income inequality. That study also showed that the previously found trend of fewer persons living in households under an income representing a constant purchasing power had continued. However, larger proportions of people with income under a poverty line set to a proportion of contemporary median income. As stated above the study period for this paper adds the period 2007 to 2013 and it put it in perspective of the development since 1988. We are not aware of any previous study that has investigated income, income inequality and poverty in urban China over such a long period.

Looking at results we show that real income among urban residents in China grew by on average 7 percent per annum. This means a growth rate only marginally lower than the trend since 1988. However, earnings grew by not more than 3 percent per annum, much lower than previously. In contrast pensions and imputed rents of owner occupied housing grew much more rapidly and together stood for slight more than half of the growth in average household income. The trend of fewer and fewer persons in urban China having income lower than a poverty line expressing a constant purchasing power found in research for pervious periods continued between 2007 and 2013. However, we also report that income growth from 2007 to 2013 was lower in the lower part of the income distribution. The trend of increased income inequality continued as did the trend towards more and more people falling under a relative poverty line.

The rest of the paper is laid out as follows: In the next section we discuss changes in urban China that can be supposed to be particularly important for our research questions. In Section 3 are data and definitions are presented. Section 4 contains results on the development of household income, income inequality and income poverty. In Section 5 we report how various income components have developed and how they are related to household income thus providing some insight into which channels income inequality increased. Section 6 contains an analysis of relative poverty. Finally we sum up the results and discuss them in Section7.