Main Industrial Development Issues and Challenges

Lagging rural and inland development

Disparity has continued to widen in economic performance across provinces. The 2005 Human Development Report separated the indices for urban and rural areas, highlighting the widening development gap with urban areas averaging 0.81 while rural areas only averaged 0.67. Inequality is higher in rural than in urban areas due to a higher incidence of extreme and chronic poverty. The gap between urban and rural incomes has recently become the most prominent inequality, followed by the gap between the richer, urbanized coastal regions and the poorer, more rural Central and Western regions. Areas such as Shanghai, Beijing, Tianjin, and Guangdong have prospered due to increased foreign investments and business opportunities, but western provinces such as Tibet and Yunnan have deteriorated.

China’s income inequality continues to rise, with a Gini coefficient of 0.47. Average annual rural incomes in 2006 rose 7.4 percent in real terms to US$ 462, while average annual urban incomes rose 10.4 percent to US$ 1,514. As such, rural incomes are still only one-third of urban incomes. Income growth in urban areas follows macroeconomic trends, while rural household income growth depends on the price of agricultural products and occasional opportunities for upward social mobility. At this level of disparity, many would argue that China is in danger of serious social instability.