2013. Vol.2, No.2, 89-91
Published Online May 2013 in SciRes (http://www.scirp.org/journal/chnstd) http://dx.doi.org/10.4236/chnstd.2013.22013
Copyright © 2013 SciRes. 89
A Measure to Fight China’s Worsening Income Distribution
1College of Economics, Zhejiang University , Hangzhou, China
2College of Business Administration, China University of Technology, Taipei, Taiwan
Email: hsiung@cute. edu.tw
Received November 4th, 2012; revised December 29th, 2012; accepted January 12th, 2013
Copyright © 2013 Hsiung Bingyuan. This is an open access article distributed under the Creative Commons At-
tribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the
original work is properly cited.
China’s income distribution has worsened along with its rapid economic development. It is suggested that
the government issues an ID card with a chip and store money in the chip as calculated by a formula
based on tax revenues. People can use the money stored for consumption. The measure is likely to prove
an effective tool in bringing about a direct and immediate improvement in income distribution.
Keywords: Income Distribution; Redistribution Measure
Since the People’s Republic of China (PRC) adopted pro-
market policies in the late 1980s, its economy has expanded
with unprecedented speed, resulting in two well documented
facts: a near two-digit growth rate which has been sustained for
over two decades, and a worsening income distribution. This
short article proposes a specific, practical measure to deal with
the problem of the widening income gap.
The paper is organized as follows: the problem and policy
objectives will be identified in the next section, followed by a
specification of the policy measure. Then, an assessment of the
measure is made and the measure is compared with other rele-
vant measures. A discussion of the measure from a wider per-
spective is suggested and then comes the conclusion.
The Problem Identified
That the PRC has experienced a continuous high growth rate
for over two decades has been widely recognized, supported by
both vivid stories and hard statistics (Luo Xubei & Zhu Nong,
2009; Yao, 1999). As a result, many regions and many people
have become rich in a short period of time. Not everyone,
however, has boarded the train of economic progress. Even in
metropolitan areas, stark contrasts between the rich and the
poor are not only alarming but sometimes nauseating. The fol-
lowing scenario is common in many a place: in a well lit, cozy
McDonalds, youngsters enjoy their breakfast for about 15 RMB
(US $3.00) a person while in the alley just a few feet away,
people sit on short stalls, in the open air, and have their tradi-
tional Chinese breakfast for 2 RMB (US $0.40) a person.
Mor eov er , i n ma ny rur al areas across the country , time seems to
have stood still. The rapid e c onomic expansion has not been felt
by people in these areas, and it is not uncommon for house-
holds to work year round in the field to produce crops that are
worth 300 to 500 RMB.
The widening and deteriorating of income distribution
clearly has adverse implications. It breeds growing social unrest
which endangers society. Various measures have been used to
improve income distribution (Musgrave R. & Musgrave P.,
1989). For instance, offering comprehensive elementary educa-
tion to the population and providing basic infrastructure such as
roads and electricity have been widely adopted in the past.
These are effective policies but it takes time for the measures to
bear fruit. By contrast, the present paper proposes a policy tool
to achieve two goals: First, the measure will benefit individuals
(households) directly and immediately; secondly, the tool will
at the very least slow down the worsening of the income distri-
bution and more likely improve income distribution, especially
closing the gap between the metropolitan and rural areas.
The benchmark case is to issue each person an identity card
with a chip (ID card with a chip, IDCC), with the chip capable
of storing basic information. Then, a formula is specified by the
PRC government to calculate how much money will be put into
the card in any given year. The formula will employ tax reve-
nues and census data as inputs. People can use the money
stored in the IDCC, say 100 RMB per person, to purchase
commodities in grocery stores and supermarkets until the
money is depleted. The stores and supermarkets will then apply
for reimbursement from a government agency.
Variations of the benchmark version are straightforward. For
economically backward regions as well as ethnic minorities, the
amount of money stored can be increased. Separately, in addi-
tion to the money offered by the central government, provincial
and local governments can easily chip in and add money to
implement their own policies.
From the fiscal perspective, the IDCC contains elements of
different fiscal tools: tax refunds, in-kind transfers, food stamps,
and consumption vouchers (Thurow, 1974). From the govern-
ance perspective, PRC is like a business entity and the citizens
its shareholders. Depending on the profits it makes, the com-
pany pays dividends to its shareholders on a regular basis.
The IDCC has several identifiable benefits. To begin with,
HSIUNG B. Y.
unlike providing elementary education or building infrastruc-
ture that will bear fruits after years or decades, the IDCC will
make an impa ct directly an d immediately. In addition, an IDCC
is issued to individuals so each and every person, especially
those in the rural areas, will share the pie of economic devel-
opment. Moreover, consumption brought about by the IDCC
will have a multiplier effect, accumulating over time and add-
ing to future tax revenues. Consequently, people will actually
harvest fruits from seeds they have themselves helped plant.
Furthermore, a mere 100 RMB may be an insignificant
amount in the cities, but for people in the rural areas it is a
small fortune. People can use it as seed money to raise chickens,
ducks, sheep and pigs. The money will make a difference un-
thinkable in the cities. Finally, consumption enabled by the
IDCC and the subsequent economic activities it induces are in a
sense bringing about a market economy in the rural areas from
a vacuum. This will be an important counterforce to the fast
expanding economy in the metropolitan areas. In a nutshell,
people, especially those in the rural areas, need to have fish to
eat before they can take part in commercial activities and learn
how to fish!
Alternatively, while the above beneficial results are tangible
and mostly quantifiable, the IDCC will generate intangible and
important benefits as well. Specifically, with each individual
being issued an IDCC and then enjoying the fruits of economic
growth, a weak but perceivable thread is created between the
faceless individuals and Big Brother. When their interests are
vested in the performance of the whole economy, people will
tend to identify with the PRC government and the government
will in turn get more feedback and support for its public poli-
cies. It is more than evident that the detailed consumption in-
formation the IDCC produces will become a valuable data set
with respect to which social scientists can do research and
based on which the government can form public policies.
The potential difficulties of the IDCC need to be faced too.
First, the formula itself will be hard to derive. Conceptually
speaking, it is a formula with a certain number divided by a
certain number. The numerator could include factors such as
the growth rate of the economy, gross national product, tax
revenues, etc, and the denominator could be the total population,
population over a certain age, or populations of rural areas
and/or minorities. Various variables can be used to create a
feasible formula, and data for the past ten to twenty years can
be used to test the formula and estimate the cost involved. Se-
condly, implementing the IDCC will involve numerous govern-
ment agencies, for with the formula and the money determined
by the central government, the local governments are to distrib-
ute the IDCC to the population and then help deal with the re-
imbursement process. Cooperation by various government
agencies both vertically and horizontally is needed and this will
be a challenge to the administrative ability of the PRC.
Third, the people who benefit the most from the IDCC are
understandably people living in rural, economically backward
and hard to reach regions. There may not be roads or even
stores in these places. One possible way to deal with this diffi-
culty is to put the regions into different categories. The IDCC
will be issued first not to the most backward regions but per-
haps to the second to the worst regions, regions with rudimen-
tary infrastructures and sparse commercial activities. But this
also implies that, given that each person has, say, 100 RMB to
spend each year, supermarket chains or convenience store
chains might find it lucrative to enter these regions and enjoy
certain locked-in effects from their entrepreneurial endeavors.
Fourth, once the IDCC becomes a fixture in people’s lives, it
might invite expectations from the public that a certain amount
of money will be in the card for them to consume, an expecta-
tion that may not be fulfilled if the economy experiences busi-
ness cycles. One way to deal with this rational expectation is to,
as suggested above, group the regions into different categories.
When the economy is not doing well or the tax revenues are
below par, only people in certain categories will have money
stored in their IDCC. This actually implies that the IDCC func-
tions as an automatic stabilizer for business cycles. When the
economy is in a trough the rural and less developed regions will
get economic resources and this will help close the gap between
the metropolitan and rural areas.
Whether the IDCC should have a sunset clause is open to
discussion. As the income distribution improves to reach a cer-
tain level, issuing the IDCC to the whole population may not be
necessary. The measure, however, can become a more refined
tool to deal with problems of a more limited scope. For instance,
people from the economically deprived regions or ethnic mi-
norities could use their personalized IDCC to pay tuition or pay
off student loans in pursuing their education.
The IDCC measure can be compared with other relevant fis-
cal tools, illustrating their strengths as well as weaknesses.
Bangladeshi economist Muhammad Yunus launched a small
loan (microcredit) scheme in the rural areas of India to great
success, earning him the Nobel Peace Prize in 2006. The IDCC
and the small loan approach are common in that even with a
small amount of money initially, both measures will generate a
chain reaction, producing changes both quantitatively and
qualitatively. The difference between the two is that while the
small loan measure is conducted with selective points (indi-
viduals), the IDCC measure is spread over the whole area (the
whole population), so to speak.
Alternatively, the contrast between the IDCC measure and
the consumption voucher is also illuminating. While the con-
sumption voucher is normally issued as a one-shot measure,
aiming to provide a stimulus to the economy, the IDCC infu-
sion is repeated yearly, providing not only continuous streams
of stimuli but more importantly the resources needed to fight
the worsening income distribution. That is, the IDCC will help
improve both efficiency and equity. In addition, food stamps in
the US have been replaced by Electronic Benefit Transfer cards
(EBT). The main differences between the EBT and the IDCC
are that the later is not meant to maintain a basic level of living
per se and that a major goal of the IDCC is to expand the reach
of the market economy.
Moreover, the IDCC measure is not only applicable to the
PRC, it is likely to prove effective in other countries and areas
such as India, Pakistan and Africa, in closing the gap between
the developed and the less developed regions. In addition, for-
eign aids can actually be made with the proviso of IDCC use,
e.g., in providing aid to North Korea, the UN could demand the
IDCC measure be implemented, ensuring that the people will
get the aid directly.
The problems of widening income distribution and the
Copyright © 2013 SciRes.
HSIUNG B. Y.
Copyright © 2013 SciRes. 91
worsening urban-rural gap have a long history in various socie-
ties, and different measures have been employed to deal with
them. At the beginning of the 21st century, the PRC is facing
similar problems, but on a scale that is arguably more serious
by an order of magnitude. If social unrest bursts out in the PRC,
then conceivably it will have adverse impacts to both the PRC’s
neighbors and other regions through the repercussion on eco-
Technological advances such as electronic chips, mass in-
formation processing, and wireless communication, however,
have enabled modern societies to fight the old problems with
new tools. The IDCC measure, dealing with old problems in an
old civilization, is a new tool and is likely to yield encouraging
results, thus turning a new page in the history of public finance!
I thank Hsienguo Yao, Jingchuan Shi, Chiendong Win, Kelly
Olds, and Weidong Zhang for helpful comments. Also, I am
grateful to the Center of Law and Public Policies, National
Taiwan University, for research support and Tzehan Kao as
well as Meya Tseng for research assistance.
Luo, X. B., & Zhu, N. (2009). Rising income inequality in China: A
race to the top. World Bank Policy Working Paper, No. 4700.
Musgrave, R., & Musgrave, P., (1989). Public finance in theory and
practice (5th ed.). New York: McGraw-Hill Book Co.
Thurow, L. C. (1974). Cash versus in-kind transfers. American
Economic Review Papers and Proceedings, 64, 190-195.
Yao, D. (1999). Urban-biased policies and rising income inequality in
China. American Economic Review Papers and Proceedings, 89,