Balance growth distribution to achieve better social development : a reflection on China’s urban centered export-oriented industrialization strategy

Abstract

Inequality has been rising since China’s economic reform. This thesis analyzes inequality in terms of urban-rural income differences that caused by the combination work of global forces and national policies. In particular, China’s adoption of export-oriented growth based explicitly on wage competitiveness. This cannot be fully explained by its controlled exchange rate policies and even huge surplus of rural labor. It is a consequence of the government’s fiscal, financial, and agricultural policies that transferred financial and human resources from its rural-agricultural sector to the urban-industrial sector. As rural population account for the majority of the entire population, a drop of wage share for the rural population lead to falling private consumption and aggregate demand. A weak domestic market automatically made China overly dependent on foreign demand thus exposed China to the unstable situations of international market. The paper concludes that the government should dedicate efforts to build a strong domestic market by adopting a more inward economic strategy that focuses on boosting domestic incomes for the poorer in order to achieve more balanced development.