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China's economic inequality may have been inevitable, IMF says
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CHINA'S economic inequality may have been an inevitable by-product of the country's investment and export-led growth model, a working paper by the International Monetary Fund said today.
China should shift to a more inclusive growth to help rebalance the economy and make it more sustainable, it said.
"Since its Reform and Opening Up period, China has made remarkable strides in lifting people's incomes and reducing absolute poverty," the IMF said in the paper. "However, it has come at the cost of rising inequality."
In many ways, the inequality was rooted in China's growth model, which heavily relied on investment and exports, the paper said. There was a bias toward manufacturing, and most capital stock was utilized to meet the sector's expansion and meet increasing export demand. Wages were low in part due to the large labor dividend, and the eastern coast developed first for geographical reasons, benefiting from trade and foreign direct investment, the paper said. It also said the unbalanced growth strategy has in turn propagated income gaps based on skills, sectors and geography.
To make a change, the organization suggested some policies to rationalize savings and boost household income, in a bid to arrest the rising tide of inequality in China and reduce the bias toward capital and large corporations.
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