Center for the Study of Democracy

In this paper, we examine the roles of institutional sources in the spectacular rise of income inequality in urban China during the reform era. Categories created under the state socialism not only formed an institutional basis that defined inequality under socialism, their new life in an emerging market economy have also made them the institutional sources of rising economic inequality. In addition to rewarding individuals differently according to their attributes, income distribution in urban China shows a clear pattern of alignment along boundaries such as locality, industrial sector, ownership type, and work organizations. Relying on mechanisms such as exclusion and opportunity hoarding, and by forming local corporatism and work organization ownership, members in different categories retain a degree of equality while inequality between categories rose sharply. These structural features have resulted in a juxtaposition of a sharply increased inequality between groups and a relative degree of equality within groups.