Privatisation and Income Inequality in Western China

This article studies the relationship between privatisation and income inequality in Western China, based on survey from 11 Western provinces, collected in 2004-2005. The Chinese government in 2000 initiated a campaign to develop Western China and reduce local and regional inequality. Privatisation has been a central component in the campaign. A key question is therefore whether a higher degree of privatisation contributes to reduce income inequality. As a macro-level socioeconomic structure, privatisation may have great impact on individual social positions such as education and occupation. This can influence individual income levels, and be further aggregated to the outcome of income inequality. Inspired by Coleman’s theory of micro-macro relation, the study first explores the macro linkage between privatisation and income inequality. Using multilevel random coefficient modelling, it then studies how the impact of individuals’ education and occupation on their income level varies between different regions with different degrees of privatisation. Finally, it simulates the macro income inequality based on multilevel models. The study shows that income inequality appears to be higher in regions with higher degree of privatisation. Furthermore, the study confirms that individual income is strongly affected by education and occupation, which supports the market transition theory in the context of Western China. This relation varies across regions with different degrees of privatisation.