Analyzing the reasons for the lag in urbanization and the persistent widening of the urban- rural income gap in China from the viewpoint of government development strategy, we find that the government＇s strategy of encouraging the development of capital-intensive sectors has resulted in a relative fall in labor demand in urban areas and thus delayed the progress of urbanization, hampered the effective transfer of the rural population into urban areas and widened the urban-rural income gap. Using the technology choice index （TCI） to measure the degree to which government policy is biased towards capital-intensive sectors, this paper conducts empirical tests of a series of theoretical hypotheses on the basis of Chinese provincial panel data for 1978-2008. We further find that changes in China＇s urban-rural income gap conform to a U-curve pattern, i.e. in the course of economic development, the income gap first decreases then increases.
Income inequality will affect China’s economic growth over the long term.It is also one of the important factors determining whether China can avoid the middle-income trap.Different from the‘equality of outcome’perspective,this paper analyses the causes of China’s income distribution from the perspective of equality of opportunity.The inequality of opportunity in China is mainly caused by distorted institutional arrangements in the financial markets,labour markets,and product markets,involving e.g.restrictions on interest rates,the household registration(hukou)system,price controls on industrial and agricultural products,and privileges of state-owned enterprises.All of these distorted institutional arrangements are attributed to the heavy-industry-oriented development strategy in the recent history.Although this strategy was gradually abandoned,it has generated some institutions which have long-run impacts on the income distribution in China.Transforming government functions through institutional reforms is necessary to improve equality of opportunity and income distribution.
