Evaluate solutions to the trade-off between equity and efficiency in China??™s economic development

Evaluate solutions to the trade-off between equity and efficiency in China’s economic development BY 6507317 Evaluate solutions to the trade-off between equity and efficiency in China’s economic development Although China has achieved rapid and remarkable economic growth in the last few years, there persists an inequality in development between urban and rural regions, among districts, and between the economy and society. There are still numerous issues which influence people’s immediate interests in fields such as income distribution, education and employment.

The problem of the trade-off etween equity and efficiency in China’s economy development is extremely complicated. This essay will analyse three solutions to this problem: income distribution system reform; making education equitable, and vocational training for urban and rural workers. Despite certain of potential drawbacks, providing vocational training to rural migrant workers and new members of the workforce in urban and rural areas is the most realistic and beneficial option to balance equity and efficiency in China’s development.

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These solutions will be evaluated using the criteria of cost, racticality and effectiveness. Reforming the income distribution system can possibly be the most immediate way to change China’s current inequity status quo. This can be achieved by using tax, supervision and subsidy to properly improve the income level of the low-income families, enhance the ratio of the middle-income group and adjust the excessively high income of some monopoly industries (Riskin, Zhao and Shi, 2001). As Feng et. al (1999) point out, income inequality may pose a deadly threat to the stability of the political regime.

Hence, this solution, which contributes to chieving a relatively egalitarian distribution of social wealth, has positive effects on political stability and social development. It can improve some impoverished people’s living standards in a short period of time as well as narrow the gap between rich and poor. Nevertheless, relatively egalitarian income distribution may hurt people’s enthusiasm for working, which will result in less efficiency. Despite this impact, the overall cost is to some extent high. From 1996 to 2006, China’s GINI coefficient, a measure of income inequality, rose to about 0. 7 (Gilboy and Heginbotham, 2010). This demonstrates that the countrys inequality issue is excessively serious and the condition remains deteriorating. Consequently, it will cost a great deal of money to subsidize low-income people. A further concern is the practicality of the reform. Firstly, it is probably impossible to ensure all people who are badly-off can get more special allowance. In addition, it is complicated to determine the subsidy because different areas have varied consumption levels. Another probable option to the trade-off between equity and efficiency is making education more equitable.

Even though China has achieved universal basic education in recent years, there remains a seriously disparity between the quality of education in poor areas and rich areas (Dollar, 2007). In terms of addressing this disparity, government should allocate education resources rationally and guarantee adequate funding for basic education plays an essential role in a countries economic development. Therefore, making education more equitable is an effective way to solve equity problem, especially in the long run. Despite the great importance of the effects of equal access to ducation on the future development of China, the cost is fairly high.

Research by World Bank (2009) has shown that the countrys public spending on education rose from 2. 9 percent of gross domestic product (GDP) in 2001 to over 3. 5 percent in 2009. That is a large amount of money but in comparison with the huge population in China as well as the current situation, this is far from enough. For practicality, the difficulty is to attack the root causes of education inequalities – the decentralized system of financing, which brings tremendous stress on the local governments with low levels of tax revenues (Lardy, 2006).

In addition, this solution will take a long time, which cannot satisfy the requirement of solving current problems. Providing vocational training for urban and rural workers is demonstrably the best solution to the tradeoffs between equity and efficiency. World Bank (2008) reported that China’s economy structure has started to change with the development of new knowledge- based industries. This solution can promote the employability and productivity of rural migrant workers and new members of the workforce in urban and rural areas, which meets the skilled labor demand of China’s changing economy.

Not only does vocational training benefit efficiency, it also contributes to reducing poverty and inequality since numbers of workers find well-paid employments after training. Moreover, offering vocational is practically feasible for the reason that some areas like Guangdong province has attempted it and developed three model training schools which proved to be successful (World Bank, 2008). Even though providing employment training to urban and rural workers is to some extent practical, there are still difficulties in persuading rural population and laid-off employees to take use of raining programs.

As a consequence, the investment to promotion and education should also be taken into consideration. Besides this additional cost, the main cost of vocational training can be divided into 3 parts, which be undertaken by government, trainee, and society (Tsang, 1999). Thereby, the capital which demanded by this solution are expected to be management. Balance equity and efficiency is a crucial problem that needs to be solved in China’s economic development. It seems apparent that the three solutions all have advantages and weaknesses in solving this problem.

The most directly approach to narrowing the income gap is to deepen the reform of the countrys income distribution system. However, since the former option hurt efficiency, it is not a appropriate solution in the long run. Making education equitable can benefit equity as well as future economic development, but it is costly and has no significant effectiveness of solving current problems. The best solution is to provide vocational training for urban and rural workers because it is the cheapest and practical option which benefits both equity and efficiency. Word count: 978 Reference List

Brown, L. (2008) Plan B 3. 0: Mobilizing to save Civilization. New York: W. W. Norton and company, Earth Policy Institute Dollar, D. (2007) Poverty, inequality and social disparities during China’s economic reform [online] Available from: [30 March 2011] and social security comparative analysis of Malaysia and china. International Journal of Economic Development. [online] Available from: [2 April 2011] Gilboy, G. J. and Heginbotham, E. (2010) China’s Dilemma: Social Change and Political Reform [online], 14 October. Available from: [7 April 2011] Lardy, N. R. (2006) China: Toward a

Consumption-Driven Growth Path in Policy Briefs in International Economics. Institute for International Economics. Number PB06 [online], 6 October. Available from: [2 April 2011] Riskin, C. , Zhao, Renwei and Shi Li (2001) China’s retreat from equality: income distribution and economic transition. pp. 25-44 Tsang, M. C. (1999) The Cost of Vocational Training [online]. Available from: [5 April 2011] World Bank (2008) China – Technical and Vocational Education Training (TVET) Project [online]. Available from: [4 April 2011] World Bank (2009) China: Basic education in Western Areas Project [online]. Available from: [4 April 2011]


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