The phenomenal rise of China’s rural nonfarm sector since around the mid-
1980s has been observed by many to have coincided with rising income
inequality in the countryside.1 The intuitive reasoning behind this observation
is that, with rural land ownership continuing to reside in the collectives (village
authorities) and land distributions carried out in a highly egalitarian manner,
household production—especially of farm goods—is an unlikely cause of
income inequality.2 But with the rise of the nonagricultural sector in general
and the township and village enterprises (TVEs) in particular, observers point
to a widening in the income gap between households that have differential
access to these lucrative income opportunities. In particular, in regions where
local authorities had successfully developed their nonagricultural enterprises
in the 1980s, farm households were able to benefit from these higher-income
opportunities as these collective enterprises were still protected by the immobile
factor markets across geographic regions.3
Indeed, based on a large-scale nationwide survey of the rural households
in 1988, A. Khan et al. provide evidence on the disequalizing effect of wage
income, despite its still insignificant magnitude, 10%, in overall household
income.4 As wage employment will likely increase in the ensuing decades
and therefore assume even greater importance in the overall composition of
rural household income, the line of reasoning rehearsed above suggests the
likelihood of deteriorating income equality over time: the only questions appear
to be how much and how fast