Urban Household Wealth Disparity in China: Overall Assessment, Source Decomposition, and Formation Mechanisms

【Authors】

ZHANG Ping, ZHUGE Andong & TIAN Ye

【WorkUnit】

ZHANG Ping, ZHUGE Andong （Fudan University, 200433）；TIAN Ye（London School of Economics and Political Science, E16 1EH）

【Abstract】

China’s rapid economic growth over the past decades has facilitated substantial household wealth accumulation but has also exacerbated wealth disparities, posing significant challenges to achieving common prosperity. While existing literature recognizes the pivotal role of housing assets in China’s wealth accumulation, comprehensive analyses of its structural characteristics and formation mechanisms remain scarce. This study systematically examines how the urbanization process has shaped the internal structure and distribution of household wealth in urban China, combining theoretical insights with empirical evidence.
Theoretically, this study distinguishes between endogenous and exogenous mechanisms of wealth accumulation, emphasizing the unique role of public expenditure capitalization in the Chinese context. Unlike developed economies where wealth accumulation largely follows endogenous pathways such as savings and investment choices, China has experienced substantial wealth accumulation through exogenous factors, particularly the capitalization of public investments in urban infrastructure and services into housing prices. This mechanism substantially amplifies housing-related wealth disparities, benefiting households in regions with higher public expenditure levels and those who acquired properties earlier.
Empirically, this research employs micro-level data from the Chinese Household Income Project （CHIP） and China Family Panel Studies （CFPS） spanning from 1995 to 2020. Wealth inequality is measured using the Gini coefficient, incorporating corrections for negative net worth and adjustments using Forbes Rich List data to better represent high-net-worth individuals. The study decomposes wealth inequality structurally by asset categories and by subgroup disparities, highlighting the predominant role of housing assets. It further applies regression-based decomposition and Recentered Influence Function （RIF） regressions to analyze the redistributive impacts of fiscal expenditures and public service provision on household wealth.
Key findings indicate that since 2008, nearly 80% of urban wealth disparities in China have stemmed from variations in housing wealth. Inter-regional inequality, particularly at the sub-provincial level, accounts for approximately 70% of overall wealth disparities. Households’ relative wealth positions are heavily influenced by local economic development levels and the duration of housing ownership. Consequently, housing appreciation driven by public infrastructure investments emerges as the primary mechanism for wealth accumulation and reinforces disparities generated by regional gaps.
This study underscores the need for targeted taxation on housing stock values and capital gains to mitigate wealth disparities. Policies should also prioritize equalizing public service provisions and infrastructure development across regions to address the root causes of structural wealth disparities. Furthermore, enhancing the role of labor income in wealth accumulation and improving housing affordability through public housing initiatives could significantly support equitable wealth distribution and common prosperity.
This paper contributes to existing literature by integrating theoretical models of public expenditure capitalization with detailed empirical evidence, offering new insights into the structural dynamics of wealth disparity in urban China. Future research avenues include extending the analysis to rural households, exploring intergenerational wealth transmission, and investigating the dynamic relationship between income and wealth disparities.

JEL: D31, H31, H54

【KeyWords】

Wealth Disparity, Wealth Accumulation, Source Decomposition, Redistributive Effect