Inequality, Inflation, and their Impact on China's Investment Environment in the 1990s and beyond

Inequality, inflation, and unemployment have become increasingly explosive problems in today's China. In conjunction with an analysis of the spatial pattern of inflation, this paper examines the current trend of China's spatial disparities, in terms of economic output, real consumption, and real income, within inter-provincial, inter-regional and urban-rural framework. This paper also investigates the combined effect of the current high rate of inflation and spatial disparity on China's investment and business environment in the 1990s. Findings of this paper suggest that inter-regional inequalities in economic development and income distribution, especially since 1990, have been accelerated/exacerbated by high inflation, which appears to hit the poorer areas disproportionally. Given the reinforcement of disparity and inflation and the current upsurges of rampant localism, the investment and business environment of China in the 1990s, in terms of political and social unrest and economic profitability, will be severely undermined and will, therefore, become increasing uncertain. It is likely that this trend will extend beyond the millenium and last at least until the early 2000s.