Financial Structure, Development of Small and Medium Enterprises, and Income Distribution in the People’s Republic of China

Abstract

Since the 1980s, income disparity has increased significantly in the People’s Republic of China, largely as a result of widening urban–rural income gaps. The urban–rural inequality stems from the dual economic structure between urban and rural areas as well as the insufficient development of nonagricultural industries and township and village enterprises in rural areas. The economic divergence across regions can also be related to the unbalanced development of small and medium enterprises (SMEs). Promoting the development of SMEs in rural areas and economically underdeveloped regions could help reduce urban–rural and regional income inequality. However, a banking structure dominated by the four state-owned commercial banks is not conducive to the development of SMEs and thus not conducive to reducing the present economic disparity.