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Contents Introduction

Through 30 years of significant reform in the commodity markets and the relatively slow liberalization on the factor market, income disparity has been a serious problem affecting China’s economy. Policies for inclusive growth—economic growth with fair income distribution—are desirable and urgently required for China. This study uses a computable general equilibrium–microsimulation approach (CGE–MSA), which benefits from both the powerful analysis of the comprehensive economic activities of the CGE model and the heterogeneity among microsimulated households, to analyze the effects of macroeconomic policies on income disparity under different assumptions about the factor market in China. The database for this study includes the macro social accounting matrix of China and a Chinese household income survey from 2002. We conclude that (1) both industrial and trade policies have a greater impact on income growth under a segmented factor market (SFM) than under an integrated factor market (IFM), (2) rural and immigrant households would benefit more than urban households from industrial and trade policies, and (3) an SFM is not favorable for the poor.