Sun, March 14, 2010
Business > Economy

China on track of deeper reform to tackle wealth gap, income disparity

2010-03-14 11:15:09 GMT2010-03-14 19:15:09 (Beijing Time)  Xinhua English

According to a recent World Bank report, the Gini Coefficient for China, a main gauge of income disparity, surged to 0.47 in 2009 as the country expanded to the third biggest economy in the word, exceeding the "security line" of 0.4.(Xinhua)

As China's widening income gap threatens social stability and hampers consumer spending, the government is moving to reform the revenue distribution system to bridge the gap and inject fresh impetus to a sustainable economic growth.

According to a recent World Bank report, the Gini Coefficient for China, a main gauge of income disparity, surged to 0.47 in 2009 as the country expanded to the third biggest economy in the word, exceeding the "security line" of 0.4, indicating unequal income distribution could arouse social unrest.

The figure was 0.21 to 0.27 three decades ago.

Despite clear government gestures of deepening reforms to increase incomes, for China, it could be difficult, or complicated, to address the problem.

DISTRIBUTION IMBALANCES

In China, complaints are growing that average income growth lags behind the rise of state fiscal revenue and living costs, while wealth quickly gathers in the hand of a small group of people.

A secretary working in a small business earns less than 40,000 yuan a year, while the same work in a company of monopolistic industry receives three times of that.

"It is unfair income distribution system that widens the income gap," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences.

In the primary distribution of national income, the proportion that goes to wages and salaries, the major source of China's most mid- and low-income families, has been declining, he said.

The proportion of the total income that Chinese citizens receive from the distribution of national income fell sharply to 57.9 percent in 2007, compared with 68 percent 20 years ago, according to a report from People's Bank of China released in early 2009.

Zhou Tianyong, a professor with the Party School of the Communist Party of China Central Committee, said residents revenue should take up around 60 percent of the national income, comparing with more than 70 percent in the United States.

In addition, income of government and business enterprises should be restricted within 25 percent, which the professor said is a common intentional practice.

PRESSING REFORM

While reporting the government work to the parliament a week ago, Premier Wen Jiabao pledged deeper reforms in the country's income distribution system.

Wen said the income distribution system was an "important manifestation of social fairness and justice" and a major factor in boosting domestic demand and narrowing income gap.

"We will not only make the 'pie' of social wealth bigger by developing the economy, but also distribute it well on the basis of a rational income distribution system," he said.

However, reaching that goal needs systematic changes, possibly including accelerating urbanization, boosting employment, improvement in rural incomes, and reforms in the household registration, or hukou, system, said Yi, the researcher.

"There are obstacles on the way to fair distribution and social justice, and it takes courage and wisdom to carry out the reforms," said Ding Xilin, chief editor of news magazine Xinmin Weekly.

SOCIAL SECURITY, EMPLOYMENT, TAXATION

In Wen's report, he promised the government would promptly formulate policies and measures to adjust the distribution of national income, and gradually let individual income rise faster than that for government and enterprise employees.

He also stressed the role of fiscal and taxation policies in adjusting the primary and secondary distribution, which would "create conditions for more people to earn property income such as securities gains."

To lawmakers and political advisors who gathered at the annual sessions of the National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference, more jobs and a stronger social safety net are the top priorities.

"More job opportunities could bring up salaries," said Zhang Quanshou, an NPC deputy and president of a human resources development company in south China.

"When job applicants outnumber vacant positions, you never expect a hefty wage," he said, suggesting the government should promote mid-sized and small businesses which are the largest sources of job creation in China.

Meanwhile, improvements in social security also benefit mid- and low-income families, said Zhao Xiangping, an official with the Department of Human Resources and Social Security in China's central Hunan Province.

Premier Wen pledged in his report that the government will spend a total of 318.5 billion yuan to expand the social security system and raise the level of basic pensions of enterprise retirees by 10 percent, which helped secure living of the mid-and-low income families after retirement.

A sound taxation system is also important for narrowing the income gap. Many lawmakers and political advisors have called for taxation reforms, including lifting the minimum taxable personal income threshold, and imposition of property and estate taxes.

MONOPOLY INDUSTRY

Wen has said the government will deepen the reform of income distribution system of monopoly industries, set strict standards for the incomes of executives, especially senior ones, of state-owned enterprises and financial institutions.

Ultra-high incomes at monopoly industries, such as telecommunications, energy and power generation, which widen the income gap and worsen social equality, have long been a source of public complaints.

Zhang Xiaoji, a researcher with the Development Research Center of the State Council, a government think-tank, said it is very important to level the threshold of the monopolistic sectors and allow private business to enter.

Only when different parties share the same chances of competition, income gap between monopolistic sector and other industries can be closed, Zhang said.

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