China promises action on income gap

Last Updated: Wed, Feb 06, 2013 04:15 hrs

China's government has issued a sweeping pledge to narrow the politically volatile gulf between its rich and poor with measures including requiring state companies to turn over more profits to pay for social programs.

The pledge Tuesday promised more spending on health, education and job training but gave few details and no sign of how Beijing will enforce changes that might hurt state industry and other politically influential factions.

Communist leaders have promised repeatedly to narrow the gap between the elite who have profited from economic reform and the country's poor majority. They have been rumored for months to be working on a plan but have faced resistance by state companies and their allies in the ruling Communist Party.

"We need to continue to deepen the reform of income distribution to protect social fairness, justice, harmony and stability," said a Cabinet statement.

Beijing reported in January that a widely used measure of income distribution known as the Gini coefficient was at 0.474 for China in 2012 on a 0-to-1 scale in which zero equals perfect equality. That would make China among the most unequal societies.

China's boom has made multibillion-dollar fortunes for some entrepreneurs but income growth for the majority has been sluggish. Complaints about the lavish lifestyles of officials, Communist Party figures and military officers who drive luxury cars, own villas and send their children to elite foreign universities have fueled political tensions.

Advocates of reform say narrowing the wealth gap will require not just social spending but fundamental changes in China's economic structure to curb the dominance of state companies that control an array of industries including banking, oil, telecommunications and finance.

Tuesday's statement promised to "improve the mechanism of state-owned industry revenue sharing" — a reference to proposals to require China's giant, cash-rich state industries to share more of their income with the treasury. It also promised to restrain the pay of their top executives, who are political appointees rather than risk-taking entrepreneurs.

The wealth of heavily subsidized state companies that pay little in taxes or dividends is a key source of public frustration. Tuesday's statement cited an earlier pledge in the ruling party's five-year economic development plan to increase the share of company profits turned over to the government by 5 percentage points but it gave no details of further increases.

"We think the strategy is too comprehensive to be implementable," said Societe Generale economist Wei Yao in a report.

The plan does show that the Chinese government has recognized the severity of economic and social imbalances and "felt the urge to change," she said. "Hopefully, 2013 will be the year of action and the government's good promises will be eventually fulfilled."

Higher spending on education and social programs to free up household budgets for consumer spending is a key requirement of the party's long-term plans to reduce reliance on exports and investment to drive economic growth.

The government has made piecemeal changes in recent years aimed at spreading China's prosperity more broadly, including raising minimum wages for industrial workers. But economists say officials have had little impact and rising wages in some areas in recent years are due mostly to companies competing for workers as growth in the supply of labor slows.

The statement also promised to broaden the country's tax base, reduce tax evasion and require officials to disclose their income and assets — another politically difficult goal. Schemes to hide income and assets are believed to be widespread among party officials and China's business elite and combating that will require confronting wealthy, influential individuals.

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