Mind the Gap

Income distribution reform becomes a pressing task By Zeng Wenhui

Mind the Gap

Income distribution reform becomes a pressing task By Zeng Wenhui

BUSY FARMING: Farmers from Hubei Chunhui Farming Cooperative, which is established for realizing agricultural scale operation, prepare for spring plowing in Xiaogan of central China’s Hubei Province on March 7

W hen it comes to income, the average Chinese person has a lot to complain about. “I’ve been working for 25 years since graduating in 1987,but I’m only earning 1,200 yuan ($190) a month,” said an anonymous netizen posting onPeople’s DailyOnline. The media outlet conducted a survey soliciting public opinion before the annual sessions of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC).

ThePeople’s DailyOnline survey showed that “income distribution” ranked second in a list of the nation’s top 10 concerns. Xinhua News Agency’s web portal conducted a similar survey, with “narrowing income disparities” ranking fi rst.

On March 5, when delivering the government work report, Chinese Premier Wen Jiabao said more efforts should be made to deepen income distribution reform in 2012.Wen’s words aroused heated discussion among participants of the NPC and CPPCC sessions.

“Income distribution is a key issue that everyone pays attention to,” said Sun Xiaoyu,former Vice President of the Development Research Center of the State Council (DRC)and head of a research team on income distribution reform at the economic affairs committee of the CPPCC National Committee. “Reform of the income distribution is an urgent task for China.”

Confronting the gap

Government departments and enterprises occupy the lion’s share of the national income and the proportion of individual income to national income has fallen year on year.

The continuous decrease of individual income proportion is an inevitable outcome of China’s economic development and industrialization, said Zhang Xiaoji, a member of the CPPCC National Committee and Director of Research Department of Foreign Economic Relations of the DRC.

However, the government’s large proportion should be given back to residents through the transfer payment system. Last year, China raised the monthly tax exemption threshold to transfer part of the government income back to the people, said Zhang.

The enterprises’ proportion is also too large, said Liu Kegu, a member of the National Committee of the CPPCC and former Vice President of China Development Bank. There are abnormal causes for this result, such as windfall profits of monopolized sectors, excessive income of resource sectors and a low proportion of pro fi ts contributed to the government by stateowned enterprises (SOEs).

Liu suggests the Central Government should levy more taxes on companies with higher pro fi t margins. It should also enhance the level of the minimum profit that SOEs must hand over to the government. If necessary, part of the operating income of stateowned capital should be earmarked for the nation’s social security.

The income gap exists between the rich and the poor, between urban and rural areas,and between different industries or regions.

“The difference between wages in western and eastern regions is way too big,” said the anonymous netizen, whose IP address is from southwest China’s Sichuan Province. “I earn far less than my peers in the east.” Statistics show per-capita disposable income of urban residents in Sichuan was 17,899 yuan ($2,828)in 2011. In striking contrast, per-capita disposable income of urban residents in Jiangsu Province at the east coast reached 26,341 yuan ($4,162) in 2011.

Regional income disparities have become a common concern among most Chinese,said Shang Xunwu, a member of the CPPCC National Committee and former Deputy Director of the Agriculture and Animal Husbandry Department of northwest China’s Gansu Province.

“The income gap between developed regions and less developed ones is so large that talented people tend to flow to high-income regions. It’s quite hard for remote areas to attract or keep high-caliber talent,” said Shang.

Rubbing salt into the wounds is the income gap between rural and urban areas. Urban residents’ disposal income against farmers’ net income was 3.13:1 in 2011, according to the National Bureau of Statistics, with per-capita farmers’ net income around 6,977 yuan ($1,107).

“Not enough public fi nance is earmarked for rural areas. If we take into consideration the public services that residents are entitled to, the income of urban residents is six times that of rural people. Public services include transportation, water supply, electricity supply, education, and medical and health care services,” said Shang.

For instance, a lot has been allocated from public fi nance to facilitate highway construction in cities while the road condition in rural areas is so poor that some of them don’t even have access to postal services. In education, facilities in urban schools are far better than those in rural ones and teachers’ wage is also higher.

“Chinese farmers do not have the means to maintain high enough levels of productivity to make money. Because they only have limited land resources, most farmers only work one month a year. If we increase the amount of land they can work on and let them realize scale operations, the income of farmers will be largely increased,” said Shang.

On a positive note, the growth speed of rural residents’ income has surpassed that of urban residents since 2010. If this trend continues, the gap could be narrowed, said Shang.

Addressing the problem

“We will take further steps to adjust taxes for high-income groups, strictly standardize supervision of pay and bonuses for senior management in SOEs and financial institutions, expand the proportion of middle-income groups, raise the incomes of low-income groups and promote equal opportunity,” Wen said when delivering the government work report.

In Shang’s opinion, the minimum wage standard should be raised to enhance low-income residents’ salaries. Also, the government should pay attention to low-income groups in cities, such as families where one of the parents has been laid off or where both are without work.

For poverty-stricken groups, Sun suggests the government should improve social security, expand its coverage and enhance its level. “The government has done a lot in this area with tremendous achievements,” he said.

Another measure is the wage negotiation mechanism concerning companies and workers’representatives such as the labor union, said Sun.This can ensure the normal mechanisms of wage hike as it gives workers more say and changes the former situation that employers are the only determining factor for wages.

But the income distribution reform will inevitably be hampered by people with vested interests, said Shang.

“There is a long way to go,” he said. When conducting wage reform, the government can do it step by step. It can raise the wage of highincome people to a small extent and low-income people to a large extent. Little by little, this can gradually narrow the gap.

Some CPPCC National Committee members disagree with the Central Government’s resolution to strictly standardize supervision of pay for senior management in SOEs and fi nancial institutions.

“Compared with their foreign peers,China’s top managers in SOEs and fi nancial institutions make much less. It’s inappropriate to say their pay and bonuses must be strictly supervised,” said Zhang Yichen, CEO of CITIC Capital Holdings Ltd.

Zhang Xiaoji shared that same view. “If the incentive mechanism doesn’t exist, how can Chinese SOEs keep talented entrepreneurs?” said Zhang. “If top managers are not well paid, they will de fi nitely go to work for foreign companies.”

“We also can’t advocate equalitarianism because it will take away steam from the buoyant Chinese economy. The key is establishing a healthy concept in society, said Zhang Xiaoji. For instance, some people in certain Western countries have a healthier mindset. Even if out-earned by surrounding people, they won’t feel jealous because they know they will have the same achievements in the future as long as they have equal opportunities. “This is the right approach to this problem,” he said.

SHOWING MORE CARE: Wu Weimin, a migrant worker from southwest China’s Chongqing, picks up his daughter from a primary school set up for migrant workers’ children in Jinjiang, southeast China’s Fujian Province, on February 23