Yawning income gap begs urgent solution

09:44, March 08, 2010      

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By Guo Qiang

The widening income gap between rich and poor, one of the most urgent and toughest social problems in China, is increasingly recognized by the country's leadership as having the potential to cause instability, a fact expressed to members of this years' meeting of China's top advisory body.

The Jiu San Society (JSS), one of China's eight officially recognized political parties, pointed out in its proposal that the disparity is widening to its peak as the rich possess 23 times more wealth than the poor – in contrast to 7.3 times in 1988 – one day after Chair man of the Chinese People's Political Consultative Conference (CPCCC) Jia Qinglin pledged to adjust income distribution to promote social equality.

About 10 percent of China's wealthy own nearly 50 percent of the total urban wealth, while 10 percent of low-income households possess less than 1.5 percent of the wealth in rural and urban areas, the Farmers Daily reported, citing statistics from the Ministry of Finance.

Li Shi, director of the income distribution and poverty research center of Beijing Normal University, told the Global Times that China cannot afford to continue the widening income-gap trend.

He said 40 percent on the Gini index is already too risky and China's Gini index is close to 50 percent. "It will trigger an increasing number of protests if the issue is not addressed soon," he said. Hatred of the rich and corrupt officials has been on the rise in recent years, with many people accused of unfair or unlawful accumulation of wealth.

A significant number of CPPCC members attending the annual session in Beijing showed concern over the income gap, with some proposing solutions.

Chi Fulin, a CPPCC member, suggested that per capita income for both rural and urban residents be doubled in the 12th Five-Year Plan (2011-15) with annual growth of no less than 15 percent.

Chen Weiming, a CPPCC member, told the Nanfang Daily that the government has to make clear the reasons for the gap and implement necessary policies, such as taxation, in order to solve the problem. Dong Mingzhu, also a CPPCC member, said she proposed to raise the threshold of personal income tax from 2,000 to 5,000 yuan.

But Li said raising the threshold of monthly individual income tax would not fundamentally solve the problem.

"What is more urgent and essential is to raise the income tax of high-income people and explore efficient ways to monitor this group of people who can always find ways to evade taxes," he said.

Between 2000 and 2009, China's GDP tripled from 9.9 trillion yuan to 33.53 trillion yuan, while per capita GDP grew from 7,858 yuan to about 20,500 yuan, putting the country on track toward becoming the second-largest economy in the world.
However, the increase in average income contrasts with a widening gap between urban and rural residents.

The per capita disposable income of urban residents was 17,175 yuan last year, compared with 5,153 yuan for rural residents, according to the latest figures from the National Bureau of Statistics, with the income ratio between urban and rural residents at 3.33:1, in comparison to 2.56:1 in 1978.

While people in large cities such as Beijing and Shanghai have been earning more than 100,000 yuan a year and buying cars for family use, some people in remote western areas, such as the Ningxia Hui Autonomous Region, can make only about 2,000 yuan, not even enough to buy an iPhone with.

More than 40 million people are living under the poverty line of 2,000 yuan per year, official statistics show.

Tian Yun, an expert on macroeconomics at the Academy of China's Macro Economy, told the Global Times that rural people who remain at the bottom of the income ladder usually have bigger needs for basic consumption and will drive domestic consumption if they earn more by working in cities.

He suggested that instead of focusing on raising income tax, China should accelerate its urbanization to allow more of the rural population to enter towns and cities in order to narrow the yawning divide between the urban and rural population.

Less discontent will be achieved if the rural population can migrate freely to cities and enjoy the benefits of the country's skyrocketing economic growth, he added.

China's leadership appears to have taken note of the income gap problem recently. On February 3, Chinese President Hu Jintao called to accelerate the adjustment of China's economic development pattern by giving priority to adjusting income distribution.

The government has this year pledged a package of measures to improve income distribution, including increasing farmers' income, providing more support to low-income residents, raising workers' income and enhancing the adjustment of personal income.

Source: Global Times

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