Why Chinese Income Gap Is Widening

After 20-odd years of reform and opening up, China has changed from a country plagued with the problem of getting enough food and clothing to feed and clothe its people to a society wherein the people live a relatively comfortable life.

This must be regarded as the world's greatest miracle wrought in the late years of the 20th century. However, along with the substantial rise in the level of income, the income gap has been widening. Since 1978, the Gin Coefficient of residents' income has jumped from 0.180 to 0.467.

Five Manifestations of Excessive Income Gap

At present, residents' bank savings deposits have topped the mark of 6,000 billion yuan. In the early 1990s, some bankers said, "10 percent of the people held 60 percent of negotiable securities and 40 percent of bank deposits." In the mid-90s, some experts and scholars said, "20 percent of the people owned 80 percent of the savings deposits, this means 80 percent of the people only held 20 percent of the deposits." At the end of the 90s, someone calculated on the basis of a sampling survey conducted among urban residents, 3 percent well-off people held 47 percent of the residents' savings deposits. These sayings are only a kind of estimation, because it is not long since the system of using real name in financial affairs was put into practice, it is simply impossible to make clear how much savings deposits and securities a person owns, and so it is naturally impossible to verify the amount. But experts have their outlook, and master hands have their judgment, their estimates are pretty close. Then how about the income gap after all?. In my opinion, the current excessive income gap assumes five manifestations:

1. Great disparity in the high- and low-income groups

In 1997, the ratio between the 10 percent household with the highest income at the upper level and 5 percent financially difficult families with all average per-capita income at the lower level in China's cities and towns was 4.71:1. In the same year, 4.97 percent of the rural households had an average per-capita annual net income of over 5,000 yuan, while 4.37 percent of the households had less than 600 yuan. The ratio between the 5 percent of rural residents at the upper level and 5 percent of those at the lower level was about 8.33:1.

2. Income gap between urban and rural residents continues to expand recently

In 1997, the ratio between the per-capita disposable income of urban families and the per-capita net income of rural families was 2.7:1, while in 1978, the income gap between urban and rural residents was 2.37:1. Whereas in 1984, the ratio was once reduced to 1.6:1. This further led to widening the consumption gap between urban and rural areas, with the ratio being 2.7:1 in 1995, and only 2.17:1 in 1990.

3. The gap between the eastern region and the central and western regions enlarged

In 1995, the ratio of farmer income between the eastern region and the central and western regions was 1.70:1.21:1, a further expansion compared to the ratio of 1.50:1.17:1 in 1990. In 1995, the ratio of non-agricultural workers' wage income between the eastern region and central and western regions was 1.59:1:1.24, continuing to widen compared to the 1.24:1:1.12 in 1990. In 1997, the ratio of urban residents' income between the highest-income provinces and the lowest-income provinces was 2.38:1; and the ratio of urban residents' income between the highest-income cities and the lowest-income cities was 4.88:1.

4. The income of employees with some trades of non-publicly-owned economies far higher than those in publicly-owned economies.

In 1997, the ratio of average wage for workers with State-owned financial and insurance businesses and that for those with other economic units was 1.80:1, the average wage for workers in State-owned computer application service trade and that for those in other economic units was 2.45:1.

5. Excessive income difference between monopolistic trade and non-monopolistic trade

In 1997, the wage ratio between workers in air transport service, posts and telecommunications and manufacturing industry was 2.84:2.03:1. The enlarging income gap hindered the efforts for common prosperity. The pattern of "big at both ends, and small in the middle" is the inevitable result of the widening income gap; whereas the pattern of "small at both ends, and big in the middle" is the goal of struggle for common prosperity.

Reasons for the Widened Income Gap

1. The result of personal income-tax collection is not ideal. The proportion of personal income tax evasion is the largest among high-income earners.

2. Barriers between urban and rural areas have hindered the shrinking in the income gap between urban and rural residents. Farmer-workers from outside cannot register for opening a shop in cities, they can only rent a business license from the urbanites to set up a teahouse or a beauty parlor, many city dwellers with a shop front have become people living on interest.

3. The advancement of reform and opening up and the various special policies for the eastern coastal regions have objectively played the role of widening the disparity between the eastern region and the central and western regions.

4. Ignorance of insurance and welfare. Many individual households and private businesses, because they do not participate in social insurance, nor do they provide appropriate welfare for their workers, compete with other enterprises on the strength of their low labor cost, so as to obtain non-monopolistic super-profits. We should energetically develop non-publicly-owned enterprises, but we should develop them on a fair footing.

5. Trade monopoly. Trade monopoly has led to super-profits. After competition was introduced into the telecommunications market, we started doing this business only after we had gained profits from it.

6. Doing business in violation of regulations and laws. As the saying goes, "As virtue rises one foot, vice rises 10". Some people dare to trample on all laws on earth in order to gain a 300 percent profit.

7. Corruption. The marketing of power has directly led to corruption. The government needs to control the market, but government functionaries cannot participate in market competition.

Excessive income gap, slow income growth and the expanded low-income area are an important reason for sluggish consumption. Experts' proposal that residents' consumption be stimulated by way of raising the earnings of medium- and low-income earners is reasonable. However, in our opinion at a time when the economy is in the doldrums, the main methods for raising the medium- and low-income earnings should not be raising wages in a simplified way, the only correct way to do this is to help urban unemployed and laid-off workers register and gain new jobs as quickly as possible through active financial, monetary and social policies, employment rate is an effective method for raising the earnings of medium- and low-income families. In addition, we should further improve the work of collecting and managing personal income tax. Through perfecting the urban residents' minimum living security system and intensifying rural poverty relief work, we should transfer the income of some high-income earners to low-income families.

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