A new income-distribution framework eight years in the making, has been tabled for approval by the State Council and is likely to be introduced in the second half of this year.
“If low-income families cannot afford a decent standard of living, rich families will not enjoy any sense of security. That is a problem for the world, not just China,” Yang Yiyong, director of the Social Development Research Institute under the National Development and Reform Commission, said in an interview with China Daily.
As part of income-distribution reform, government agencies, at both central and local levels, will be urged to pass legislation to cut taxes and regulate executive pay in high-profit monopoly industries and private companies, Yang said.
The framework will see an enlarged middle-income group and high earners will pay more in tax.
The framework may use the Gini coefficient, an internationally accepted gauge of income inequality, or adopt a mix of indicators, such as urban-rural income disparity or wage differences among various industries.
The country’s Gini coefficient has already reached a high, if not dangerous level. It is close to 0.5, he said, a point that “is threatening” social security.
Research by Wang Xiaolu, deputy director of the National Economic Research Institute at the independent China Reform Foundation, based in Beijing, may offer a kind of Kepler telescope for viewing the economy at something like its true size.
Mr. Wang said the hidden, or “gray,” economy, already very large, had grown significantly since the government began its giant stimulus package in late 2008 in response to the global economic crisis. “It was already about 9.3 trillion renminbi” annually, or $1.47 trillion, said Mr. Wang.
Mr. Wang estimated that not only were trillions of renminbi failing to appear in official assessments, but about two-thirds of it belonged to the top 10 percent of the population.
His conclusion: the rich were hiding their wealth, and society was far more unequal than the government was admitting — a politically sensitive subject.
Some economists estimate that the Chinese income gap, as measured according to the Gini coefficient, is currently around 0.48, above the alert threshold of 0.4, with 0 representing perfect equality and 1 representing perfect inequality.
Research by Wang Xiaolu research also shows that income for the rural and poorer areas increased by 46% between 2005 and 2008. Urban incomes are increasing faster and higher income people are doing better than the poor. However, the poor have been improving their income levels as well.
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