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UPDATED: October 17, 2014 NO. 8 FEBRUARY 20, 2014
Striving for Equality
China remains determined to reform its income distribution system and to narrow the wealth gap
By Yin Pumin

However, a different CASS survey released earlier in December last year showed that only 60.4 percent of the more than 7,300 respondents said that society is just and fair in general, while 69.2 percent had believed so in 2008.

Many respondents to the recent survey complained that university graduates whose parents are civil servants or business managers are more likely to become employed in government positions than students from farmers' or workers' families.

Guan Xinping, an expert on social policy at Tianjin-based Nankai University, agreed with the sentiment that discontent rises when power and authority intervene in the income distribution system.

"We don't preach absolute equality, and most people would not feel it's unfair if a person's income is proportionate to his or her achievements, so long as it is without abusing power," Guan said.

According to a key document adopted during the Third Plenary Session of the Communist Party of China (CPC) Central Committee in mid-November last year, China will enhance regulation of income secondary distribution through taxation.

Reform outlined

The country will first focus on increasing the share of work remuneration in primary distribution, the document said, explaining that information systems on personal income and property will be established alongside efforts to narrow the income gaps between urban and rural areas and between different regions and sectors.

It added that China aims to bring about an olive-shaped income distribution pattern.

"We can now expect that gap to narrow as more people enter the middle class due to reforms, along with specific measures to achieve such reforms," said Ding Yuanzhu, a professor at the Chinese Academy of Governance in Beijing.

Early in February last year, the State Council, China's cabinet, issued a guideline seeking to deepen reform of China's wealth distribution system to narrow income disparities between urban and rural residents.

China has been working on income distribution reform since 2004, but people's expectations have been unfulfilled. Powerful interest groups, such as state-owned monopolies, have become the major targets of public grievances.

In a widely watched move, the State-owned Assets Supervision and Administration Commission of the State Council launched an investigation into the incomes of employees of state-owned organizations and enterprises in mid-August last year, with a new focus on "hidden income."

"It's directed at the crux of the problem," said Chi Fulin, President of the China Institute for Reform and Development, a non-profit research institution based in south China's Hainan Province. "You cannot make a distribution fair before you actually know how much you have. The results of investigations will form an important reference point from which to push forward income distribution reform."

According to Chi, the currently unfair distribution of income is partly caused by the disparities between urban and rural areas as well as between coastal and inland regions. However, he added that it can also be attributed to industrial monopolies and government agencies competing within the private sector.

"The reform is a readjustment of the current structure of interests," Chi noted.

Zheng Xinli, Executive Deputy Director of the China Center for International Economic Exchanges, a Beijing-based think tank, believes that increasing the income of the middle- and lower-paid groups is of vital importance for the formation of an olive-shaped income distribution structure in China, instead of the current pyramid-shaped one.

According to the General Social Survey carried out by the CASS in 2012, the income range for middle-class individuals is $11,800-$17,700 per year, which means that the middle class makes up around 23 percent of China's total population, far lower than in developed countries, and even lower than in some other emerging economies.

According to the State Council guideline, the government will work to double the average real income of urban and rural residents by 2020 compared to levels in 2010 and allow for faster income growth for the poor. It also pledged enhanced scrutiny on high-income earners.

Many observers believe that tax reforms are essential to creating more equal income distribution.

The State Council guideline states that the government will develop its tax filing system. Taxpayers with high incomes will not only see taxes deducted from their salaries paid by their employers, they will also need to pay taxes directly to the taxation authorities if they receive income from other sources, according to the document.

Debate has sizzled since October last year over the government's intention to levy inheritance taxes and property taxes to regulate income distribution.

Jia Kang, Director of the Research Institute for Fiscal Science at the Ministry of Finance, noted that disagreements existed even within the government on whether a pilot tax reform program should be conducted before it is included in the law.

"Any future scheme must take the widely different income levels in China into account and decisions must be based on the collection and analysis of a huge amount of data," Jia said.

Email us at: yinpumin@bjreview.com

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