Under China’s New Leadership, A Fresh Emphasis On Income Inequality
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China's new president Xi Jinping, here in 2010, took office earlier this month. (Creative Commons)
The issue of income inequality has taken on a renewed importance with China’s decennial transition in leadership.
A plan to tackle income inequality was unveiled in early February, originally part of an initiative headed by outgoing Prime Minister Wen Jiabao.
President Xi Jinping and Prime Minister Li Keqiang, both of whom took office earlier this month at the National People’s Congress, promised to make it a priority, pledging to increase minimum wage to 40% of the national average income by 2015, provide more funding to social welfare, health and education programs and consider higher property taxes. Workers are generally guaranteed monthly incomes according to region, with the level of 1,500 RMB, or US$240.49, in Shenzhen province being the highest.
The government pointed to the large disparity in urban-rural development as one of the country’s most pressing income-related problems. The gap between villages and cities in China has long been a problem due to budget and policy disparities and a lack of equal access to social programs. The per capita urban incomes in China are more than three times that of rural residents, and coastal incomes are more than twice that of the interior, the Wall Street Journal reported.
“Invisible and unlawful” sources of income were also among the chief problems singled out, evidenced in China in varying degrees of visibility, from corrupt police officers to counterfeit goods to illegal “black taxis.” According to the US International Trade Commission, American companies in intellectual property-intensive businesses reported losses of approximately $48.2bn in sales, royalties, or license fees due to infringement in China in 2009.
Missing from the plan, critics were quick to point out, were specific targets, signaling another stall in the already long-awaited plan, which has experienced delays since its introduction in 2004, the latest being a dispute on whether to crack down on the country’s state-owned enterprises.
The verdict was to reallocate an additional 5% of profits to fund social welfare programs by the end of 2015. As it stands, the 117 SOEs pay a meager 5 to 20 percent of their profits to the state, “depending on how profitable the industry is,” according to China Daily, a ratio that national finance minister Lou Jiwei admitted to be “low” at the China Development Forum on Sunday.
In Dec. 2012, the State Assets Supervision and Administration Commission (SASAC) reported that SOEs brought in net profits of
$174.9 billion from January to November, a figure nearly completely unchanged from the previous year, suggesting the stability of these centrally-managed companies. In addition, the congress has increasingly become what the Sydney Morning Herald termed a “billionaires galore,” with ninety members of the National People’s Congress on a list of China’s 1000 richest people published by the Shanghai-based Hurun Report, up from 75 last year, according to Bloomberg.
Dr. Daniel Lynch, Associate Professor of International Relations at the University of Southern California said the elite classes would “fight tooth and nail to prevent any fundamental reform, as will the local governments which control real estate.”
Such delays in what has been described as a rubber-stamp congress has led the public to question the level of commitment the new leadership will demonstrate, though many believe the country’s new leadership will spur dramatic, divisive change. “Every academic, every commentator, every blogger you speak to here tells you China is at a crossroads,” BBC News Beijing correspondent John Simpson wrote. “Essentially, it means that no one, not even the self-appointed experts, knows what is going to happen - except that things are unlikely to remain as they have been up to now.”
In his first presidential address to the public, Mr. Xi said that his government would strive to “achieve the Chinese dream of great rejuvenation,” saying that to do so they needed to depend on and bring benefits to “the people.”
Xi has also announced his intention to approach the economy with a similar stance to that of Deng Xiaoping, the reformist leader who helped shape China’s market economy. Deng, the man who famously said that “poverty is not socialism,” helped bring an estimated 170 million peasants out of extreme poverty, according to CNN.
The Gini coefficient, a commonly used measure of income inequality, ranging from 0 to 1 – representing perfect equality to maximal inequality respectively – is a telling sign. According to a joint Chinese-American study, China’s score of 0.61 is topped only by South Africa, with a Gini coefficient of 0.63. Comparatively speaking, the Peterson Institute for Economics declares Chinese inequality “worse than in Russia and the United States and roughly on par with Nigeria and Mexico.”
However, these figures are hard to decipher given that the Chinese government has refused to provide information on the national Gini coefficient for the 11th year in a row, claiming it has insufficient data on high-income groups and instead reporting official estimates that are said to be severely understated at 0.474. (A report from a university in Chengdu set the figure at 0.61.)
Despite the high level of disparity and groaningly slow pace of political action, the government has shown attempts at introducing stopgap measures. “Actually, they’ve done a lot to put in place social security [measures],” Lynch said, pointing to the nationwide dibao program, a minimum standard of living system that was established in 1993 to ensure that no urban registered resident would have an income that fell below a stipulated poverty line.
Wang Zhikun, Director of the Social Relief Office of the Ministry of Civil Affairs said that the program serves as “the most basic” safety net of China’s social security system and was considered a reform and development of China’s old social relief system.
In order to align with its new welfare policies, the government earlier this month also set an economic growth target of 7.5 percent for 2013, slightly below its previous annual target of 7.8%. In the past decade, China’s economy has grown at an average annual rate of 10%, hitting a world-record high of 13.1% in 2007. The Economist reported that the new government would inherit a growth rate closer to 7-8%, pointing out, “This loss of dynamism is inevitable: as economies progress, their rate of advance always slows.”
A goal of 4.6 percent unemployment in urban areas was also set, as outgoing Premier Wen Jiabao promised to create 9 million new jobs. How the government plans to create this number of jobs is not immediately clear.
The measures to reduce inequality will be beneficial to the national economy. Raising the purchasing power of lower-income individuals would boost consumption, helping to rearrange the makeup of China’s economy by reducing dependency on exports. Currently, China’s largest economic component is investment, particularly with SOEs composing about 90% of the country’s total investment in America between 2007 and 2011, according to the U.S. Congressional Commission.
Much of the challenge lies in persuading the elite classes to fund the closing of the welfare gap, with the possibility of social unrest a growing and persistent concern. “Even if they don’t care about it in an altruistic way, they worry about social unrest, and they worry about the economy being able to sustain high levels of growth. So that may be a sufficient impetus for them to do really important things,” Lynch said.
Reach Assistant News Editor Michelle Toh here.
