China announces plan to reduce income gap

7 Feb

As China starts to prepare and celebrate the New Year of the Snake, the country’s leaders have set out objectives to combat the growing inequality problem amongst its population. In 2012 the average disposable income for Chinese urban residents was around $4,000, an increase of 9.9%. Average rural net income was just under $1,300 per person, a rise of 10.7% after adjusting for inflation, the Chinese National Bureau of Statistics announced in January. However, this greatly shows the widening gap amongst the population.

The fact that the Chinese government has announced this, knowing that businesses will be opposed to these changes shows that they have strong intentions. State planners have debated income-inequality plans for nearly a decade, and come up with various proposals. None have won final approval, largely because of opposition from state-owned firms and other powerful actors that could lose out in an income-redistribution scheme.

However, it seems that the government has some ambitious goals. It wants to double per-capita income from 2010 to 2020, with a focus on boosting incomes for China’s poor and middle class. The income distribution plan was an initially proposed by the departing Chinese Prime Minister, Wen Jiabao, who leaves office in March. But it also emphasises the extent to which the new generation of leaders under Xi Jinping has promised to expand state spending on health care, education and social welfare.

The income plan, however, does not offer specific new initiatives to reduce corruption, which some argue China is infamous for. Beyond a general commitment to eliminate sources of illegal income, the plan says that officials must abide by already announced rules to report earnings and assets to superiors. Many experts, however, have said such rules are ineffective without public disclosure as well.

Will the new government be able to fulfil their promises and combat corruption?

The New York Times:

http://www.nytimes.com/2013/02/06/world/asia/china-issues-plan-to-narrow-income-gap.html?_r=1&

The Wall Street Journal:

http://online.wsj.com/article/SB10001424127887324906004578287614272457212.html

Bloomberg Business week:

http://www.businessweek.com/articles/2013-02-06/chinas-leaders-say-they-want-to-close-the-income-gap

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One Response to “China announces plan to reduce income gap”

  1. timhaythorne February 11, 2013 at 5:05 pm #

    I would agree with your point that it is bold for the Chinese Government to come out and proclaim public policies that have clashing objectives with those of the large corporations and multinationals. Assuming these changes will be wage driven (and not lump sum), you would have to assume that this will put a strain on potential output in many of the labour intensive sectors. This will then surely have a knock on effect on trade through the pricing mechanism, exemplified by the fact that 80% of all imports worldwide are from china.

    It would be interesting to know whether – if indeed they plan to raise the lower-bound of wages within the economy – the burden of this cost to the government will be passed on to corporations or funded through consumer taxes. Increased minimum wages, in theory, often lead to widespread unemployment; so surely only a ‘tax the rich, give to the poor’ policy will truly benefit all poor- and middle-income workers… or can China outgrow these costs and let the debt roll-over?

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