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Income Distribution Reform for Social Justice, Equality

China is reforming its nationwide income distribution system to ensure that the benefits of the country's reform and opening programme and its socialist market system accrue to all.

Speaking in July at Zhongnanhai, the seat of the central government, following several high-level meetings on income redistribution, President Hu Jintao said, "The reform aims at developing a scientific, rational system of social income distribution that conforms to China's conditions. This is vital to the interests of the Chinese people and to our endeavour to build a society of relative prosperity in all aspects."

The president also serves as general secretary of the Communist Party of China (CPC).

The reform effort began with a string of top-echelon meetings concerning the widening gaps in incomes of the poor, the middle class and the wealthy and between various regions in China, a potentially volatile problem that could threaten China's political and social stability.

Two of the above-mentioned meetings stand out. On May 28, the all-powerful Political Bureau of the CPC Central Committee met to discuss the guiding principles of the reform. The meeting was chaired by the president. In early July, the "reform of income distribution system" again exploded onto the country's front pages when Hu attended a meeting to solicit proposals and suggestions on implementation of the reform from leaders of the country's "eight democratic parties," the All-China Federation of Industry and Commerce and other non-Communist VIPs known as "personages without political party affiliation."

After Hu commented on these meetings, Xinhua, the State news agency, along with other mainstream media, announced that the long-conceived reform of income distribution had officially begun.

The guidelines for the reform, Xinhua reported, call for upholding and improving the system of distribution based on the socialist principle "from each according to his ability, to each according to his work," which allows for an "appropriate" sharing of the national wealth with those who contribute capital or expertise to production. Sufficient attention will be paid to social justice so that the entire population can enjoy the "fruit of the reforms." The authorities have also pledged to increase the incomes of low-income citizens and to increase the size of the so-called "middle-income group," the Chinese equivalent of the middle class, while "effectively" regulating "excessive incomes" of the high-income group, a relatively small, privileged group of people who have benefited most from the country's market-oriented economic reforms.

"Social justice and equality are now a top concern of the Party and the government," said the English-language China Daily in a commentary on the latest decision to reform the social income distribution system.

Glaring Gaps between Rich, Poor

The China Daily commentary noted that income gaps between different social and regional groups continues to widen. The Gini coefficient for China, computed at 0.22 for 1991, has shot up to 0.448. The Gini coefficient is an economic tool used to measure the equality of income distribution within a country. It varies from zero, which indicates perfect equality, with every household earning exactly the same, to one, which implies absolute inequality, with a single household earning a country's entire income.

Li Peilin, an economist with the Chinese Academy of Social Sciences, said a Gini coefficient of 0.3 is found in most developed countries. He cited Latin America as the world's most unequal region, with a Gini coefficient of around 0.5.

Li said, "When the number exceeds 0.5, society will be thrown into chaos."

According to Li and other experts, a country enters a new phase of development when its GDP (gross domestic product) exceeds US$1,000 per capita, sometimes into a "period with outstanding conflicts between the rich and poor." China's 2005 GDP was computed at about US$20,000 trillion (159,293.20), averaging US$1,600 for each member of the Chinese population.

Li said, "The country is now recognized as the fourth-largest economy in the world, following the United States, Japan and Germany. It has entered a period of intensifying social conflicts. To maintain social and political stability, the government must prevent income gaps from widening further."

As promised by authorities, pensions for State-owned enterprise retirees were raised in 2005, and again on July 1, 2006. The central government has approved another increase in 2007, according to Xinhua. Subsistence allowances for urban dwellers whose incomes are below the poverty line will also increase, along with pensions for disabled soldiers and their families. While the funds set aside are reportedly "larger than have ever been earmarked'' for these purposes, a total was not given in Xinhua's reports. However, more people will benefit from the country's social insurance system. According to a central government directive published on June 1, 2006, college students from poverty-stricken families, who are graduating this year, if unable to find a job, shall be entitled to living allowances provided by local governments. The directive came in response to a report from the Ministry of Personnel that for the 4.13 million students graduating this year, only 2.66 million jobs would be available.

At the end of 2005, the agricultural tax, an in-kind tax paid by Chinese farmers since ancient times, was abolished nationwide, along with the animal husbandry tax and a tax on the production of cash crops, except from tobacco. These policies will continue. The government will increase direct subsidies given to grain-producing farmers and government subsidies for the purchase of improved seed varieties and farm machinery and equipment. These measures have been in place since 2005 in key grain- and cotton-producing areas.

Minimum wages are being increased in most Chinese cities, in accord with recent central-authorities' decisions. The minimum wages for "manual labourers" in Beijing, mostly migrant workers from economically backward rural areas, have increased from 6 yuan to 6.8 yuan (75–85 US cents ) per hour, and from 13 yuan to 15 yuan (from US$1.63 to $1.88) per hour for those who work during public holidays. The Guangdong Provincial Government said minimum wages will increase in all of the cities under its jurisdiction by an average of 17 percent on September 1. In Tianjin Municipality, the minimum wage has increased from 590 yuan to 670 yuan (from US$74.08 to US$84.12) per month.

While working hard to increase the incomes of underprivileged people, Chinese authorities have, for the first time, called for enlarging the middle-income group, even though an official definition for the group is yet to be published. The McKinsey Global Institute (MGI), a think tank affiliated with Harvard University in the United States, defines a Chinese household with an annual income of 25,000 yuan (US$3,138.89) as belonging to the lowest sector of the country's middle class. In a report released in mid-July 2006, the MGI notes that those with an annual household income of less than 25,000 yuan (US$3,129) account for 77 percent of today's urban workers on the Chinese mainland. These people are very likely to join the "lower middle class," defined as households with annual incomes of 25,000 yuan to 40,000 yuan (from US$3,138 to US$5,022) in 2010, and a decade later to rise to the upper middle class, with annual household incomes of 40,000 to 100,000 yuan (US$5,022 to US$12,555).

According to the studies of MGI and others, the middle class includes mainly school-trained professionals, ages mid-20s–late 40s, who work at managerial or knowledge-intensive jobs. These people form the largest consumer group, hence their importance to the development of China's increasingly consumer-based economy.

The MGI predicts an expansion of China's emerging middle-class based on the assumptions of a rapidly growing Chinese economy and a constant increase in government investment in higher education, both of which are enabling Chinese to earn more.

But not all Chinese experts are so optimistic. Chen Wei, director of the Institute of Economics under the Shanghai Municipal Academy of Social Sciences, told Xinhua, "Whether a person belongs to the middle-income group is decided by his or her income level on the country's socio-economic ladder. But we do not see any indication that this group is expanding rapidly. Neither does rapid economic growth necessarily push up people's incomes at the same rate."

Obviously aware of the problem, the government has pledged to raise wages and salaries for most Chinese employees "in an appropriate manner and in a manner commensurate with the growth of the national economy," Xinhua reported.

One Xinhua commentary said, "This will kill two birds with one stone: While promoting social justice, the decision (to increase wages and salaries) will boost domestic consumption. That, in turn, will invigorate the domestic market, and increased demand will definitely spur production to increase supply."

Civil Servants

As a first step in expanding the size of the middle-income group and to address regional disparities in civil servants incomes, the central authorities have decided to reform the system of wages and salaries for China's Party and governmental employees. The reform, according to the mainstream media, aims eventually to "unify" pay for civil servants across the country to ensure the same pay for civil servants of the same ranks, with incentives for those working under hardships. This followed adoption of the People's Republic of China Civil Servants Law by the National People's Congress (NPC), the Chinese parliament, in April 2005, which went into effect on January 1, 2006.

According to Liaowang (Outlook) weekly, a news magazine published by Xinhua, in 2003, China's civil servants earned an average of 15,487 yuan (US$1,944.48) a year in wages.

"This is less than the average for employees in most industries in China," it said.

Another problem is that in the absence of a nationally applicable wage system, wages vary vastly from place to place for civil servants of the same ranks. In Shanghai, the most prosperous city on the Chinese mainland, civil servants earn, on average, 3.8 times more than their counterparts in Shaanxi Province in less-developed western China. Most civil servants in Beijing earn somewhere between 4,000 yuan and 5,000 yuan (US$502.22 and US$627.78 ) a month. Their counterparts in Guizhou, Qinghai and other less-affluent provinces often have to make do with a monthly wage of no more than a few hundred yuan.

"Alarming is the fact that the disparity is often found even within a given administrative area," Liaowang noted in a recent issue. "A government functionary working in a downtown area earns more than someone with the same rank if they work in an outlying suburban area under the same city's jurisdiction."

In line with a decision of the top authorities, civil servants across China can expect a raise within a year. And, with this, a first step will have been taken to develop a unified wage system for civil servants across the country. It is not known how great the raise will be, but one thing has been made clear: those working at primary levels––for rural town or township governments––will get a bigger raise than those working for city-prefectural governments or governments of higher levels. The same policy applies to low-ranking Party and governmental functionaries who are not in leading positions. The mainstream media have cautioned that people must not consider the reform simply as a wage increase. The reform is expected to result in a wage system that is open to public scrutiny, under which wages are calculated in cash, including every benefit officials receive from taxpayers. Transparency in civil-servant incomes, especially leading officials' incomes, is an ultimate objective. In addition to their incomes in cash from government payrolls, Party and government officials are sometimes entitled to a range of subsidies not counted as a part of their wages, as with housing subsidies valued at as much as 1,200 yuan per month, the monthly wage of an average industrial worker.

It's been a long time since China's laobaixing––workers and other "common people"––had their "iron rice bowls" (secure jobs for life) smashed as a result of market-oriented economic reforms. But some civil servants are still eating from iron rice bowls as in the past, until or unless they involve themselves in crime or make mistakes that cause "grave consequences." Now, increases in civil servant wages will go hand in hand with reform that is expected to deprive them of their iron rice bowls and non-wage incomes.

Wealth, Power and Money

In China's current official terminology, "excess incomes" refers to the salaries of businessmen in the State's monopoly telecom, banking, petroleum, tobacco, coal, electric power and railway industries. According to a Xinhua report released on June 6, 2006, the average income for workers in these industries is at least three times the national average.

However, Bu Zhengfa, vice-minister of labour and social security, was quoted as saying, "With their 'non-salary' incomes counted, the real gap could be a dozen times."

Bu told an academic symposium on social equality that non-salary income refers to bonuses and subsidies given as "fringe benefits.'' He cited a worker in a power company whose monthly salary was about 6,000 yuan (US$752.40), five times the average salary for industrial workers in the city where the power company is based.

"The man's annual income could amount to 150,000 yuan (US$18,811), if his non-salaried income was counted."

 Incomes, in terms of salaries only, of State-owned enterprise and senior managers in "monopoly industries" may easily exceed 1 million yuan (US$125,410) a year. Bu said the salaries in monopoly sectors in particular have become a "most conspicuous problem" in China's income distribution system. "Theoretically, resources available to State-owned enterprises belong to the entire people," he said. "In practice, these are now used to the benefit of a few, those who have the privilege of using them."

It is not clear what authorities will do to address this problem. According to bits of information pieced together for this article, officials and experts agree that to achieve its goals, the Chinese Government needs to deepen market-oriented reforms and improve its economic legislation.

"To deepen market-oriented economic reforms, there is a need to break up the combination of administrative monopoly and business monopoly," wrote economist Yang Gengshen on Xinhua's Web site, www.xinhuanet.com. He cited the example of the National Tobacco Bureau: "While overseeing the production of tobacco and tobacco products across the country," he said, "it monopolizes the sale of those products."

In early June, the State Council approved, in principle, a draft anti-monopoly law, which will be submitted to the NPC for deliberation after further revision. Commenting on the draft, Yang said the law must meet the expectations of the people for justice.

"When you go to the post office to have a parcel sent to a friend," he said, "you've got to buy a 'standard' box for the packaging at a price imposed by the postal authorities, and you've no right to bargain. Such arbitrary practices must be done away with under the proposed anti-monopoly law."

But, of course, all this is easier said than done. Given the size of the country and the complexity of the issues involved, one cannot reasonably expect the reform of the country's income distribution system to succeed overnight.

As in a case, just two years ago, when the Ministry of Labour and Social Security published a decree demanding that the minimum wages in a given administrative area account for not less than 40 percent–60 percent of the average wages in the same area. The directive was ignored until recently.

"None of the provinces, municipalities and autonomous regions on the Chinese mainland has met the requirement," Xinhua reported.

Monthly wages in Beijing averaged 2,735 yuan in 2005. According to the Municipal Labour and Social Security Bureau, the minimum monthly wage was set at 580 yuan, about 24 percent of the average wage. Though this increased to 640 yuan per month in early July, it is still far less than the minimum 40 percent of the average wage required by the law.