China moves to curb rising income inequality

February 5, 2013: 11:50 PM ET
china income
Growing income inequality is a problem for China's communist government.
HONG KONG (CNNMoney)

The Chinese government has unveiled a sweeping plan designed to help close the gap between the poor and the country's rapidly growing upper class.

The lengthy document, posted on the government's website, contains a broad set of promises to combat growing inequality and corruption.

But the plan, which had been delayed for months, is measured in its recommendations and contains only a few specific deadlines.

The minimum wage will be boosted in most parts of the country to 40% of the average salary by 2015, the government said. Higher property taxes will also be considered, as well as an estate tax and new limits on salaries at government-owned businesses.

The government will seek more contributions from state-owned enterprises, which will be asked to increase returns to the treasury by 5% to help finance social welfare programs. State-backed enterprises in China typically control huge swaths of market share and receive favorable loans and treatment from Beijing.

The blueprint also contains a pledge to narrow the huge difference in income between citizens living in rural areas and those in fast-growing urban areas, where wages are typically much higher.

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Yet the impact of the reforms could be muted, especially given the size of the problem, which analysts view as one of the most pressing challenges facing the country's government.

"To carry out an intensified reform for income distribution is a complex and difficult project," the government said. "It cannot be done overnight."

Last month, China's statistical agency said the nation's Gini coefficient, a commonly used measure of income inequality, was 0.47 in 2012. That figure ranks China near the United States, but well behind many of the world's developed economies.

Some analysts contend China's official statistics understate the magnitude of inequality, and others warn the gap between rich and poor is already wide enough to potentially inspire social unrest in the country.

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China's government has pledged to make corruption a top priority, but a recent wave of scandals involving graft and embezzlement have embarrassed the country's top leadership.

Account after account of officials and executives who have used their power for personal gain have surfaced in recent months, sparking outrage on social media sites popular in China.

The series of scandals have complicated the handover of power taking place at the highest levels of government. Xi Jinping, already installed as party boss, will assume the presidency in March and has pledged to tackle corruption.

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In several speeches since he took over the reins of the Communist Party in November, he has warned that corruption could lead to "the collapse of the Party and the downfall of the state."

Yet the plan released Tuesday, heavy on populist language, offers few specifics on steps the government will take to fight corruption.

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