A total of 34.7 billion yuan (4.3 billion U.S. dollars) will be spent on salary rises for 120 million people, including six million central and local government officials, 30 million employees from public institutions, and 50 million retired military servicemen and government employees in 2006.

In addition, the stipend standards for 30 million disabled military servicemen and family members of war heroes and military servicemen, and the basic subsistence allowances for urban dwellers, will also be raised.

"It (the salary reforms) will help create a sound environment for the income distribution system reform of the entire society," said Chinese President Hu Jintao at a high-level meeting discussing equal income distribution early this month.

The reform is also necessary for the building of an efficient, transparent and honest government in accordance with the Civil Servants Law which came into force in January 2006 and stipulated a uniform salary system for civil servants across the country, Hu added.

People working in remote, underdeveloped areas will also receive a special allowance and performance related pay will also be implemented.

Of the six million civil servants and 30 million personnel working in public-funded organizations across China, 60 percent work in county-level governments, whose salaries depend mainly on the state of local government finances. Figures from the Ministry of Personnel show that the income gap ratio between officials of the same ranks in Shanghai and the northwestern province of Shaanxi can be 2.8:1.

The aim of the planned pay rise is to improve the welfare of government employees who work in China's poor and rural regions, according to the Ministry of Personnel.

Except for nine prosperous regions including Beijing, Shanghai, and the provinces of Shandong, Jiangsu and Fujian, the cost of the salary increases will be footed by the central government.

"It is very important to offer government administrative staff effective incentives to inspire more enthusiasm," said Dr. Liu Xin, a professor with the School of Public Administration at the Beijing-based People's University of China.

He noted that it was very difficult for grassroots civil servants to secure pay rises by staying in the same position for years, while their workload and pressure continues to build up. "It has inevitably led to inefficiency and turnover of competent civil servants who believe their income should match their actual contribution," he said.

Statistics from the Ministry of Personnel showed that at least 1,039 civil servants with bachelor degrees had resigned from 21 central government ministries between 1998 and 2002. In the Ministry of Foreign Affairs, most of the officials who resigned were below the age of 35. One hundred and twenty three people who worked for the Ministry of Commerce for less than three years - 72.8 percent of the total - quit to join foreign companies, where the income level is based on performance.

The unfair income distribution system has even prompted some officials to gain personal wealth by unlawful means.

The audit report of 32 central government ministries and national-level public institutions released last September by the National Audit Office showed that some organizations had embezzled public funds to pay special allowances to their employees. For example, a public institution under the General Administration of Civil Aviation had spent more than 48 million yuan (six million U.S. dollars) on special allowances for employees.

Xie Zhengzheng, who works in the Beijing branch of a foreign investment bank, is sceptical of the pay rises for civil servants since "their income is actually far more than the cash they receive". "It includes various welfare like assigned apartments and automobiles," he said.

But the Ministry of Personnel insists the emphasis of the reform is to quash these unofficial bonuses and curb excessively high salaries, while increasing pay for grassroots officials.

"The income for government officials, which comes mainly from public funds, should be transparent and balanced, as it sets the tone for the whole income distribution reform," said Dr. Liu Xin.