Hopes high on income reform

Income distribution reform has once again come under the spotlight in China as observers pin high hopes on the upcoming key session of the Communist Party of China, scheduled to open on Saturday.

In February, the government unveiled a guideline for reforming income distribution mechanisms amid growing public concern over the widening wealth gap, though details on a timetable for the reform have yet to be made available.

"There's no doubt it's at the top of the agenda, considering the urgency of the issue," said Chi Fulin, president of the China Institute for Reform and Development, a Hainan-based think tank.

The National Bureau of Statistics reported in January that in 2012 China's Gini coefficient, a widely used measure of income distribution, was 0.474, in which zero equals perfect equality.

Chi said he believes a whole package of detailed policies will come after the Third Plenary Session of the 18th CPC Central Committee.

China has been working on income distribution reform since 2004, but public expectations have been unfulfilled. Powerful interest groups, such as State-owned monopolies, have become a major target of complaints.

"That is why college graduates try to break into State-owned enterprises or become civil servants, because higher welfare will be guaranteed," said Zhao Xiaoming, who graduated from Sichuan Normal University in July and has failed to find his dream job as a school teacher.

In a widely watched move, the State-owned Assets Supervision and Administration Commission launched an investigation into the incomes of employees of State-owned organizations or enterprises in mid-August, with a new investigation item targeting "hidden income".

The investigation is expected to be completed by the end of this year.

"It's directed at the crux of the problem," said Chi. "You can't make a fair distribution before you actually know how much you have. The investigation results will be an important reference to push forward income distribution reform."

According to Chi, the current unfair distribution of income is partly caused by the disparity between urban and rural areas and coastal and inland regions. But it can also be attributed to industrial monopolies and government agencies competing with the private sector.

The reform is a readjustment of the current structure of interests, he said.

Zheng Xinli, executive deputy director of the China Center for International Economic Exchanges, believes that China should increase the income of the middle- and lower-income earners to form an "olive-shaped" income distribution structure, instead of the current pyramid-shaped one.

According to the General Social Survey carried out by the Chinese Academy of Social Sciences in 2012, the middle-income bracket is $11,800 to $17,700 per year, which accounts for around 23 percent of China's population - far lower than the percentage in developed economies, and even lower than some other emerging economies.

According to the February guideline to reform income distribution mechanisms, the government will work to double the average real income of urban and rural residents by 2020 from 2010 levels and allow faster income growth for the poor.

It will also strengthen scrutiny on high-income groups, such as officials, employees of State-owned enterprises and other wealthy individuals.

According to a survey by Forbes early this year, China had 122 billionaires as measured in US dollars. A rival list in the Hurun Report in February said China had 317 billionaires - a fifth of the world's total.

Many observers say that fundamental tax reforms are essential to create a more equal income distribution.

Debate has sizzled since October over the government's intention to levy inheritance taxes and property taxes to regulate income distribution.

Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance, noted that disagreements existed even at the government level on whether a pilot tax reform should be conducted before it is included in the law.

"Any future scheme must take into full account the widely different income levels in China, and decisions must be based on the collection and analysis of a huge amount of data," said Jia, adding that it is possible that signals for tax reform will be released in the CPC session.