January 20, 2020

China Issues Plan to Narrow Income Gap

The proposal was mired for months in an internal dispute about whether to aggressively scale back the rising salaries and benefits of some officials working for state-owned business and banks. The document that emerged from the discussions is filled with commitments to deal with that issue and other sources of public concern about the gap between the incomes of residents of dirt-poor villages and those living in privileged urban enclaves.

“There are some stark problems in income distribution that need urgent solving,” said the plan, which was issued on the central government’s Web site. “Chiefly, there remain quite large disparities in urban-rural development and incomes, income allocation is poorly ordered, and there are quite serious problems with invisible and unlawful sources of income.” The document was drafted by the National Development and Reform Commission and other central agencies.

The income distribution plan was one of the initiatives promised by the departing Chinese prime minister, Wen Jiabao, who leaves office in March. But it also underscores the extent to which the country’s new generation of leaders under Xi Jinping has also promised to expand state spending on health care, education and social welfare.

Mr. Xi, who was appointed Communist Party chief in November and is set to become state president in March, has said he wants to accelerate economic changes in the spirit of Deng Xiaoping, who began the process of transforming China into a more modern economy after decades of rule by Mao Zedong. But in the process of introducing market forces in China, such changes have starkly widened income disparities.

Since Mr. Xi took office, Chinese news media have reported on a succession of officials who have been accused of siphoning bribes and public money into their pockets. The income plan, however, does not offer specific new initiatives to reduce corruption.

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.

Average disposable annual income for Chinese urban residents in 2012 was the equivalent of about $4,000, an increase of 9.6 percent after taking inflation into account. Average rural net income was just under $1,300 per person, a rise of 10.7 percent after adjusting for inflation, the Chinese National Bureau of Statistics announced in January.

The bureau also said that in 2012 China’s Gini Coefficient, a widely used index of income inequality, was 0.474, slightly higher than levels of inequality in the United States, where income disparity has widened sharply in recent decades and now stands as one of the highest among advanced industrial nations. But some economists have said China’s measure is actually much higher, when illicit and poorly reported sources of wealth are taken into account.

“Deepening reform of the income distribution system is an extremely arduous and complex task of systemic engineering,” the new plan says. “It cannot be achieved in one step.”

Article source: http://www.nytimes.com/2013/02/06/world/asia/china-issues-plan-to-narrow-income-gap.html?partner=rss&emc=rss

China’s Economy Faces Obstacles in Rebalancing

China has vowed repeatedly, most recently during the just-concluded visit by Vice President Joseph R. Biden Jr., who met in this city with Vice President Xi Jinping, to overhaul its state-directed growth model and empower its consumers to spend more on their own, something that would makes its economy more sustainable and help the sluggish world economy as well. But leaders in Beijing and places like Chengdu are finding it difficult to steer China away from growth that relies largely on infrastructure projects, construction and export manufacturing, economists and financial analysts say.

“China’s leaders are committed to altering their country’s macroeconomic landscape,” Evan A. Feigenbaum, a China analyst at Eurasia Group, a global consulting firm, said in a statement attached to a report released Aug. 17. “But the country’s political economy will not change as fundamentally as many in China and abroad hope. And the next decade is likely to be more fraught than conventional wisdom suspects.”

China has incentives to change its model: its economic policies contribute to wasted resources, vast social inequality and a soaring inflation, which leaders fear will fuel social instability. The consumer price index went up 6.4 percent year-on-year in June, the biggest jump in three years. The 12th Five-Year Plan, a blueprint for development from 2011-15, gives an outline for better distributing economic growth across the country, and thus giving households more spending power.

Yao Yang, an economist at Peking University, said Chinese leaders knew that the domestic economy put too much money in the hands of corporations and the government. They agree that they have to increase social welfare to encourage domestic consumption and dampen mass discontent.

But there are obstacles that limit the ability of leaders to shift direction. For one thing, China continues to empower its large state-owned enterprises at the expense of private entrepreneurs, which results in market inefficiencies on where and how capital should be allocated, analysts say. Those large enterprises have enormous influence on policy makers. State banks also tend to favor government-backed projects, which are often capital-intensive endeavors like infrastructure building.

At the provincial and lower levels, one reason officials support capital-intensive projects arises from the way such officials are measured by the central government in annual reports. The rate of local G.D.P. growth is a top criterion by which the officials are judged. Their careers depend on it, and capital-intensive projects give short-term lifts to growth numbers. Another reason officials promote such projects is corruption: it is relatively easy to take bribes or skim money from large state investment projects.

To cope with the global downturn in 2008, the central government pumped $586 billion of stimulus money into the economy and loosened lending by state banks. Companies set up by local governments borrowed heavily. Victor Shih, a Northwestern University professor, said that based on official figures released this summer, total local government debt across China is $2.4 trillion to $3.1 trillion. The upper estimate is equal to half of China’s G.D.P. in 2010. Interest payments on the debt amount to more than $150 billion per year.

“Right now, the banks are encouraged to ‘restructure’ all of this debt such that little of it will become nonperforming loans,” Mr. Shih said in an e-mail. “However, there might be a problem if inflation is high or if deposits continue to leave the banks’ balance sheets.”

In the first half of 2011, even Chengdu, whose 15 million residents have a reputation as laid-back, tea-drinking, spicy-food-loving sybarites, had an impressive 15.1 percent real growth rate that was significantly higher than the national average, according to an official report. Such rapid growth in an interior city can help with economic rebalancing. It redistributes wealth and shifts consumer spending away from the much wealthier coast. But it raises questions about the local economic model.

Li Bibo contributed research from Beijing.

Article source: http://www.nytimes.com/2011/08/25/world/asia/25china.html?partner=rss&emc=rss

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Fixes: Out of Poverty, Family-Style

An initiative that brings struggling families together to help each other out of poverty is providing a new model for social welfare.

Article source: http://feeds.nytimes.com/click.phdo?i=fc135f953e32b2c79876f2b1cc06796b