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The Gini coefficient, an international statistical measure of inequality where zero expresses complete equality while one represents complete inequality, has reached 0.45 in China, according to the United Nations Development Program.
The UN organization shows 20 percent of China's population at the poverty end accounts for only 4.7 percent of the total income or consumption while 20 percent of China's affluent population accounts for 50 percent of the total income or consumption.
Among various domestic calculations of the coefficient, a report by the Institute of Labor and Wage Studies of the Ministry of Labor and Social Security points out that since 2003, China's income inequality has worsened rapidly and has now reached the "orange" level, the second most serious by the institute's standards. If no effective measures are taken, it could worsen to reach the most serious "red" level.
The widening gap between the rich and the poor has aroused widespread concern from home and abroad. It is one of the biggest problems that Chinese economic and social development has to tackle emphatically.
The widening gap has come at the same time as the country's market-oriented reform. It is inevitable, from the historical perspective, because the gains made by different groups under the reforms vary at different social and economic stages of development.
For example, farmers benefited most from the early reforms as the country initially launched its reform and opening up drive in the early 1980s. Later, as the reform drive spread to urban areas, individual business people and financial speculators began to sail before the wind and get rich.
But things must not spiral out of control. There should be a bottom line for China's reforms, which have seen part of the population getting rich before others can catch up on the wealth ladder, an exemplary interpretation of the late Chinese leader Deng Xiaoping's "common affluence" theory.
China's wealth gap has surpassed the international warning level of a Gini coefficient of 0.4. Worse, this income gulf appears to be continuing to expand.
If the trend goes unchecked, the country's goal of common prosperity for all of its people will not be achieved and the widening gap may trigger social unrest.
It is worth noting that according to the experiences of many other countries, a nation will encounter an increasing number of social problems when its per capita GDP grows from US$ 1,000 to US$ 3,000. China is currently at this stage.
Decision makers should not turn a blind eye. To find an effective solution to the problem, we should first analyze the reasons why the gap has been widening.
Some scholars point the finger at the policy of "giving priority to efficiency with due consideration to fairness" in development, which was initiated at the start of China's reform and opening up.
Balancing between efficiency and fairness is crucial for fast and sustainable social and economic development. Before China's market reform started more than two decades ago, social wealth had been distributed in a completely equal way. Being an equal-shares-for-all society, China needed to spur entrepreneurship to accumulate wealth to lay down the foundations for further reforms. Priority has thus naturally been given to efficiency.
Emphasis on efficiency does not mean giving up our pursuit of social fairness, of course. Seen from a historical perspective, the policy was a good choice considering the social realities at that time.
The problem is the policy has gone awry in terms of its implementation.
Economic theory tells us that primary distribution deals with promoting efficiency while redistribution of income promotes fairness. But in practice, some people have accumulated a mountain of wealth under the auspices of promoting efficiency. While they get rich, the taxation and social security system, or the re-distribution arrangement, have failed to adequately promote social fairness.
The core of China's social inequality is, in the words of Wu Jinglian, an influential economist, inequality of opportunities. Although entrepreneurship and diligence account for the success of some rich people, many of the start-ups have grabbed wealth through colluding with government officials to engage in power-for-money deals.
In the State sector, some enterprises take advantage of their status as monopolies to gain excessive profits. On the other hand, some government officials and corporate managers misappropriate State assets through under-the-counter deals.
Inequality of opportunities not only blocks the fair distribution of income but affects economic efficiency, as demonstrated by the country's inefficient monopolized sectors.
No doubt, narrowing the income gap and promoting the fair distribution of wealth is an urgent task for China. But the nation remains at the developmental stage of social wealth accumulation. It may not yet be time for us to rush to change the traditional relationship between promoting efficiency and fairness.
The key to solving the problem is to fully engage the government in promoting social fairness in harmony with developmental efficiency.
The government must carry out its duty to safeguard social fairness.
The national legislature has kick-started the revision of the personal income tax regime. This is a welcome message that shows the country has realized the necessity of making a policy adjustment.
There are many other things for the government to accomplish, such as the orderly reform of State asset property rights, breaking up monopolies and the establishment of a sound social security system.
It should be noted that some have declared market-oriented reforms to be the cause of the enlarged income gap.
Admittedly, the wealth gulf is related to the country's market-oriented reforms, but it is not an inevitable result of the process.
There are many market-based economies in the world that do not suffer from the scourge of an excessive wealth gap.
Many of the problems China suffers are the result of its incomplete market reforms, in which the government plays a dominant role in many areas where the market should take control.
(China Daily September 27, 2005)
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