1 Nov, 2012

Chinese Commentary: “Grotesque income gaps undercut social harmony”

By Wan Lixin (Shanghai Daily)

October 30, 2012 – A comprehensive report in 2010 titled “China’s Wealth Gap Is Testing the Limit of Social Toleration” is still compelling reading for policy makers today.

Authored by a Xinhua team, the report pointed to the danger of accelerating concentration of social wealth in the hands of the few, and the yawning gap in income across difference regions, between urban and rural residents, and among different professions.

The report cited professor Chang Xiuze from an institute under the National Development and Reform Commission (NDRC), who revealed that although estimates for the Gini coefficient (a statistical measure of income or wealth inequality with a value ranging between 0 and 1) for China differs, the ratio given by the World Bank is 0.47, which is above the warning level of 0.4, and is climbing fast by the year.

Two figures hint at the nature of the gap: The urban residents are earning 3.3 times more than their rural cousins, and the senior executives (officials) of listed state-owned enterprises are earning 128 times more than the average wage earners.

An expert from Beijing Normal University found that in 1988 the top 10 percent was earning 7.3 times more than the bottom 10 percent. In 2007 that figure went up to 23 times.

Real estate, mine owners and securities are just some of the sectors openly known to be generating exorbitant profits.

It has been recently reported that in 2007 in Shanxi Province a state-owned coal mine valued then at 200 million yuan (US$32 million) went to private owners for 375,000 yuan. Now the mine is worth 3 billion yuan.

The report concludes that fabulous riches are being made in the nonrenewable resources sector.

In coal-rich Zuoyun County, in Shanxi Province, where per capita peasant income was below the national average, there have emerged in recent years hundreds of coal mine bosses with a net worth to a tune of hundred of millions yuan.

Real estate is another sector. We need not be surprised that in the just-released Forbes 2012 list of 100 Richest People on China’s mainland, 16 are in real estate.

Another fortune list identified Wu Yajun as the world’s richest self-made women billionaires with estimated personal assets at 38 billion yuan. You can bet the self-made tycoon was actually made by real estate developments.

Income distribution

“Although our social toleration of the wealth gap is growing, the consequences would still be unimaginable if inequality and unfair distribution were allowed to worsen at this pace,” said Yang Yiyong, an researcher with an NDRC institute, who was cited in the Xinhua report.

Towards the end, the report made an impassioned call for initiating reform in income distribution “as soon as possible.”

Today, two years later the government is still talking about coming to grips with these thorny problems.

At a Cabinet meeting on October 17, it was revealed that a comprehensive plan for reform in income distribution – already eight years in the making – will come out soon, in the fourth quarter of this year.

In a recent interview with International Finance News, professor Liu Jiping from the China University of Political Science and Law said that the distribution reform initiative has already suffered many delays.

“If the plan fails again this time, it would become the only legislative proposal in the current term of government that has been promised to the people but failed to be worked out,” Liu added.

In an interview on Tuesday, Chen Baosheng, vice president of the Party School of the Communist Party of China, stressed that the Chinese people have high hopes for the coming national Party congress, and affirmed the correctness of open discussion about political reform.

“We are confronted with many problems and challenges in political reform, and there is no avoiding it. There can be no solution without pushing through with the reform,” Chen added.

As the widening divide between the haves and have-nots is a global problem, the situation in other countries can shed light on the solution of the problem in China.

In his “99 to 1: How Wealth Inequality Is Wrecking the World and What We Can Do About It” (Berrett-Koehler, 2012), author Chuck Collins offers a history of how today’s economic situation in the US evolved, makes an impassioned plea for deflating the superrich, and provides a political prescription for economic equality.

According to the book, since the 1980s, the superrich one percent of the population in the US has become vastly richer.

Today the 400 richest American people together possess more wealth than the 150 million poorest Americans.

Remedies

The one percent rigs the economic system in five ways to perpetuate the widening gap:

1. “Political influence” – Politicians serve those who contribute most heavily to their political campaigns. The one percent donates lavishly.

2. “Charity sector influence”- Some people in the one percent make charitable donations to tax-exempt organizations that conduct lobbying to further the interests of the wealthy.

3. “Media influence” – The one percent owns a large segment of the media and uses it to promote views that its members support.

4. “Organizing others in the one percent and leveraging networks” – Superrich individuals know how to use their connections and coordinate their activities to maximum political and social effect.

5. “Partnering with Wall Street game riggers” – Corporations underwrite think tanks and advocacy groups (for example, the US Chamber of Commerce) to influence those who make the economic rules.

“Today, the dirty secret about how to get very wealthy in this economy is to start with wealth,” Collins concludes.

Naturally the gap will make social stratification entrenched, in a country famously known for its intolerance of aristocracy.

On a practical basis, you cannot serve in the US Senate unless you can raise approximately US$15,000 a day to cover your campaign expenses.

So the easiest way to gather this money is to solicit members of the superrich one percent, who will then demand that you safeguard their interests and deliver on their agenda.

In solving this problem, the book prescribes higher minimum wages, reforms in campaign finance, and elimination of the wealth-power nexus.