The Gini is out of the bottle. China’s leaders accept that income inequality, measured imperfectly (and in Beijing’s case dishonestly) by the Gini coefficient, is one of their biggest challenges. The State Council, or cabinet, has issued a 35-point income distribution plan aimed at narrowing a gap worse than Russia’s. At least in theory, Beijing is making a welcome shift of emphasis from crude top-line growth to more meaningful economic development. Everything, though, will depend on execution.
Inequality lies at the heart of social unrest in China. Ordinary Chinese distrust the process by which some in government or with close connections to power have accumulated vast wealth. Nice cars and fancy watches have quickly gone from signs of prestige worthy of flaunting to evidence of corruption to be hidden away. Last week, the government continued its supposed war on graft by banning advertisements that tout luxury items as “gifts for leaders”.
The 35-point plan is a more serious attempt to tackle inequality. Several proposals are worth highlighting. State-owned enterprises are required to pay more into public coffers, presumably for redistributive purposes. Interest rates are to be liberalised so savers are better rewarded, and businesses charged more realistically for loans. The minimum wage is to be raised to 40 per cent of average salaries. The plan also calls for improvements to the pension and healthcare system, which too often excludes migrant workers. Land rights are to be strengthened to boost rural incomes and make it harder for corrupt officials to confiscate farms. A property tax, which only exists in a few cities, is to be extended nationally.