February 5, 2013 6:17 pm

Beijing vows to raise minimum wages

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China has pledged to increase minimum wages and force state-owned companies to hand over more of their revenues to the public as part of a push to tackle growing inequality.

The chasm between China’s rich and poor is seen by analysts as a significant threat to political stability, with discontent over inequality spilling over into angry online comment and, on occasion, street protests.

Unveiling a long-awaited 35-point income distribution plan on Tuesday, the State Council, or cabinet, said it wanted to lift as many as 80m people from poverty by 2015. It pledged to raise minimum wages to 40 per cent of average salaries, boost spending on education and public housing, and force state-owned companies to pay out an additional five percentage points of their revenues in dividends by 2015.

Analysts cautioned that many of the elements in the plan had been flagged before and that it was light on binding commitments.

“In the past we have witnessed cases where the central government has announced reform plans but implementation was not effective. It remains to be seen how soon and how seriously these measures will be implemented,” said Zhang Zhiwei, an economist with Nomura.

There is little doubt that the leadership in Beijing is concerned about the potential consequences of the growing inequality of society.

China’s Gini coefficient – the most widely used gauge of income disparity – rose to 0.474 in 2012, above the 0.4 mark often cited by analysts as a threshold for social unrest.

Moreover, Chinese university researchers also believe that the already-high Gini reading understates the country’s real level of inequality.

Last year researchers at the Southwestern University of Finance and Economics in Sichuan province published a survey, which they said showed the Gini reading had spiralled to 0.61, putting China almost on a par with some of the world’s most unequal countries.

The income redistribution plan was approved by the finance ministry and the National Development and Reform Commission, suggesting reasonably wide buy-in from top officials. But it was released only after battles within governing circles about its contents. It had initially been planned for release in late 2012 and was delayed because of objections.

State-owned enterprises were some of the chief opponents, pushing back against calls for more aggressive dividends. In the end, the five percentage points increase in their payouts to the public purse was in line with where they were already headed before the plan’s announcement.

Many of the key points in the income redistribution plan had previously been stated, such as the goal of expanding the property tax. As it stands, China has been extremely slow in rolling out a nationwide property tax, which analysts say would be an important tool for spreading wealth more evenly.

For several years, the government has pledged to levy property taxes but so far it has only targeted luxury properties in a few cities. The housing administration has said it is moving slowly because of technical difficulties but many suspect that it is flummoxed by the issue of how to deal with officials who have illicitly accumulated vast portfolios of properties.

A series of scandals in recent months has exposed the extent to which even mid-ranking Chinese officials have acquired huge numbers of homes. In the latest case state-run media alleged this week that an official in the public security bureau in the southern province of Guangdong owned at least 192 homes.

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