Monopolies block China’s closing of income gap

13-Dec-2012 Intellasia | Todayonline | 6:30 AM Print This Post

Eight years ago, China’s state planners were given an ambitious task: Come up with a plan to narrow the vast gap between China’s rich and poor.

The project was at the heart of a promise made as President Hu Jintao and Premier Wen Jiabao came to power, to build a “harmonious society”.

Their vision was to raise the income of workers and farmers faster, even if it meant a transfer of wealth from state-owned enterprises – to boost wages at the expense of profits.

The plan is finally set to be released this month after a push by Wen, in the 11th hour of his tenure. But after at least a half-dozen drafts, some of the most significant proposals have been watered down, or dropped completely, after opposition from state-owned firms, researchers involved in the project say.

The result is a general set of principles rather than a practical road map with specifics on how to redistribute wealth, they say.

“The policy’s target is to reduce enterprise income and give more money to labour,” said research fellow Qi Jingmei from the State Information Centre, a government think tank.

“But monopoly companies and state-owned banks don’t want to give more profit to the country and let the government redistribute it.”

The problems of the plan underscore the difficulties China’s new Communist Party chief, Xi Jinping, and incoming Premier, Li Keqiang, will face as the task of dealing with an issue that threatens to stall growth and ignite social unrest falls to them.

Tackling inequality requires confronting the elites that benefit from the status quo and reining in the corruption that allows officials to pad their pockets.

One idea reported in the state press, to limit the salaries of chief executives of the state-owned companies, went nowhere, said a researcher involved in the project, though the final report may include principles for setting such salaries.

One of the hardest-fought issues involves whether to boost the taxes and dividends companies pay to the state. Many Chinese economists have argued that money could be used to boost pensions and healthcare payments, particularly to impoverished rural areas. Last year, China’s state-owned firms – many of which benefit from monopoly or near-monopoly positions – earned $264.3 billion (S$322.7 billion), according to China’s National Bureau of Statistics. That sum equals nearly 30 per cent of China’s central-government spending.

State-owned firms now pay dividends of between 5 and 15 per cent of their earnings to the state, but that money is generally returned to them for investment and other purposes, said Citigroup economist Ding Shuang. Even the top rate is less than half of what state-owned firms pay, on average, in 16 wealthy nations, according to the World Bank.

But there have been recent hints that Beijing may try to tap state-owned firms’ riches. This spring, China agreed in negotiations with the United States to boost the firms’ dividends. Then, in Hu’s farewell address, he set a goal of doubling both GDP and per capita income by 2020.

One way to pull that off would be to reduce the percentage of national income that goes to state-owned firms and direct it to the household sector.

http://www.todayonline.com/World/China/EDC121212-0000044/Monopolies-block-Chinas-closing-of-income-gap

 


Category: China

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