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Closing the Income Inequality Gap

After 10 months of hard work, the National Development and Reform Commission (NDRC) Research Institute's 2006 study "Choices for Fair Distribution" has been finished. The 52-page report puts forward three sweeping intervention policies to encourage fair distribution in China. The news comes after the arrival of the new pig year and on the eve of the meeting of the two congresses.

Most public interest will be directed towards those specific policies addressing high wages in monopolized industries, the low amount of protection of peasants, and tax adjustments.

Zhang Benbo of the study group that prepared the report tells us that two main points are the reigning in of "unfair" profits made by monopolies and the increasing of wages for low-income groups.

The report discusses different countries' models for distributing income, including Sweden's social-democracy, welfare-state model, the USA's free capitalism model, and Japan's redistribution model.

But 'China won't indiscriminately copy any country's model,' says Zhang.

China's income gap has been continuously widening, entering a critical zone. Both the National Bureau of Statistics and the World Bank agree that China's latest Gini coefficient exceeded 0.46, with an increasing trend. According to an International Labor Organization survey, the overwhelming majority of countries' urban income is 60 percent greater than the rural income, with only two countries exceeding 100 percent-- China being one of them.

In 2005, rural residents' net income was greatest in Shanghai, 4.44 times that of Guizhou, the lowest. Differences in income between industries are also becoming more acute, according to the report.

Zhang says the report emphasizes the establishment of basic protection for peasant populations. Currently, only a few million peasants enjoy these protections, and there are still 28 million unprotected who are below the absolute poverty line.

The Asia Development Bank has already suggested that China use a 'basic protection system' to help those 28 million people living in poverty.

By the end of 2004, China already had eight provinces with such systems established, covering 1206 counties and 4.96 million of their inhabitants.
In the Chinese countryside in 2007, 1,000 yuan will be enough to cover a person's most basic necessities for the whole year.

Data from the bureau of statistics shows that in 2002, of the 28 million people living with a yearly income below 627 yuan, the average income was 531 yuan. Using these figures it would have only required 2.7 billion yuan or 0.12 percent of the government's expenditures for that year to get them above the poverty line.

The report also notes that the soaring profits enjoyed by monopolies are bad for two reasons-- they decrease the efficacy of the country's resources and have such high profits due to unfair internal distribution of profits.

The report went on to stress the strengthening of supervision of income distribution within these industries.

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