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How Beijing Plans to Meet its Income Growth Target

By Kang Yi (康怡)
News, cover
Nov 28, 2011
Translated by Song Chunling
Original Article:

Earlier this year, Beijing officials announced that the real average disposable income of city residents would increase by no less than 7 percent in 2011.

However, according to official data, from January to October, the disposable incomes in urban and rural areas (after factoring in for the effects of inflation) only grew 5.6 percent and 7.1 percent respectively.

When faced with the prospect of missing one of their key policy goals for the year, what have the city's policy makers decided to do?

Well, according to a front page story in this week's EO, the capital's decision makers have told the city's state-owned enterprises to pay out annual bonuses early this year.

According to what the EO has learned, as the end of year deadline approached, the government organized a meeting in early November to discuss "raising the income and reducing the price" at which a decision to instruct state-owned enterprises to pay bonuses ahead of schedule was made.

The city instructed all state-owned enterprises in Beijing to pay their employees the regular "Spring Festival" year-end bonus, before the end of the 2011 calendar year. The bonues, which are usually equal to about 10 percent of an employees' annual income, but in some cases can represent as much as 50 percent of an employees annual salary, are normally distributed a few weeks before Spring Festival.

A high-level employee at one of Beijing city's state-owned companys revealed to a journalist from the EO that the order did indeed come from the city government.

"It's really urgent, all enterprises are being asked to submit weekly status reports about their progress to the municipal State-owned Assets Supervision and Administration Commission (SASAC), and SASAC passes these reports on to higher authorities, in principle they want it to be completed by the end of November."

However, while you might assume that employees would be happy to get their hands on their bonuses a little earlier, it seems the plan has caused quite a few headaches for workers, not to mention the finance departments in all these municipal-level state-owned enterprises.

"The year-end bonus are paid according to an employee's performance. As it's only November, no annual employee evaluations have been completed yet," says Ms Li, an accountant from a state-owned real-estate enterprise.

Ms Li also explained how "the biggest problem is that if you pay bonuses before December, it will impact on your tax return."

"According to national tax regulations, there is a preferential policy that taxes one year-end bonus each year at a special preferential rate. However, as this exemption has already been applied to the bonus that was issued at the beginning of this year, any bonus paid out before the end of 2011 will be taxed as regular salary," said Ms. Li.

For some employees, it could increase their tax burden by more than 20,000 yuan. Company's have not yet given employees are clear answer as to whether they'll be compensated for what they lose in tax and many employees say they would rather wait until next year and receive their full bonus, rather than get a reduced bonus ahead of schedule.

Ms. Li also explained how the problems with taxes also go beyond individuals and how companies themselves may also run into problems with annual tax quotas if the bonuses are paid early.

In addition to giving employees working inside what Chinese people often called "the system" (体制内), early annual bonuses, the municipal government also plans to reach their income growth target by giving additional cash payments to those who receive government suppprt. By the end of November, the Beijing Civil Affairs Bureau will start issuing a one-time compensation of 200 yuan per person for people classified as being in difficulty.

The government is also working on meeting its income target by keeping prices under control, they've instructed the city's National Development and Reform Commission and the Commission of Commerce to do all they can to try and reduce prices.


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