Plans for Income Distribution Reform to be Completed by October

By Zhang Xiangdong, Jiang Yunzhang
Published: 2010-09-09

News, page 4
Translated by Tang Xiangyang
Original article:

Long-neglected plans for income distribution reform are being discussed as China approaches the start of its 12th Five-Year Plan.

The EO has learned that the National People's Congress (NPC) Financial and Economic Committee has handed a new plan for income distribution system reform to the State Council. The Central Committee of the China Democratic League, the All-China Federation of Industry & Commerce and the National Development and Reform Commission (NDRC), have also drafted plans.

The plans are focused on reforming the financial and tax systems, transferring more fiscal revenue to public projects, reforming the income distribution system of industrial monopolies and improving the social security system.

Income distribution reform is going to dominate China's 12th Five-Year Plan, which will be discussed and reviewed at the fifth plenary session of the seventeenth national conference of the Communist Party of China this October.

An insider said the NDRC would combine the projects and increase the government’s role in reforming income distribution. Supplementary policies will be issued following the start of the project.

One supplementary policy will be the Wage Regulations drafted by the Ministry of Human Resources and Social Security, to be released next year.

The Four Draft Projects

Groups assigned to investigate income redistribution from the NPC Financial and Economic Committee and the Central Committee of the China Democratic League returned to Beijing in August. They then held meetings with experts including Song Xiaowu, director of China Society of Economic Reform and Su Hainan, director of the Wage Research Institute at the Ministry of Human Resources and Social Security, to discuss the different policies.

The NPC Financial and Economic Committee began investigations for the 12th Five-Year Plan while the Central Committee of the China Democratic League also undertook research required by the central government. In May the two organizations visited local provinces to conduct their investigations. According to a source with the investigative group of the Central Committee of the China Democratic League, because the NDRC failed to come up with a project after five years’ preparation and the central government to sent three additional groups to continue the investigation.

The NDRC is also soliciting opinions regarding the project from the NPC Financial and Economic Committee and the Central Committee of the China Democratic League. According to an anonymous source with the NDRC, “The reform project has been delayed because too many government agencies are involved. Since we want more fiscal revenue, we cannot succeed if the Ministry of Finance refuses to provide more revenue. If we want to reform the income distribution in industrial monopolies, we cannot reach this goal without cooperating with the State-owned Asset Supervision and Administration Commission (SASAC).”

The All-China Federation of Industry and Commerce is the latest participant in the income distribution reform project. It has already handed over its report over to the State Council. An unnamed source from the agency told the EO that private enterprises, which account for 90 percent of all Chinese enterprises, may be the main target of income reform.

It has been disclosed that the reform project of All-China Federation of Industry and Commerce is aimed at protecting the income of the employees of private companies, reducing the tax paid by private companies, breaking monopolies, and creating a fair market among other goals. It also hopes to double the national minimum wage in five years and tax the substantial income earned by companies on the first day of their IPO.

The NPC has urged the NDRC to complete the reform project as soon as possible. “They cannot leave it incomplete when the 12th Five-Year Plan has already been released,” an insider said.

The Ministry of Human Resources and Social Security has also finished drafting the Wage Regulations and handed it over to the NPC. This draft of the regulation contains recommendations by the NDRC.

The Focus is Secondary Distribution

According to the income distribution project, primary distribution applies to tax revenue, company profits, and family income, while secondary distribution applies to governments. Secondary distribution mainly involves government taxation, policy, laws and other measures. Primary distribution reallocates income of companies and individuals.

So far, all the projects of the reform have been focused on secondary distribution.

Both the NPC Financial and Economic Committee and the Central Committee of the China Democratic League suggest a radical redistribution of income in industrial monopolies and a tax reduction in competitive sectors. Additionally, they suggest the central government should invest more in social security and give more fiscal revenue back to the public.

The reason that the Central Committee of the China Democratic League has shifted its focus from primary distribution to secondary distribution is that the role governments play in primary distribution is limited.

“It is a big shift. Reforming the primary distribution will not reach the heart of the matter nor will it solve the problem of unequal income distribution,” a participant of the investigation of the Central Committee of the China Democratic League said.

However, as Song Xiaowu said, China’s primary distribution is woefully unbalanced. Having benefited from preferential policies and the current system, industrial monopolies may access major resources at extremely low costs to even no cost at all, and earn significant profits for their employees. “This injustice is brought about by the current unfair system. If we do not correct this problem, the reform of secondary distribution will not be as effective.”

Song Xiaowu is the former director of the distribution and social security department of the China Society of Economic Reform. He has participated in discussions of income distribution organized by the NDRC and the NPC Financial and Economic Committee. He also suggests pushing companies to establish labor unions and to form a negotiation platform between employers and employees.

Zhang Chewei, deputy director of the population and labor economics research department under the Chinese Academy of Social Science, shares the above view. The NPC Financial and Economic Committee has already put forth his views. His opinions have been taken into account by the projects the Central Committee of the China Democratic League and the All-China Federation of Industry and Commerce. But none of his proposals have been included in the project drafted by the NDRC.

Additionally, Zhang Chewei suggested to the NPC’s Financial and Economic Committee that in the 12th Five Year Plan, the growth rate of residential income should be combined with that of the local GDP, CPI and other economic indicators. In recent years, while the annual growth rates of local GDPs have remained above 10 percent in certain areas, the income of local residents have stayed the same. Therefore Zhang Chewei recommends establishing a wage mechanism which ensures that income will keep up with economic growth.

Zhang Chewei said: “It is difficult because economic development levels diverge from place to place, and income gaps between urban areas and rural areas and between different sectors are also significant; this should be included in an index to assess local development.”

Su Hainan has summarized the above suggestions in a “national income growth plan” which intends to raise the income of the poor, cap that of the wealthy, expand the middle class, eradicate illegal income and regulate “grey income”. He suggests incorporating the “national income growth plan” into the 12th Five-Year Plan.

Song Xiaowu says that income distribution reform is no longer in the theoretical stages but is now a matter of application. The problem is whether or not the central government will implement reforms. “Income distribution reform has been delayed for a long time. The government has promised it again and again, but there have still been no improvements. If this situation continues, the government will have let us down.”

This article was edited by Ruoji Tang and Rose Scobie