Business / Economy

Experts call for wide-ranging reforms

By Zheng Yangpeng in Haikou (China Daily) Updated: 2012-12-07 11:32

More equal society

Despite some disagreements, scholars and officials agree on one thing: Income inequality is hampering the growth of China's consumption and its shift from an investment-driven economy to a consumption-driven one. Income inequality also has profound political implications: The lack of a sizable middle-income group will affect social stability.

The problem is how to enlarge China's middle-income group.

An improved tax system has been proposed as a solution. According to some experts, a well-designed tax system assists in wealth redistribution by transferring resources from the rich to the needy.

Gan Li, director of the economics department at the Southwestern University of Finance and Economics, said the Gini coefficient, a measurement of income inequality, was remarkably lower in developed economies with a mature tax system.

"In China, taxation has so far failed to shape a healthy income distribution, which it is supposed to do," Gan said.

But it is not only about how the tax is collected, but how it is spent. Wang Yukai, vice-chairman of the China Society of Administrative Reform, said that education, medical and social security accounts for 56 to 70 percent of government spending in Western countries, while in China, only 28.8 percent is spent on these areas.

Gao from the China Society of Economic Reform said one-third of China's occupational disparity could be attributed to monopolies, so reform in the railway, petroleum, electricity and telecommunication sectors is urgently needed. Most experts agree that SOEs' dividends to the government should be raised.

Many other suggestions were raised at the forum, including the development of the service sector, the establishment of a wage negotiation mechanism and increasing the transparency of the public budget and assets.

However, experts warned that vested interests might jeopardize much-needed reform.

"The inequality of income distribution is the result of the twisted interests configuration. To cultivate fairer income distribution, power should be tamed," said Wang Yukai from the China Society of Administrative Reform.

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