China to tackle inequality, as social unrest grows

 

The rising levels of inequality, the scarce wealth redistribution despite the industrial boom and constant growth, are threatening political and social stability almost everywhere in China.

Strikes have become increasingly frequent and much better organised than in the past. Today’s Chinese workers are easily networked, including through online social media and they are more determined to obtain better conditions.

This is why the State Council, China’s cabinet, announced a broad tax and wage reform on Tuesday.

On one hand, the measures are based on major contributions from wealthy state-owned firms and from the rich to narrow the income gap between the urban elite and hundreds of millions of rural poor.

Incomes in urban areas are more than three times higher than those in rural areas, where there is urgent need for investment in infrastructure, irrigation, education and health.

The latest estimates (2011) say that over 13.4 per cent of the Chinese population, 128 million people, live below the poverty line of approximately US$363 per year.

On the other hand, the reform aims to raise wages, make interest rates more flexible and improve households’ return on assets, a clear sign that the government is more and more shifting economic growth towards increased consumption. Economists note that the overall objective is to reduce the population in poverty and increase the size of the middle class.

"The State Council is not just talking about the gap between rich and poor, they’re talking about the whole economy and how income is distributed among various actors - the households, the corporations and the government," says Andrew Batson, research director of GK Dragonomics, interviewed by Reuters.

Also rural migrants, who have been marginalised and denied opportunities for a long time, will be able to transfer their official residency to cities, where there are higher wages and better social services.

Over the last few years the reformists have put pressure on State-owned firms that have benefited much from State support, but have not contributed enough to the welfare system with a fair share of their profits. The tax increase on profits from those firms will be about 5 per cent by 2015.

As for minimum wages, the plan foresees an increase of 40 per cent of average urban salaries by 2015.

“Even after hikes of up to 30 percent in some provinces, the minimum wage across China remains barely enough for a subsistence existence”, comments Jennifer Cheung of the China Labour Bulletin.

“All workers earning the minimum wage still have to do overtime, sometimes excessive overtime, in order to make a decent living”, she explains.

For instance, the highest minimum wage in China is now 1,500 yuan (US$ 240) per month, in Shenzhen, the major city of Southern Guangdong Province, with over 10 million people. Even in Shenzhen, however, employers find it difficult to attract workers because of the high cost of living, from meals to transportation, to rent.

The local authorities have ensured that monthly minimum wages will reach 2,650 yuan (US$ 425) by 2015 but such an increase would not compensate for the growing inflation rate.

Also, in Shenzhen the manufacturing system is moving towards the hi-tech sector, which will allow higher margins for better wages and conditions, while in other areas of Guangdong there is still a large number of labour intensive and low cost manufacturers that want to maintain minimum wages at current levels.

“If the Guangdong government delays the increase for too long, says Cheung, it seems certain that workers will simply take matters into their own hands and stage strikes and protests demanding better pay and working conditions regardless”.