05/06/2011, 00.00
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To survive, Beijing needs to reduce the gap between rich and poor. Here's how

In China's economic boom, over 30 years the gap between the few rich and the mass of the impoverished population worsens. In 2010 10% of Chinese generated 51.9% of total income. A renowned scholar demonstrates 3 simple and possible steps to reverse the trend and return the wealth to the people.

Beijing (AsiaNews / Agencies) – The China of the economic miracle is a country of vast disparities, with wealth concentrated in a small circle of privileged people (especially senior civil servants and their relatives). But change is possible, if it is wanted: the well-known economist Minxin Pei shows how to do it with 3 easy steps.

Recently, Beijing has become concerned about reducing this gap, because every year in the country there are tens of thousands of mass protests for economic reasons.

This year the State Council has announced an overhaul of the tax, tax cuts for employees and higher taxes on the wealthy.

Minxin Pei, a professor of political science at Claremont McKenna College (Los Angeles), says the move is "inappropriate" and somewhat "cosmetic". Along the same lines, some provincial governments have made provision that the tombs of the rich not be "too big" so as not to arouse envy and disrespect. In fact, income taxes are a minor item in the state budget: in 2010 they only contributed 5.8% to public finances, while the value-added taxes on domestic consumption and have produced about a third of revenues. So the actual scope of a redistributed intervention on personal income appears to be limited. Neither does it resolve the problem of lack of social assistance, for example in the health-care, where hundreds of millions of people do not enjoy free medical care.

In an article in yesterday's South China Morning Post, the academic indicates that the first essential step is to increase the workers salaries, which for years have grown much less rapidly than economic growth and are now feeingl the full consequences of high inflation , especially for food and other essential items, with rapid erosion of purchasing power. The salaries of workers accounted for 53.3% of GDP in 1990, but only 39.7% in 2007. An increase in wages would expand domestic consumption. In this context, it is also necessary to ensure greater protection for workers' rights and promote the improvement of professionalism.

Secondly, a substantial redistribution of wealth is needed. Minxin Pei considers this possible by distributing the state’s large foreign currency reserves among the population, with immediate effect so as to reduce inequalities. He calculated that by reducing by about half the trillions of dollars of state reserves, at least 1,000 dollars could be given to each citizen, equal to about one fourth of the ordinary annual income.

The third key measure: a genuine fight against corruption, which weakens the population diverting most of the wealth to the few. A study by economist Wang Xiaolu into the flow of money linked to corruption was about 9.3 trillion Yuan, about one third of GDP. In China, 10% of the population makes 51.9% of total income, and many believe this is related in part to a misguided use of property and state enterprises, monopolised in many areas. A first step in this direction could be a tight control on the personal incomes of civil servants.

Without such radical action, the scholar concluded, the country is not only likely to see increasing social tensions resulting from strong economic inequalities. But it also threatens to enter a phase of economic stagnation, the result of inadequate income received by hundreds of millions of middle-class constituents.
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