
China has a serious income distribution problem. In January, China’s National Bureau of Statistics announced that China’s Gini Coefficient (a common measure of income distribution, in which 0 is completely equal, and 1 means all income belongs to one person) for 2012 was 0.474, exceeding the UN’s warning figure of 0.4, above which social unrest is considered a danger. This may be a conservative estimate: as Bloomberg reported, a survey by the Survey and Research Center for China Household Finance (set up by the Finance Research Institute of the People’s Bank of China and Southwestern University of Finance and Economics) put the number in 2010 as 0.61. In comparison, the United States’ Gini Coefficient for 2011 is estimated to be 0.477.

There are a number of factors that cause and exacerbate the income gap. Land grabs by local governments, who purchase land from farmers for pennies and resell the land at a massive profit to developers, are a key facet of China’s income gap. Farmers are left without a source of income, no assets, and are unable to receive social benefits as they are not registered as urban residents. According to the Wall Street Journal, a 2011 survey by Landesa found that farmers receive on average just 2 percent of their land’s market value, and the Chinese Academy of Social Science believes that there are currently 40 to 50 million landless farmers. Rural pensions are also lacking: according to Caixin, as of 2010, just 34.5 percent of the rural population was covered by state-sponsored pension schemes, and received an average 12,000 yuan a year, compared to 87 percent of urban residents who received 33,000 yuan a year. The hukou system separates residents into urban and rural, and restricts access for rural Chinese to education, medical and welfare benefits.

In response, China’s State Council issued a 35-point reform plan early this month that will focus on increasing income and narrowing the income gap. More specifically, Xinhua reports that the plan calls for such measures as: increasing the percentage of profits that State-Owned Enterprises (SOEs) give to the government and putting that money into social security coffers; limiting government spending on receptions, overseas tours, etc.; instituting consumption taxes on high-end entertainment; and making banks’ interest rates more market-oriented. There are also quite a few points on improving the rural poor situation, including assisting rural migrant workers register as urban residents; guaranteeing proceeds from land sales for farmers; resettling 2.4 million rural poor residents by 2015; and expanding expenditures on social security and employment promotion by 2 percentage points by 2015. The plan hopes to reduce the number of people living below the poverty line (2,300 yuan per capita annual net income) by 80 million by 2015.

As well-known scholar Barry Naughton comments in an article on Chinafile, “[the program] is not a mere wish list of unrealistic but well-intentioned measures designed to reduce inequality….the program is a remarkably thorough acknowledgement that improvement in China’s income distribution will require deep structural changes in the economy.”

Indeed, the plan, in development for several years, is quite ambitious. It is the specific points–such as garnishing more profits from SOEs and spending more on social services–that have a better chance of success, though at first they may face considerable political pushback. It will be interesting to see how far these reforms go, considering that the new Politburo Standing Committee is dominated by the Jiang faction, with 6 of the 7 protégés of the former president, according to Brookings Institution scholar Cheng Li. Of those 6, 4 are princelings, or sons of Chinese Communist Party revolutionary heroes. In general, Jiang’s faction- sometimes referred to as the Shanghai gang- and the princelings promote the interests of the middle class, entrepreneurs, and the coast, as opposed to the populists, who tend to promote the interests of the common people.

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There are other reforms in the pipeline, as well. Last November the State Council backed policy changes that aim to strengthen the property rights of farmers, including such measures as identifying and registering land, and issuing land ownership certificates to farmers. This policy was pushed through by outgoing populist premier Wen Jiabao. Affordable housing has also been a hot issue: in 2012, the central government allocated 37.1 billion dollars (233.26 billion yuan) for subsidized housing projects, up almost 40% from the previous year.

Of all the problems that China faces in the next 25 years, the income gap–and all of the associated issues–is perhaps the most dangerous for the Communist Party and future social stability. For example, in its 2013 Social Development Blue Book, the Chinese Academy of Social Sciences notes that there have been 100,000 “mass incidents” (large protests) every year for several years, and that half of these protests are related to land grabs.

It has become a commonly-held belief among China watchers that the CCP has remained in power through a Faustian bargain with its people–it retains power as long as it maintains economic growth. With so many left behind, there is a growing contingent who are left out of this deal, and they are become increasingly vocal. Despite the elitist bent of the new Standing Committee, one hopes that they have the foresight to continue to focus on this critical issue, and develop effective solutions to it.