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China battles income inequality

Eight years after the Chinese leadership had sought a plan to narrow the rising income gap in the country, Beijing yesterday unveiled the guidelines of proposed reform. The Xinhua report acknowledged the “growing public concern over a widening wealth gap” in China. 

Notably, the new leadership in Beijing is showing the willingness to bite the bullet in its early days itself. The issue is central to China’s political economy. 
It can threaten social stability and affect the legitimacy of the political system and the credibility of the communist party while the question cannot be sidestepped, given its bearing on the rebalancing of the economy in the new phase of China’s growth strategy based on domestic consumption. 
But it is a can of worms, human nature — and ‘class interests’ — being what it is. Entrenched interest groups, which in the Chinese context include powerful monopoly companies and state-owned banks, won’t easily concede the idea of ploughing profits to the government to redistribute it. 
Equally, the elites who are stakeholders in the status quo will resist. On the other hand, the issue is linked to reining in corruption. Besides, as China’s economy rebalances to depend more on consumer spending and less on exports and investment, there is need to put more money in the pockets of the people with low-income so that consumer spending gets a boost. Whereas, the wealthy people tend to sock away additional income. 
The announcement of new guidelines underscores that Communist Party chief Xi Jinping and incoming premier Li Keqiang sense the urgency of the task of dealing with the potentially explosive issue that could threaten the growth strategy and ignite social unrest. 
The new guidelines envisage: (A) Average real income of urban and rural residents will be doubled by 2020 and the middle-income group will be expanded. (B) Another eighty million people will be brought above poverty level by 2015 out of 128 million in rural areas who are defined as ‘poor’. (C) Measures to increase farmers’ income; social security for rural migrant workers; bigger outlay for social security and employment promotion, etc have been outlined. 
Interestingly, curbs have been suggested on the salaries of senior management cadres. Also, it is proposed to increase the percentage of profits that the state-owned enterprises are expected to hand over to the government — and the additional income will go to social security. Indeed, this is one of the toughest aspects of reform. Currently, state-owned enterprises pay 5-15% of their earnings to the state but the money is generally returned to them ostensibly for making further investment. 
India can learn from China’s experience. India’s income inequality has doubled in the past two decades. The predatory nature of the neo-liberal policies is starkly evident in our day-to-day life. The point is, India’s growth strategy is also at a crossroads, as explained in an opinion piece in today’s HT by veteran Marxist leader Sitaram Yechury.
The legitimacy of a political system ultimately lies in the sensitivity with which the political leadership shows willingness — nay, eagerness — to identify with the core issues of people’s lives. Clearly, Xi is striving to emerge as a boss with a difference
Discarding the aloofness and formalism that is endemic to untramelled authority, he is ingratiating himself with the common Chinese people by speaking directly and compassionately to them. Of course, the danger is always there when a leader treads on the people’s dreams because dreams shattered cannot easily be repaired. How the new guidelines announced in Beijing get mapped out as supporting schemes and detailed rules and get implemented in the vast far-flung country will hold the key to the Chinese Communist Party’s success. 

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