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 Whistleblowers Need Protection


Rich-poor gap worries Chinese planners

By Alan Wheatley, International Herald Tribune
December 22, 2008

BEIJING: Yu Yongding, an economics professor in Beijing, recalled the other day that the well-off Chinese he used to come across at plush hotels overseas were mainly Taiwanese. Today, they are more likely to be mainlanders.

"I don't know how they get so rich!" Yu exclaimed. "Income distribution is very problematic in this country."

And it is a problem that is set to get even worse. As long as the rising tide of economic growth was lifting all boats, the widening gap between rich and poor was generally tolerable. Now, as the economy turns down sharply, tensions are mounting, to the evident discomfort of China's leadership.

Zhou Tianyong, a researcher at the Central Party School in Beijing, said a surge in unemployment next year and an increasingly skewed distribution of wealth "through theft and robbery" could test the party's grip on power. "This is extremely likely to create a reactive situation of mass-scale social turmoil," Zhou wrote this month in the China Economic Times.

During the past 30 years of market reforms, China has done a remarkable job of lifting hundreds of millions of people out of poverty. But some people have done better - much better - than others.

In 1985, urban Chinese earned 1.9 times as much as people in the countryside, which is home to 60 percent of the population. By last year, they earned 3.3 times as much - a ratio that rises to between 5 and 6 if unequal access to basic public services is taken into account, according to the United Nations' latest Human Development Report for China.

China is not alone. The Gini coefficient, a commonly used measure of inequality, has risen in two-thirds of developing Asian countries since the early 1990s, the Asian Development Bank calculates.

If income were distributed perfectly equally, the coefficient would be zero; if all income were in one person's hands, it would be one.

China's Gini coefficient stood at about 0.30 in the late 1970s but had risen to about 0.45 in 2005.

And now comes the financial meltdown, which is already taking a toll on poorer workers with low wages and casual contracts. In recent weeks millions of migrant workers have been streaming back to their villages from shuttered factories in eastern China.

"Those people who are at the bottom of the income and wage hierarchy will be hit much more than those who are the top," said Gyorgy Sziraczki, a researcher at the International Labor Organization in Bangkok.

"So it's very likely that the current crisis will bring increasing wage and income inequalities in the coming two to three years," he said.

What is to be done? Some governments were stirring even before the financial tsunami struck.

Hong Kong introduced a voluntary minimum wage for selected low-wage jobs two years ago to protect the working poor. It proved ineffective, so the government now plans a universal statutory minimum wage.

Strengthening other labor market policies could also mitigate income inequalities. Malaysia, for instance, has announced retraining grants, something South Korea introduced - along with unemployment insurance - after the Asian financial crisis a decade ago.

"What we learned was that one of the preconditions for having a prescription for the crisis was to strengthen the social safety net," said Kim Choong Soo, South Korea's ambassador to the Organization for Economic Cooperation and Development in Paris.

Researchers say the imperative for Beijing is for a big increase - and better distribution - of spending on health, education and pensions.

According to Chinese research cited by the United Nations, between 30 and 40 percent of the urban-rural income gap can be explained by unequal access to such public service. That is because government outlays on things like schools and clinics amount to a subsidy for consumers, who would otherwise have to dig more deeply into their own pockets.

Strengthening public services would also dovetail with the declared intent of several governments, including China's, to increase domestic demand and rely less on exports and related investments.

"If many countries head in the direction of more balanced growth in the future, that could have a positive impact on income inequalities," said Sziraczki, the ILO researcher.

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