China's Rich Get Richer - And Poor...

By: Liz Zuliani   Date: 7 June 2011

About The Author

Liz Zuliani

Diverse background in digital media, with experience working across large networks, to boutique

Liz Zuliani, EconomyWatch Contributor

 

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07 June 2011

CHINA - The State Council plans to increase the individual income tax threshold from the current 2,000 yuan ($360) a month to 3,000 yuan. This symbolizes an important step toward narrowing the gap between the haves and have-nots, improve social services and resolve the countries' income distribution disparity.

Property tax is aimed at taxing individual's accumulated wealth and is desperately needed to reverse the country's wealth distribution momentum.

Social wealth distribution however has proven a harder balancing act than income distribution in the world's most populous nation.

In 2009, the number of households with more than US$1 million reached 670,000; ranking China the third in the world for millionaires behind the US and Japan. However, the wealthy in China only account for 0.2 percent of households. A proportion that is far lower than other countries.

In the US that ratio is 4.1 percent, in Switzerland it's 8.4 percent.

China's Wealth Gap

Infographic: FastCompany

China's Merchant Bank and Bain & Company, a global management consulting firm conducted a joint survey where they found half a million Chinese invested 100 million yuan and above in 2010. The group also held a combined investment of 15 trillion yuan.

The study also found China's wealth flow to the rich accelerates at a rate of 12 percent; twice the world's average.

This imbalance is set to cause more societal damage than the disparity in personal income distribution by widening the wealth gap for generations to come.

Boston Consulting Group also conducted a study and found the number of people with property worth more than US$1 million increased by 14 percent worldwide in 2009.

In China, it increased 31 percent.

China now has to launch insitutional reforms, otherwise the rich will get richer - and the poor...

  • The first step is to increase individual income tax threshold to regulate the wealth gap and ditribute social resources evenly.
  • Next, China has to improve its property reporting system and levy taxes on property, capital gains, donations and inheritence of the rich.

Well-developed taxes is a major means of correcting and regulating wealth distribution imbalances in developed countries and China must follow suit to take care of it's people.

China can also look at optimizing its taxation management system and shift its taxation power from the central government to lower-level governments to extricate local governments from over-dependence on 'land-based' revenues.  According to statistics:

  • China's local governments earned 2.7 trillion yuan from selling land in 2010; an increase of 70 percent on 2009
  • Income from land sales accounted for 71 percent of local government fiscal revenues; 22 point increase on the previous year

Will the proposed measures be enough to close the gap on widening income disparities in the land of 1 billion? Tell us what you think below.

 

 


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