CHINA: Income inequality and poverty in transition'

1
CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of income inequality
• 4. Evolution of poverty
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion
• Note on information

2
General background

• 1 Introduction the situation before 1978
• 2 Rural reform in china
• 2.1 The first stage (19781984) focus
  on
• decollectivizing agriculture by
  introducing
• household responsibility system
• 2.2 The second stage started from 1985,
• change away from agriculture
  sector to the
• rural industrial sector
• 2.2.1 Develop nonfarm enterprise
• 2.2.2 Explain the reasons for
  income inequality
• in rural during these
  periods

3
General background

• 3 Urban reform in china
• 3.1 Before 1980s , little had changed
  in urban
• 3.2 From the early 1990s, factor
  market reform proceeded
  gradually
• 3.3 Since 1995, urban economic reform
  has taken a sharp turn
• 4 Poverty in transition in china
• 4.1 Before 1978, vast poverty
  occurred in rural
• 4.2 The situation of poverty in china
  after 1978
• 4.3 Eighth Five-Year plan

4
CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of poverty
• 4. Evolution of income inequality
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion

5
Evolution of Health Conditions
Table 2.1 Evolution of health indicators.
Source Kingsley, G. (2003), Shenggen, F et al.
(2002), Asian Development Bank, UNICEF and
UNSTATS.1
6
Evolution of Health Conditions
Table 2.2 leading selected risk factors for
death and disability
Source The Medical Journal of Australia
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Evolution of Health Conditions

• Malaria, tuberculosis
• HIV/AIDS
• SARS
• Tobacco use
• Alcohol use
• Air pollution

8
CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of poverty
• 4. Evolution of income inequality
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion

9
Poverty in China

• 1978 /-250 million people
• 1985 /-125 million people
• 2002 /- 72 million people
• Urban versus rural poverty
• 1. Urban poverty
• Low poverty (migrants excluded)
• General trend no decline in period of reform
• Different sources, different information

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2. Rural poverty
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Income inequality in China

• Definition Gini coefficient
• 1984 gini 0.30
• 1989 gini 0.35
• 1995 gini 0.42
• Dimensions
• Rural versus Urban inequality
• Inequality within rural and within urban areas
• Coastal areas versus inland regions

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Evolution of inequality between and within urban
and rural areas
13
Regional income gap
28 37.9 45.2
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CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of poverty
• 4. Evolution of income inequality
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion

15
Taxation Policy - Introduction

• First mentioned in the 1949 National Taxation
  Policy.
• First Individual Income Tax Law was passed on
  Sep.10th, 1980
• Amended on Oct. 31st, 1993 and re-issued on Jan.
  28th, 1994

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The working mechanism

• The formula for computing the amount of tax
  payable is
• Monthly taxable income Monthly aggregate
  wages/salaries - 800 yuanMonthly amount of tax
  payable Monthly taxable income Applicable rate
  - Quick deduction

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Inequality between Coastal and
Inland Regions
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Suggestions on How to Revise the Individual
Income Taxation (1)

• greater tax should be levied on higher income
  earners and a higher tax rate should be set
• low-income earners should be given tax reduction
  or exemption, and the low-income limits should be
  gradually raised, expense deduction items should
  be increased and expense deduction standard be
  lifted.

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Suggestions on How to Revise the Individual
Income Taxation (2)

• the current classified tax collection system
  should be turned into a mixed tax levying system
  as quickly as possible
• former base of individual income tax 800 yuan
  should be raised to build up people's purchasing
  power

20
CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of poverty
• 4. Evolution of income inequality
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion

21
Pension reform and inequality

• Frequent changes in the pension policy ? very
  fragmented and municipality-based PAYGO system
• Pension coverage narrow growing inequality
  accross social groups and regions

Number of employees with and without pensions at
the end of 1998
22
Unequal allocation of pension funds with respect
to place of employment
23
Differences byprovince
24
Health insurance reform

• Decline in total insurance coverage for most
  socioeconomic and demographic groups
• Narrowing coverage differentials between urban
  and rural areas, across provinces, occupations
  and genders

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CHINA Income inequality andpoverty in
transition.

• 1. Introduction
• 2. Health Well-being
• 3. Evolution of poverty
• 4. Evolution of income inequality
• 5. Taxation systems
• 6. Welfare systems
• 7. Policy discussion

27
Policy discussion

• Broad-based economic growth strategy alone is not
  sufficient
• Regional differences ? area focused
• infrastructure
• encouraging private sector participation
• trade policy and FDI
• International community

28
Infrastructure

• ! long-term economic growth
• Roads Railways
• Energy (electricity) 75 rural
• Water

29
Private sector

• engine for economic growth
• ? living conditions ?, poverty ?
• JOB CREATION !(15-28 mio/y 10 mio SOE
  150 mio rural)

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Private sector

• Necessary conditions
• ? rule of law (legal and regulatory
  framework)
• ? revising - taxing system (illegal
  arbitrary fees ?) -
  administrative laws and regulations, red tape
• - accounting and audit
  standards
• TRANSPARENCY
• ? removal infrastructure bottlenecks
• ? removal inter-provincial trade barriers
• ? acces to

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Trade policy and FDI

• Large inflows of FDI prospered eco growth
• International trade x 3 (since 1980)
• Openness WTO-rules
• International involvement
• ADB, UN, ILO, WB, NGOs,

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Challenges

• Budget constraints
• Institutional capacity HR limited
• Lack of national structure urban poverty
• Health system social security
• Education rural!
• Open-mindedness