The Chinese government has approved a new plan address wealth inequality, including a raise in the minimum wage.
Despite being a communist country, China has a growing problem with wealth inequality. Since starting to introduce economic liberalisation and reforms, which have been hugely successful in growing the country’s economy, the income gap between rich and poor has grown dramatically. Many people, especially in rural areas, are still living in absolute poverty; according the the People’s Daily newspaper close to 128 million Chinese citizens in rural areas are defined as poor by the government, meaning that they have an income of less that 2300 yuan ($368) per year.
According to some analysts China’s ‘Gini coefficient’, which measures income inequality, hit 0.474 in 2012; a level of 0.4 or higher is often cited as the threshold beyond which there is a high potential for social unrest.
This growing wealth gap is a big problem for a communist government, and addressing it is seen as key to the government’s ability to maintain its credibility and public support, and ensure social stability. It is also key to the governments attempts to increase domestic demand and re-balance the economy away from cheap exports to debt hit countries such as those in Europe.
Higher Minimum Wage and More Funding for Social Security
The new plan approved by the Chinese government calls for an increase in the minimum wage to 40% of the average salary in urban areas by the year 2015.
State-owned companies would also need to hand over a larger share of their profits to the government, in order to increase funding for social security. Social Security in China is surprisingly sparse for a supposedly communist state, with many citizens having to pay for health care and care for elderly relatives privately.
The plan also included measures to boost agricultural incomes, improve the public healthcare system, increase the supply of low cost housing, and to set a ceiling on the salaries of senior management at state-owned companies.