Chinese Premier Wen Jiabao has pledged to release plans for a highly anticipated income distribution reform in the fourth quarter of this year.

In my opinion, the focus of this reform should go far beyond residents' income, and should also include major adjustments in the development pattern, social and economic structure and taxation.

In China, the growth of the government's fiscal revenue far outpaces that of residents' income, reflecting the fact that China's economic growth is mainly driven by government investment. This pattern has its advantages, such as in the field of infrastructure construction where all resources are gathered for the enormous input. However, without effective supervision and market system, it may result in about low efficiency.

The government should simplify taxation rules and cut taxes. Government funds and private capital should be brought together in key infrastructural projects. Government-driven infrastructural construction should shift to co-investment to include private capital, and both parts should share the risks. It would be vital to protect the interests and property rights of both sides and maintain high efficiency and fairness when it comes to management.

Persistent low income among rural residents shows that they have become a major source of China's cheap labor. Since the 1980s, they haven't benefited from China's rapid industrialization.

In the first three quarters of this year, the per-capita disposable income of urban residents was 18,427 yuan ($2,948) while for rural residents it was only 6,778 yuan ($1,084). Although per-capita disposable income in rural areas has grown faster than in urban areas, at 15.4 percent and 7.7 percent respectively, China's rural residents still lack a solid social safety net that includes access to welfare, good education and health care.

Agricultural tax has been exempted since January 1, 2006, and social security for rural residents has gradually improved to meet urban standards. Granting rural residents better social security is a must in a modern and civilized society; otherwise, the income gap will water down the effects of China's previous reforms.

The 2011 China Wage Development Report, released by the Institute for Labor and Wage Studies under the Ministry of Human Resources and Social Security, shows that some sectors have seen wages skyrocket. During the 11th Five-Year Plan period (2006-10), the average salary of senior executives in listed companies has increased at an annual pace of 18.1 percent, from 291,000 yuan ($46,560) in 2005 to 668,000 yuan ($106,880) in 2010. However, the average salary of ordinary workers in listed companies has only increased by 30,000 yuan ($4,800) during the past 10 years.

Around 2 percent of ordinary employers have never had a salary hike, according to a survey from the All China Federation of Trade Unions, which examined the salary conditions of 208 state-owned enterprises. In 1979, the salary of senior executives of state-owned enterprises was only 1.18 times of front-line workers, while the number has dramatically increased to 18 times in 2010.

Income distribution reform will not make everyone equally wealthy. What it will do is to build a system that encourages the creation of wealth and the better redistribution of it.

This is an edited excerpt of an article by Ye Tan, a financial commentator, published in the Shanghai-based National Business Daily