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Business
Print Edition> Business
UPDATED: October 29, 2012 NO. 44 NOVEMBER 1, 2012
MARKET WATCH NO. 44, 2012
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OPINION

An Urgent Reform

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

THE MARKETS

Tapping Shale Gas

Honghua Group Ltd., China's largest exporter of oil-drilling equipment, plans to invest up to 100 million yuan ($16 million) by the end of the year in a shale gas exploration project.

The investment will go to the manufacture of sample equipment and to system tests in both the United States and China.

"The development of shale gas in the United States will enter a boom period in two to three years, when our company will embrace a great sales opportunity," said Zhang Mi, Chairman and President of Honghua Group.

"In the future, other countries, including China, India, Poland and Argentina, will develop shale gas markets on a large scale, which will also bring us business opportunities. We're just getting ready now."

Honghua is based in Chengdu, Sichuan Province, which contains a rich supply of shale gas. Honghua has been doing business in the United States since 2004 and has opened two factories in Houston, Texas.

Expansion in China

Volkswagen AG, Europe's largest automaker, is seeking to build a 10-billion-yuan ($1.6 billion) factory in central China that could boost its production capacity by more than 10 percent.

The Hunan Research Academy of Environmental Sciences said on its website that it is seeking public feedback on the plant, which will be located in Changsha, Hunan Province, and have a capacity to build 300,000 passenger vehicles a year.

Investment in the factory could be worth 10 billion yuan ($1.6 billion), said the Changsha National Economic & Technical Development Zone.

The planned factory would add to the estimated 2.38 million vehicles currently being built annually by Volkswagen's local ventures across the country.

NUMBERS 

15.94 trillion yuan

The amount of China's private fixed-asset investment from January to September, up 25.1 percent year on year.

7.1 trillion yuan

The amount of private fixed-asset investment in the service sector from January to September, up 21.4 percent.

3.19 trillion yuan

The amount of private fixed-asset investment in west China from January to September, up 29.6 percent year on year.

Email us at: yushujun@bjreview.com



 
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