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How to interpret Gini Coefficient in China
Last Updated(Beijing Time):2005-09-13 09:57

As stated by some experts recently, China's Gini coefficient hit 0.465 in 2004, and it would approach up to 0.47 in 2005. How did these figures come out, and how much scientific degree did they bear?   

In practical view, applications of Gini coefficient in various countries across the world are not exactly the same. Many countries integrate it with other factors to judge the income gap in a comprehensive manner. Among quite a few countries, Gini coefficient features different criteria and benchmarks. China is a typical country based on dual economy. The special national condition of huge gap between urban and rural areas make it impossible and unreasonable to simply judge China's income gap by common standards of Gini coefficient. 

In recent years, the Government has carried out a package of policies and measures to adjust income distribution, improve social security system, and increase farmers' income. Then, why did the income gap still maintain on a rise? Despite some common factors such as lack of sound system, industry monopoly, historical problems, demographic discrepancy, imperfection of redistribution methods, and negligence in management that result in illegal income, there are also some other reasons in the time being, as listed below.

The first is the delay effect of policy adjustment.

The second is the clear contrast between income acceleration and lower starting point. Over recent years, promoted by the State policies of Western Development and rejuvenation of Northeastern old industrial bases, some middle and western areas and old industrial bases have accelerated the economic growth greatly, exceeding the national average growth rate. However, compared with eastern coastal developed areas, they appear with a lower starting point and base number. In the long run, the gap between middle and west areas and old industrial bases will be narrowed; but in the short term, the absolute value of the gap will still be enlarged.

This reason also explains the gap expansion between urban and rural areas. In 2004, per capita annual net income of rural residents was 2936 yuan, up 6.8 percent, ending the low-speed spiral that lasted for seven consecutive years. However, urban residents witnessed a faster income growth, rising 7.7 percent to 9422 yuan. Therefore, the income gap between urban and rural areas was further enlarged.

The third is the comparatively sluggish and backward reform of system. As the reform is in a critical stage for tackling problems, more and more deep-seated interests and relations are becoming involved, which increases "friction cost" of some relevant policies designed to handle income gap issues. Some policies and measures may even be declined, postponed and dawdled to some extent unconsciously, thus failing to achieve the expected policy effects.  

However, in recent years, as the income gap between both areas and social members remains on a rise, discussions have been further raised for the principle of "efficiency foremost with due consideration to fairness".

Some hold the view that this principle dissevers the tie between efficiency and fairness, lowers the status of fairness, and reverses the relationship between value goal and basic means of economic development. Instead of "efficiency foremost", they advocate "fairness foremost", or at least "equal consideration to efficiency and fairness".

But others insist that no adjustment be made on "efficiency foremost with due consideration to fairness", which should be consistently carried out, even after the socialist market economy system is completed and perfected.

Responding to these two views, still others state that the time for "equal consideration to efficiency and fairness" is still far from now, and it is not necessary to adjust the principle of "efficiency foremost with due consideration to fairness" immediately. Around 2010 when per capita GDP reaches US$ 1500 or so, it will be due to gradually shift from "efficiency foremost with due consideration to fairness" to "equal consideration to efficiency and fairness".

In fact, the principle of "efficiency foremost with due consideration to fairness" is connected with the major strategy of establishing Chinese socialist market economy system. So far, the system with a low level of productivity development has been initially shaped, but still under further improvement. In the efforts to tackle issues of deeper income gap, efficiency should not be ignored, and disparity should not be smoothed artificially. However, priority of efficiency and acknowledgement of gap do not suggest ignoring fairness, or even rejecting fairness.

We must attach much importance to maintaining social fairness on the level of building a harmonious socialist society, lay social fairness in a major position, and establish and improve related systems and mechanism to maintain social fairness. "Efficiency foremost" refuses "efficiency solely". "Due consideration to fairness" avoids reluctance or ignorance, let alone "minor consideration" or even rejection of fairness. 

In the time being, efforts should be focused on speeding up economic development pace, which is the base to narrow income discrepancy. Meanwhile, various measures should be adopted simultaneously to adjust income distribution structure in a reasonable manner.

First of all, policies and measures should be further improved to maintain social fairness. In an attempt to realize reasonable primary distribution, which should stress efficiency, consideration of disparity caused by unequal opportunity should also be paid attention to. Secondary distribution should stress fairness, strengthen various social security systems, weave the "safety network" with fairness as the core, and solve the problems of huge income gap caused by primary distribution.  

Secondly, more efforts should be made to support underdeveloped areas and the poverty-stricken masses. Taxation system should be further reformed, coupled with intensified supervision and administration. Tax system and taxation reform including personal income tax should be improved and more efforts should be stepped up at taxation adjustment in high-income groups. In the meantime, public input should be further increased on compulsory education, medical care and health, welfare, and security etc. The capability of financial transfer and payment should be strengthened. Assistance should be made to both urban and rural impoverished masses in resolving outstanding problems rising out of production and life.

Thirdly, the order of income distribution should be rectified and regulated. At present, due to "vacancy" of system, supervision, management, and so on, the order of income distribution has yet to be regulated. Therefore, efforts should be made to actively promote system reform, strengthen supervision and control, regulate industrial income, and strictly implement the minimum salary system. While safeguard legitimate rights and interests of workers, measures should be made to clamp down on illegal income, raise de facto income level of low-income groups, and enlarge the proportion of middle-income groups, with an attempt to promote the interest distribution structure of a harmonious society.

Source:CE.cn 
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