Reforms now afoot in the distribution system will mean a more expansive social security umbrella, stronger curbs on the development of monopolies, and the expected use of taxation and other regulative means to ensure social justice as the economy continues its rapid rate of growth.

This, however, poses a Herculean task, as the ways in which income is netted and wealth distributed remain largely irregular. So the readjustment of relations among interest groups must be based on a standardized system of distribution.

The stark reality is that society is becoming increasingly polarized in terms of wealth sharing, despite a package of government measures meant to mitigate the trend. The crux of the matter lies in the chaotic arrangements in the existing social-wealth distribution system.

Some people point accusing figures at the disproportionately high profits and income enjoyed by monopoly sectors such as petrol, telecommunications and power generation. Though their attitude is justified, exaggeration of the high profits and income in these sectors would go overboard. Most important of all, the general distribution pattern of the country as a whole should be analyzed.

We may as well make a case study of the year 2002 to see how much wealth was created that year, through which ways it was shared, to whom it went and whether the government was able to supervise and control the process of its distribution.

In 2002, China's GDP crossed the threshold of 10 trillion yuan (US$1.25 trillion) for the first time excluding the factors of depreciation, the country created roughly 10 trillion yuan of wealth. Now let's have a look at how all this wealth was shared among various sectors of society.

The total wealth was roughly divided into four parts. First came the enterprises' profits, standing at about 1 trillion yuan (US$125 billion). Second was government revenue, about 2 trillion yuan (US$250 billion). This was followed by urban residents' disposable income of 3.7 trillion yuan (US$462.5 billion). The fourth part was rural residents' net income of 2 trillion yuan.

The sums of the four categories added up to 8.7 trillion yuan (US$1.08 trillion). About 1.3 trillion yuan (US$162.5 billion), however, went unaccounted for.

It should be acknowledged that the calculation is conducted in a very rough way, including overlapping and erroneous calculations. Still, the figures present a roughly accurate picture of the income distribution framework of the country.

As we see, 1.3 trillion yuan was not found in any of the four categories. But this is not the crux of the matter. The focus, instead, is on the 3.7 trillion yuan in the urban residents' income category. This is the biggest part, and yet the most ambiguously defined. So a careful study of this money is called for.

A sub-category of this income is called "total sum of wages," which, according to the criteria of statistical departments, refers to the combined wages, including bonuses and allowances, of employees in all state-owned and collectively owned economic entities and non-production units across the country. In 2002, this figure was 1.2 trillion yuan (US$148 billion).

We can do a simple subtraction now: 3.7 trillion minus 1.2 trillion equals 2.5 trillion (US$312.5 billion). This 2.5 trillion yuan covers the income of self-employed workers and small business owners, with their stock-share interests, bank interests and rentals included.

But there is still a big gap between the self-employed people's total income and 2.5 trillion yuan. This means that a significant portion of the urban residents' income is outside the scope of the state's supervision and control. It is called "grey income," coming from moonlighting or some dubious endeavors.

In addition, other forms of capital are involved in wealth distribution each year, with the foremost being state assets pocketed by individuals and money acquired through compulsory requisitioning of land. Taking this into account, the amount of wealth shared through irregular distribution methods could be enormous.

The high irregularity in income and wealth sharing mechanisms brings a string of difficulties for the government in coordinating the relationships between different interest groups.

In the first place, taxation is unable to bring the widening income gap under control.

In some other countries, the pre-tax incomes of different groups can be extremely far apart, but reduced dramatically through the co-ordination of income tax. The highest incomes, for instance, could be 10 times the lowest, but cut to only five times as much by the application of a progressive income tax.

However, in China, the leverage of the income tax obviously hardly plays such a regulating role.

Also, income takes numerous irregular forms and, as a result, the income tax is chiefly levied on regular wages. Taxpayers, therefore, are predominately wage earners.

According to surveys conducted in different localities, salaries in urban areas make up merely 33 percent of urban residents' disposable income, but taxes levied on wages account for 45 percent to 70 percent of the total income tax volume.

Statistical figures also show that the rich, who make up 20 percent of the general population but possess 80 percent of individuals' total monetary assets or bank savings, paid less than 10 percent of the total income tax in 2001. The figure was as low as 2.33 percent in Guangdong Province, one of the country's primary economic powerhouses.

As a result, the income gap between the wage earners and the rich becomes all the wider.

To make matters worse, the government has a very foggy idea of who is rich and who is poor. It is, therefore, very hard to apply wealth-distribution coordinating measures to specific income groups.

In Western countries, you and your relatives and friends may not know how much your income is, but the tax agency definitely does. In China, however, things are the other way around: You know your income, and your friends and colleagues may have a rough idea, which is often close to the truth. But the tax bureau does not.

The failure to distinguish between poor and rich finds expression in low-priced apartments meant for the poor but often occupied by wealthy people driving sleek cars.

Moreover, money paid in the form of wages is a very small percentage of the total GDP, which means that the portion of payment for labor makes up too tiny a part in wealth distribution. Wage earners, therefore, find it hard to share in the prosperity brought by fast economic growth.

It is in this sense that standardizing the way in which wealth is shared is the cornerstone for narrowing the gap between the rich and poor.

The author is a professor with the Sociology Department of Tsinghua University.

(China Daily August 18, 2006)