Reform of reform in five years
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The widening wealth gap in society can be gauged from the drop in the share of rural residents' income in GDP from 62.1 percent in 1978 to 25.1 percent in 2008. The disparity can also be seen in the rising ratio of urban residents' income compared with their rural counterparts - from 2.6:1 in 1978 to 3.33:1 last year. The hundreds of millions of migrant workers, who have helped push the urbanization drive but cannot enjoy the same rights as urban residents, are bearing the brunt of the cost of social transformation.
"The government should spend more on rural people to ensure they enjoy the same welfare that their urban counterparts do", Chi said. "And I don't think radical urbanization is the cure for all these ills."
The urbanization process has brought malpractices in different parts of China to the fore. For instance, farmers' legitimate rights are not protected when their land is requisitioned for development projects. Expressing deep concern over this social woe, Chi said: "Farmers should be the first beneficiaries of the added value of urbanization of their land."
But the tricky point is some local government officials are eager to introduce wealthy investors to boost the local GDP, the bulk of which is made by transferring land-use rights to developers to build commercial properties. Farmers' interests are mostly ignored in the trade-off between power and money.
Investment is indeed a shortcut to higher GDP. Local governments have been playing the leading role in boosting GDP growth by seeking whatever investment they can lay their hands on. Economic growth has been achieved on the back of cheap labor costs and natural resources. As a result, the environment has been damaged and workers' living standards have not improved much.
Another problem is that people in China, especially the middle class, do not spend as much as their counterparts in other countries. They save a big chunk of their income to buy durable products, including houses and pay for basic public services such as medical care and education. Chi's research shows that the consumption ratio of Chinese people last year was 48.6 percent, nearly 20 percent lower than the average level of Russia, India and Brazil.
"To recover the balance of investment and consumption, the government has to increase its expenditure in public services by a large margin," he said. "Society's demand for public products and services far exceeds the government's supply."
"The government should include land grant fee as well as the tax on natural resources and State-owned property's profit in the fiscal budget. Structural tax reduction should be the first choice for the government to increase the proportion of workers' income in the primary distribution of national wealth."
But the most urgent task of the government is to construct a supervision mechanism to limit the abuse of power, Chi said.
The causes of most of the development problems in China can be attributed to the concentration of power. Many Chinese intellectuals wishfully think that the market will automatically lead the country to modernity. They fail to analyze the political and economic nature of Chinese society. It will be very difficult for the economic and social reform to deepen if the structural problems are not solved, Chi said.
"The second reform" will be even harder to implement than the first one, which China embarked on in 1978, because it has to deal with people and enterprises which have been making their fortune by either abusing power or taking advantage of the loopholes in the system. But the central leadership has to push it through to achieve complete social justice and more sustainable economic growth, Chi said. It should not let the interest groups stand in the way of real reform of the economy and society.
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