Chinese leaders to put income inequity on top of economic agenda

HONG KONG (Yonhap) -- China's incoming leaders will likely put the country's income inequity on top of their economic agenda as part of efforts to boost domestic consumption as the key driver of economic growth, experts said Monday.

With less than two weeks before China's once-in-a-decade leadership transition, China watchers are keen to know what kind of economic reforms the next leaders will attempt to adopt.

In the 18th Party Congress scheduled to start on Nov. 8, a new generation of Chinese leaders will take over from the current ruling elite headed by President Hu Jintao and Premier Wen Jiabao. The incumbent Vice President Xi Jinping and Vice Premier Li Keqiang are expected to be named as president and premier, respectively.

Income inequality is the most pressing issue for the new leaders to address in order to transform China's economic growth patterns, which are heavily reliant on exports and government investment, an analyst said.

"The room for consumption growth in China looks limited at present, due to China's failure to nurture a middle class," said Jiong Shao, an analyst at Macquarie Securities.

"China's road toward a 'balanced' growth approach will have to involve efforts to increase the wealth of the majority of Chinese people, or in other words, to eliminate income inequity."

China has been proclaiming that it will seek more balanced growth amid the yawning income gap across the country.

Macquarie Securities said the reform will be a long, incremental process.

"Although the government expressed awareness of the income inequity issue as early as 2002 and has been making efforts to resolve this problem, the undesired outcome was that the income gap in China has further widened in the past 10 years," said Shao.

"We believe it has to be acknowledged how difficult it is to push through the reforms required."

HSBC economist Qu Hongbin held a similar view, saying new leaders will put more emphasis on promoting social harmony.

"Beijing's policymakers want to rebalance China's economic growth by expanding domestic demand and moving away from the current export-led model," said Qu.

"The new leaders will make improving the balance of income distribution and developing the social welfare system policy priorities."

By accelerating urbanization and giving more policy support to the western and central regions of China, the government is trying to close the gap between urban and rural development, Qu said.

Beijing will further seek a gradual raise of the minimum wage to help narrow the wage gap between different industries and will implement measures to reform the country's tax system to benefit mid-to-low income households.

The measures will include increasing tax rates for the rich and cutting them for the poor, while improving the property tax system and social security payments.

In line with the move to narrow the income disparity, the Chinese authorities are expected to push forward on creating more jobs in the country.

Under the 12th Five-Year Plan, a policy blueprint for China's development in 2011-2015, the Chinese government aims to create 45 million jobs in urban areas and lower the urban unemployment rate to below 5 percent.