1. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of income inequality 4. Evolution of poverty 5. Taxation systems 6. Welfare systems 7. Policy discussion * Note on information

2. General background 1 Introduction the situation before 1978 2 Rural reform in china 2.1 The first stage (1978—1984) focus on decollectivizing agriculture by introducing household responsibility system 2.2 The second stage started from 1985, change away from agriculture sector to the rural industrial sector 2.2.1 Develop non—farm enterprise 2.2.2 Explain the reasons for income inequality in rural during these periods

3. General background 3 Urban reform in china 3.1 Before 1980s, little had changed in urban 3.2 From the early 1990s, factor market reform proceeded gradually 3.3 Since 1995, urban economic reform has taken a sharp turn 4 Poverty in transition in china 4.1 Before 1978, vast poverty occurred in rural 4.2 The situation of poverty in china after 1978 4.3 Eighth Five-Year plan

4. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of poverty 4. Evolution of income inequality 5. Taxation systems 6. Welfare systems 7. Policy discussion

5. Evolution of Health Conditions Source: Kingsley, G. (2003), Shenggen, F et al. (2002), Asian Development Bank, UNICEF and UNSTATS.[1][1] Table 2.1: Evolution of health indicators. 195919701980199019952001 Life expectancy (years)35616767,366769 Under-five mortality rate (per thousand live births)225 -64 49 4639 Under-five malnutrition (%) 171410 Infant mortality rate (per thousand live births) - -423038 Human development index (UNDP measure) -0,490,550,620,680,72

6. Evolution of Health Conditions High-mortality Low-mortality Developed countries developing countries 1UnderweightAlcohol consumptionTobacco consumption 2Unsafe sexual practicesHigh blood pressure 3Unsafe water, poor sanitation and poor hygiene Tobacco consumptionAlcohol consumption 4Indoor smoke from solid fuels UnderweightHigh cholesterol level 5Zinc deficiencyOverweight 6Iron deficiencyHigh cholesterol levelLow fruit and vegetable intake 7Vitamin A deficiencyLow fruit and vegetable intakePhysical inactivity 8High blood pressureIndoor smoke from solid fuelsIllicit drug use 9Tobacco consumptionIron deficiencyUnsafe sexual practices Table 2.2: leading selected risk factors for death and disability Source: The Medical Journal of Australia

7. Evolution of Health Conditions Malaria, tuberculosis HIV/AIDS SARS Tobacco use Alcohol use Air pollution

8. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of poverty 4. Evolution of income inequality 5. Taxation systems 6. Welfare systems 7. Policy discussion

9. 1978: +/-250 million people 1985: +/-125 million people 2002: +/- 72 million people Urban versus rural poverty 1. Urban poverty: – Low poverty (migrants excluded) – General trend: no decline in period of reform – Different sources, different information Poverty in China

10. 2. Rural poverty

11. Income inequality in China Definition Gini coefficient 1984: gini 0.30 1989: gini 0.35 1995: gini 0.42 Dimensions: – Rural versus Urban inequality – Inequality within rural and within urban areas – Coastal areas versus inland regions

12. Evolution of inequality between and within urban and rural areas

13. Regional income gap 28% 37.9% 45.2%

14. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of poverty 4. Evolution of income inequality 5. Taxation systems 6. Welfare systems 7. Policy discussion

15. Taxation Policy - Introduction First mentioned in the 1949 National Taxation Policy. First Individual Income Tax Law was passed on Sep.10th, 1980 Amended on Oct. 31st, 1993 and re-issued on Jan. 28th, 1994

16. The working mechanism The formula for computing the amount of tax payable is: Monthly taxable income = Monthly aggregate wages/salaries - 800 yuan Monthly amount of tax payable = Monthly taxable income ×Applicable rate - Quick deduction

17. Inequality between Coastal and Inland Regions

18. Suggestions on How to Revise the Individual Income Taxation (1) greater tax should be levied on higher income earners and a higher tax rate should be set low-income earners should be given tax reduction or exemption, and the low-income limits should be gradually raised, expense deduction items should be increased and expense deduction standard be lifted.

19. Suggestions on How to Revise the Individual Income Taxation (2) the current classified tax collection system should be turned into a mixed tax levying system as quickly as possible former base of individual income tax 800 yuan should be raised to build up people's purchasing power

20. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of poverty 4. Evolution of income inequality 5. Taxation systems 6. Welfare systems 7. Policy discussion

21. Pension reform and inequality Frequent changes in the pension policy  very fragmented and municipality-based PAYGO system Pension coverage – narrow; growing inequality accross social groups and regions With PensionWithout PensionTotal Working population (million): - urban cities and towns100107207 - rural areas100393493 - total200500700 Number of employees with and without pensions at the end of 1998

22. Unequal allocation of pension funds with respect to place of employment YearTotal Pension Funds of state-owned units Funds of urban collective owned units Funds of other ownership units Per capita funds (yuan) Per capita funds of state-owned units 19805.044.340.70-714.0781.0 19838.737.401.33-726.0787.0 198410.618.462.120.03766.0815.0 199039.6231.977.470.181760.01907.0 199257.8547.4310.080.342300.02493.0 199375.9362.3212.391.222824.03029.0 1995130.56109.3118.243.014335.04701.0 1998207.37172.6022.9011.485972.06369.0

23. Differences by province

24. Health insurance reform Decline in total insurance coverage for most socioeconomic and demographic groups Narrowing coverage differentials between urban and rural areas, across provinces, occupations and genders

26. CHINA: Income inequality and poverty in transition. 1. Introduction 2. Health & Well-being 3. Evolution of poverty 4. Evolution of income inequality 5. Taxation systems 6. Welfare systems 7. Policy discussion

27. Policy discussion Broad-based economic growth strategy alone is not sufficient Regional differences  area focused infrastructure encouraging private sector & participation trade policy and FDI International community

28. Infrastructure ! long-term economic growth Roads & Railways Energy (electricity) [75% rural] Water …

29. Private sector = engine for economic growth  living conditions , poverty  JOB CREATION ! (15-28 mio/y + 10 mio SOE + 150 mio rural)

30. Private sector Necessary conditions  rule of law (legal and regulatory framework)  revising - taxing system (illegal + arbitrary fees  ) - administrative laws and regulations, red tape - accounting and audit standards TRANSPARENCY  removal infrastructure bottlenecks  removal inter-provincial trade barriers  acces to $$$

31. Trade policy and FDI Large inflows of FDI prospered eco growth International trade x 3 (since 1980) Openness … WTO-rules * International involvement: ADB, UN, ILO, WB, NGOs,…

32. Challenges Budget constraints Institutional capacity & HR limited Lack of national structure – urban poverty Health system & social security Education – rural! Open-mindedness