Experts warn that China's growing income gap between rich and poor must be contained before undermining economic growth and social cohesion.

The poor, poorer; the rich, richer

China's Gini coefficient is approximately 0.47, up from 0.4 ten years ago, according to Professor Chang Xiuze of the Macroeconomic Research Institute of National Development and Reform Commission.

The Gini coefficient measures the inequality of income distribution within a country. A zero indicates perfect equality. The Economist states that most rich countries are close to 0.3.

Yang Yiyong, the director of Institute of Social Development in National Development and Reform Commission (NDRC) says action must be taken.

"If the government doesn't curb the increasing wealth gap between the rich and the poor and the inequality of income distribution, the consequences will be disastrous…a period of economic stagnation and social unrest would appear," he warned.

Su Hainan, an expert from the Ministry of Human Resources and Social Security, cited the income ratio between urban and rural residents at 3.3:1; the ratio between different industries is ascending, with the highest reaching 15:1; executives of listed state-owned enterprises earn 17 times more than their common employees; and income of state-owned enterprises' executives is 128 times as much as society's average income.

"Incomes of both the poor and the rich are actually increasing, but most of the poor spend much money on necessities whose prices are likely to be raised, which might make the poor poorer, the rich richer," added Tang Jun, an expert from the Chinese Academy of Social Sciences.

Profiteering industries

As China's economy develops rapidly, three production factors?- land, resources and capital are playing important roles in the regulation of income distribution, and turning real estate, mining, and securities into the most profiteering industries. The interaction among the three factors has significantly contributed to the gap widening.

"Unbalanced distribution of resources has aggravated the unjust distribution of social wealth," Chang said.

Social status, industries, and earnings

Professor Wei Jie of Tsinghua University pointed out that an individual's income is closely related to his social status and industries he works in. Those fortunate to get a position in monopolized industries such as telecom or oil, or obtain employment in a public institution or work in civil service, are guaranteed "fabulous income, good welfare and high social status."

Statistics from the Ministry of Human Resources and Social Security demonstrate that the average income of employees in the cited monopolized industries is two or three times as much as the employees in other industries. By the end of 2008, the average pension for civil servants was 2.1 times as much as that for common employees, and the average monthly pension for workers in public institutions was 1.8 times as much as that for staff of private enterprises.

Multifarious incomes

Because the ways of income distribution are complicated, and the domestic income recording system is not sound, the channels for Chinese people to get money are varied and usually classified into five groups:

White income - all legal income reported on tax returns;

Black income?- income from illegal means, such as graft, bribery, theft, robbery, blackmail and drug trafficking;

Grey income?- income not reported on tax returns but already in circulation, which include all illegal income and income of dubious origins, such as business kickbacks and bribes;

Scarlet income - income gained through sacrificing the lives of others, like the 2007 Chinese slave scandal, which was a series of forced labour cases in Shanxi, north of China.

Golden income - also called property income or capital gains, via the stock market or real estate market.

High-income residents have large quantities of 'hidden wealth'

According to a survey of 2,000-plus residents with various incomes in dozens of Chinese cities and towns, most high-income urban residents have a large quantity of "hidden wealth."

Wang Xiaolu, the deputy director of National Economic Research Institute, said, "If the findings of the survey are accurate, the actual income of urban residents may be much more than what appears on their official payrolls."

The data showed uncalculated income of urban residents by the Chinese National Bureau of Statistics (NBS) amounted to 4.8 trillion yuan (US$702 billion), which mainly existed in high-income families, accounting for 10 percent of urban families. However, their hidden wealth measured about 75 percent of the total 4.8 trillion yuan.

Deepen reform of the income distribution system

Su Hainan said the current inadequate distribution system directly caused income inequality.

In the period of initial income distribution, the payments to workers are low. In developed countries, the remuneration to an employee accounts for about 50 percent of the total operating costs, however in China, it's less than 10 percent.