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By Wu Jixue

The People's Bank of China, the nation's central bank, recently published its report on China's regional financial operations in 2005. It shows that the country's average wage increased by 14.8 percent last year and citizens' savings increased rapidly too.

This led some to conclude that ordinary laborers were now enjoying the fruits of economic growth. Another school of thought was that labor cost would be pushed up by increased wages, affecting the competitiveness of enterprises.

The Political Bureau of the Communist Party of China Central Committee also recently discussed the income distribution system. The meeting stated that the income distribution system in which the dominant form of distribution according to labor co-exists with diverse forms of distribution that remunerate other factors of production should be upheld and perfected. All production factors should participate in the distribution according to their contribution. On the basis of economic development, more attention should be paid to social equity. The income distribution structure should be further rationalized to let all people enjoy the fruits of reform and socialist modernization.

With this signal given, then, the statistical figures in the central bank's report should not be misread. Behind the 14-per-cent jump in incomes there are still some problems deserving our attention.

There is a big income gap between the rich and poor. Economic relations at the primary level should be adjusted to solve the problems of unfair distribution and increase migrant workers' currently low wages. In terms of redistribution, government policies should be tilted in favour of people earning lower incomes. All of these issues require unremitting efforts.

It is also worth looking at another batch of statistics, published by the Ministry of Labour and Social Security.

The richest people, accounting for 10 percent of urban dwellers, own 45 percent of total urban wealth. While the poorest 10 percent of urban dwellers only have 1.4 percent. Such a distribution of wealth should sound alarm bells.

China's income gap is a result of the nation's huge poverty-stricken population. The proportion of poverty-stricken people has dropped from 30 percent to 3 percent after more than 20 years of reform and development. But the criteria we use to define poverty should be updated. Converted from the purchasing power of the international standard of one dollar a day, China's poverty line should be set at an annual per capita income of 924 yuan (US$115). Thus there are still 75.8 million rural people below the poverty line.

Therefore, greater efforts are required to address the income gap and boost the poorer people's incomes.

Income inequality also exists between different industries. The average annual per capita income is about 16,000 yuan (US$2,000) for employees of State organizations, 15,000 yuan (US$1,870) for public institution employees, and 14,000-15,000 yuan (US$1,750-US$1,870) for company employees. But employees of the country's pillar industries, including most monopoly industries, earn more than 60,000 yuan (US$7,500). According to Xinhua News Agency, the actual annual income of employees at some monopoly industries is as high as 150,000 yuan (US$18,700).

The high wages in these monopoly industries have aroused a great deal of public concern. Although governments in some areas have taken steps to tackle this situation, much more needs to be done.

Nonetheless, it is unreasonable to claim that these high wages harm the competitiveness of these enterprises.

The value of labor is only one kind of cost of products. From a long-term perspective, the low price should come from all factors of production costs, not only from low labor costs.

China's economic practice in the past 20 years has shown that low labor costs and low product prices come at the expense of ordinary laborers' incomes. Common laborers, especially migrant workers, have been underpaid for a long time. This has led to lower labor quality, a reduced labour supply, the sharpening of contradictions between labor and capital and growing social instability.

Technological innovation, scientific management and market exploration should be the basis of enterprises' long-term competitiveness. The development of an enterprise also relies on a good economic climate, harmonious economic relations and favorable economic policies.

There is no need to worry about foreign capital leaving China to take advantage of lower labor costs in other countries and regions. The development of enterprises depends on comprehensive conditions. If the comprehensive environment and conditions are good, foreign companies will not leave simply because of increased labor costs. As far as those companies leaving China because of this are concerned, we are probably better off without them.

Note: the author is a researcher with the Academy of Social Sciences in Henan Province.

(China Daily July 4, 2006)