Op-Ed Contributors

Gray areas of income revealed

By Wang Yiqing (China Daily)
Updated: 2010-06-03 07:49

But some types of incomes, such as bribes, are clearly defined as illegal. It's the lack of supervision that turns illegal income into gray income. Wang has concluded the main sources that contribute to the huge amount of gray income, such as unreasonable monopolistic revenues of some resource-based and monopoly industries, as well as corruption of some government officials.

Corruption in the field of finance, which has over the past few years become an "illegal" but "practical hidden rule", is not obvious now, because of the government's easy monetary policy. In contrast, land transaction has become a big source of local governments' gray income, thanks to the huge profits in the real estate sector.

Wang says several systemic deficiencies have led to the present situation. The greatest problem is that operation of government and state-owned enterprises is always opaque to the public. For example, land transfer fees have not been incorporated into local governments' fiscal budget, and the public hardly knows how the huge sum of money is spent.

Because of these unsatisfactory phenomena, Wang is worried that gray income would have a profound negative influence on society. China's Gini coefficient is 0.47, which signifies a wide income gap between the haves and have-nots. The gap could be even wider if we take gray income into account.

Chinese people's living standards have improved since the reform and opening up. But the risk of social unrest remains high if the gap between the rich and the poor is very wide. Moreover, the injustice and unfairness of gray income could lead to severe social discontent and contradictions, a phenomenon seen in the frequent mass incidents in various parts of the country.

As an economist, Wang warns against the negative impact of gray income on the national economy. A very wide income gap indicates the growth rate of the wealthiest families' income in China is a lot higher than the average. In other words, more money flows to the highest-income group. Statistics show that the higher the income level, the higher the rate of saving. This means the more wealth the rich accumulate, the more money would flow into investment and the less money would go into consumption. This, in turn, will lead to a series of negative results, such as insufficient domestic demands, over-capacity of production and bubbles in the economy.

Although Wang's study has been appreciated by the public, efforts to check gray income still face many obstacles, most of them created by vested interests. In an earlier interview, he had warned that China could slide into "crony capitalism" if the authorities didn't solve the gray income problem.

He repeats: "China's social and economic development cannot be sustainable until the gray income problem is solved."

And that can be done only if the central government is determined to carry out necessary institutional reform and perfect the legal system.

(China Daily 06/03/2010 page9)