Rich Country, Poor People?

Controversies regarding this question are triggered again after the Ministry of Finance Wednesday issued glamorous statistics showing that China's fiscal revenue for the first seven months surged 25.7percent to five trillion yuan.

By Caijing reporter Zheng Meng

Is China a rich country with poor people? Controversies regarding this question are triggered again after the Ministry of Finance Wednesday issued glamorous statistics showing that China's fiscal revenue for the first seven months surged 25.7percent to five trillion yuan.

Will There be Tax Breaks for Private Investment?

As with the release of fiscal data, the National Bureau of Statistics unveiled related data of consumer price and private investment. According to spokesman Sheng Laiyun for the bureau, there are positive signs for start-ups in private investment favored by government policies.

The growth of private investment has stood on top of that of urban fixed asset investment for five straight months, Sheng said. Data from the NBS showed that private investment has increased 31.9 percent for January~July period, compared with 24.9 percent growth in urban fixed asset investment. As of July, private investment has accounted for 52 percent of the urban fixed asset investment, up 2.7 percentage points year-on-year.

The so-called new 36 cluases aiming at the development, management and regulation of private investment issued in May would function one day by stirring up enthusiasm from private investors, but not so soon, said Zhang Hanya, Director of the Investment Association of China. The surging proportion of private investment in the first seven months is mainly due to the government's effort to rein in credit growth, according to Zhang.

On one hand, an endogenous growth of private investment remains to be strengthened. On the other hand, the government has gained a huge amount of fiscal revenue. Tax breaks are hard to be introduced, however, he said, despite the public's appeals for many years.

China introduced new tax cuts in 2009- a comprehensive transformation of value-added tax - to reduce costs when companies buy in fixed assets, which has played a significant role in boosting investments, said Zhang Bin with the Chinese Academy of Social Sciences, the nation's top think tank.

However, Ma Haitao, president of Academy of Finance from Central University of Finance and Economics holds a different opinion. Stimulus using fiscal policies is not universal to enhance development, he told our reporters. What's more, the situation of China's private investment is on track to improvement, thus the government should rely more on market forces, not administrative methods, Ma added.

Tax Reform in Urgent Need

Early in June when China's finance ministry released data for the first five months, economists predicted that the country's full-year revenue will reach up to 8 trillion yuan. Concerns over the huge amount of revenue then lead to discussions on overburden of enterprises and the people and the concept of rich country with poor people.

Total combined revenue for 2010 is budgeted at 7.393 trillion, an increase of 8 percent. Compared with the estimate, the $8-trillion-forecast is within the normal range, Ma Jingtao argued.

It is the revenue/GDP ratio, not the absolute data of 8 trillion yuan that can well define the distribution scheme between the state and the people, a senior official with the Ministry of Finance wrote.

The ratio stood at 27.6 percent, 27.9 percent and 30.0 percent respectively for the year 2008, 2009 and 2010. Compared with the average ratio of 40 percent on a global basis, there is no problem for China's proportion of fiscal revenue, he wrote.

He also admitted the feeling of unfair among the public should not be ignored, though the concept of rich country with poor people is misleading.

Meanwhile, Zhang Hanya believes that the relative low growth in the income of residents compared with government and enterprises, to some extent, contributed to the gap between state wealth and personal income.

Regarding policies to increase people's income, Zhang Bin said the government should adopt a comprehensive tax reform that eyes family as tax entity rather than individuals to adjust and optimize the distribution of national income.

The government also pledged to carry out the minimum wage system, increase farmers' income through multi-channels and generate consumption ability.