Every year the village of Beishankou in central China holds a ceremony to honor those who have contributed to its prosperity.

This year seven of the ten people receiving the traditional scarlet flower awards are from the poorest in the village.

"The poor villagers who have made more money than in the previous year are always seated in the front to receive the awards," says Zhao Taixuan, head of the Beishankou branch of the Communist Party of China (CPC), which has become one of the richest villages in Henan Province by producing fire-proof materials.

"It's more difficult for a poor man to earn 100 yuan (US$12.5) than it is for some to earn 10,000," Zhao explained.

In Beishankou, where per capita net income was 2.5 times more than the national rural average last year, almost a quarter of its households were below the poverty line in 1999.

As the economy developed, the wealth gap widened unexpectedly among the villagers, said Zhao.

Beishankou is not alone with a yawning income gap in an ever richer China.

Growing at a double-digit speed to become the world's fourth largest economy, the country has been grappling with the disparity between the haves and have-nots, which has widened dramatically over the past 20 years.

The richest 10 percent of the Chinese families now own more than 40 percent of all private assets, while the poorest 10 percent share less than two percent of the total wealth.

The country's Gini Coefficient, a measure of wealth gap, is estimated to exceed 0.4, a level that could endanger economic and social stability.

The government has made curbing the wealth gap a priority in building a harmonious society by 2020, with moves to improve the lives of low-income groups, expand the middle-income group and limit excessively high earnings.

Rustic relief

For the impoverished in Beishankou, that meant 300,000 yuan channeled from the village revenues each year to support their agricultural production or other businesses, plus another two million yuan for public undertakings and farming sidelines.

With the help, more than 200 households in the village have escaped poverty by growing mushrooms, said Zhao.

But the biggest relief for all Chinese farmers was the complete removal of agricultural taxes in January, which eased their burden by nearly 50 billion yuan each year.

Subsidies to crop growers totaled 14.2 billion yuan this year, one billion more than last year, while other allowances for buying diesel, chemical fertilizer, seed and farm machinery continued to rise.

Paper-thin profits of growing crops have prompted about 120 million farmers to seek better-paid jobs in cities.

The government-aided Sunshine Project offered job training to an estimated 3.5 million rural migrant laborers this year.

"China's wealth gap mainly results from the inequality between the cities and the countryside," said Mao Yushi, one of China's leading economists.

In 2005, the per capita income of urban citizens was 3.22 times that of rural residents in China.

Since China launched its economic reforms and opening up in late 1970s, the incomes in cities have risen faster than in the countryside, which boasted a large population living on farming.

"Transfer payments can only ease the disparity a little, but won't change the overall wealth imbalance between rural and urban areas," said Mao.

"The only solution is to speed up urbanization and reduce the rural population, which will be a long process," said Mao, adding that the income gap would continue for another ten years.

Secure the vulnerable

Before China's Gini Coefficient can fall, the government must continue to help rural communities with more subsidies and better public services, said Mao.

From 1985 to the end of last year, more than 100 million Chinese emerged from poverty, leaving 23.65 million still below the poverty line, which is set at an annual per capita income of US$85 by the government.

Preliminary findings of the World Bank's Poverty Assessment show China's poverty reduction from 1990 to 2002 accounted for more than 90 percent of the world total, according to the bank's poverty line of US$1 of consumption per day.

Meanwhile, the findings indicate the average real income of the poorest 10 percent of households declined by 2.4 percent from 2001 to 2003.

However, the poorest Chinese were not necessarily worse off, as the World Bank findings show there was considerable movement into and out of poverty from 2001 to 2004.

About 70 percent of the poor were pushed into temporary poverty by income shocks, such as layoffs, injuries, ill health or crop failures, as the findings show.

With more than half of the poor living outside the officially designated poor areas, growth and development policies may not be effective in helping all the impoverished, said a World Bank statement.

More important are government policies that target individual vulnerability, such as health and crop insurance, education subsidies and minimum living allowances, the World Bank advised.

To help the vulnerable, local governments have gradually raised pensions and urban minimum living allowances.

While the country has yet to build a national minimum living allowance system for the rural population, 19 provincial governments had set up such systems by this year, covering 12.22 million people, the People's Daily reported.

But farmers won't be totally relieved of impossibly expensive medical services until 2010, when a new rural cooperative medical system covering 700 million farmers will be established, said Minister of Health Gao Qiang.

Meanwhile, 48.8 million rural primary and middle school students in underdeveloped western China enjoyed free schooling by July.

The benefits will be expanded to other rural areas next year, covering nearly 150 million students, said Minister of Education Zhou Ji.

Investment in education only takes up about three percent of the country's gross domestic product (GDP) value, less than the world average, with a dearth of high-quality educational resources, which are poorly distributed.

"In recent years, the cost of public services like education, medical care and social security have risen too fast for medium and low-income families to afford. That's one of the major causes for the widening wealth gap," said Chi Fulin, vice director of the China Society of Economic Reform.

"The government has expended most energy and money on developing the economy instead of social undertakings and public services," said Ding Yuanzhu, researcher with the Academy of Macroeconomic Research of the State Development and Reform Commission (SDRC).

The government should transform its function from merely pursuing economic growth to providing basic public services, and give full play to the market in economic development, said Chi.

Fair play

Government intervention in market operations are a major cause of the irregular procurement of resources, corruption and unjust distribution of income, said Chi.

Discontent has been growing over the excessive incomes of land agents, managers of some state-owned enterprises (SOEs) and employees in monopolized industries like electricity, petroleum, finance and telecommunications.

The country's top 12 SOEs boasted salary levels of three to four times the national average level last year, the China Youth Daily reported.

Public pressure prompted the government to curb excessive SOE pay early this month, ordering local governments to reduce salaries at profit-losing SOEs and review the SOEs where salaries are more than double last year's local urban average.

Meanwhile, a regulation was issued last month requiring those earning more than 120,000 yuan to report their incomes to the taxation authorities.

For the benefits of low-income groups, local governments have increased minimum wage levels, while the personal income tax exemption threshold was doubled to 1,600 yuan a month in late 2005, halving the number of people paying tax.

The government has also pledged to regulate regional subsidy standards for civil servants and improve the subsidy system for those working in remote and backward areas.

China's regional wealth gap is yawning, with the per capita GDP of the richest province over ten times than of the poorest.

"What really matters is not the wealth gap, but a fair system and equal opportunities," said Li Qiang, government adviser and dean of the School of Humanities and Social Sciences at Tsinghua University.

A reform of income distribution mechanism covering 120 million Chinese is planned to contain the wealth gap and allow more to share in the country's economic achievements, said Yang Yiyong, deputy head of the research institute with the SDRC.

The reform started in late 1970s made China richer, but now the country is looking to be fairer.

(Xinhua News Agency December 19, 2006)