Nation should use more of its growing revenues to narrow income gaps and make wealth distribution more equitable

According to the latest data from the National Bureau of Statistics, the average income of rural residents in 2010 reached 5,919 yuan ($897), an increase of 10.9 percent on the year before. This was the first time since 1998 that the rural income growth rate surpassed that of urban residents, whose incomes increased by 7.8 percent in 2010.

But although great achievements have been made, there is still room for further improvement.

While vulnerable groups in both rural and urban areas have seen their living standards improve thanks to a series of government policies, such as the abolishing of agricultural taxes, increased financial input in rural infrastructure, health insurance and the raising of the minimum wage, the redistribution of wealth through government policies, rather than through the market, means that it is middle-income earners who bear the brunt of the tax burden and are becoming increasingly discontent.

More importantly, the improvements have not brought any fundamental changes to the unfair wealth distribution structure of society.

Only by studying the distribution of national income can we get a better understanding of the imbalanced system in China.

One notable fact is that the State coffers have been growing steadily over the past several years. Last year, they totaled 8.3 trillion yuan, a year-on-year increase of 21.3 percent.

In stark contrast to this, the share of labor income in GDP is shrinking. Before 2002, labor income accounted for over 50 percent of the GDP, but that fell to 49.6 percent in 2003, and to 39.7 percent in 2007. And this shrinking piece of the cake is further divided unfairly as monopoly industry employees take a disproportionately large share of it.

There is also imbalanced wealth transfer between the State and the individual. The macro tax burden, which is an important indicator of the government's level of involvement in national income distribution, was around 25 percent in 2009, according to data from the Ministry of Finance. But Professor Zhou Tianyong from Central Party School says that the actual level at present could be 31 percent, which is rather heavy for a developing country.

And according to Bai Chongen from Tsinghua University, an average worker in China has to pay social insurance amounting to 40 percent of his income. The World Bank said that China has the highest social insurance fee among 181 countries worldwide.

Meanwhile, the Ministry of Land and Resources said that the State made a profit of 2.7 trillion yuan in 2010 from land sales, a 70 percent increase on 2009. That is a transfer of wealth to the government in which farmers suffer much loss.

In recent years, the government has increased its input in social welfare and public services, which means money is being transferred to individuals and will help alleviate social disparity.

But the government's enormous revenues have not been used sufficiently to improve the welfare of the people as a large proportion is used for direct investment and government administration.

The realty market is a good mirror to reflect the wealth gap in China. While the value of urban properties have greatly increased in recent years it is a different story for farmers whose houses, built by themselves on their own land, cannot easily be traded.

Most residents still rely heavily upon wages as their main source of income. According to a 2010 report of Lee Kuan Yew School of Public Policy at the National University of Singapore, wages accounted for 66.2 percent of urban residents' annual income in China in 2008, while income from their assets accounted for only 2.27 percent.

Furthermore, according to Zhong Wei, a professor from Beijing Normal University, capital's exploiting of labor, inequalities in land profits, as well as the negative interest rates are all eroding the wealth of ordinary people every day.

And speculation and behind-the-scenes trading are rampant, while small shareholders have no choice but to suffer. In 2010 alone, trillions of yuan perished in the stock market, bringing losses to 70 percent of the investors. That further deprived the people of their wealth and widened social inequality.

The author is a professor from Tsinghua University.