State Council approves sweeping new reforms

CHINA has aimed sweeping financial reforms at its wealthy state-owned firms, in a push to narrow the widening gap between the country's rich and poor. The plans approved by the State Council - China's cabinet - will see the Communist Party loosen its grip on interest rates, making them more market-oriented and providing greater returns on savings deposits.

CHINA has aimed sweeping financial reforms at its wealthy state-owned firms, in a push to narrow the widening gap between the country's rich and poor. The plans approved by the State Council - China's cabinet - will see the Communist Party loosen its grip on interest rates, making them more market-oriented and providing greater returns on savings deposits.

The 35-point policy blueprint also includes a requirement for state-owned enterprises to raise their contribution rate to Treasury takings by 5 per cent. Among other plans were targets boosting minimum wages to at least 40 per cent of average salaries, and increased spending on education and affordable housing.

But the Chinese government warned the plans would take time to implement. "Deepening reform of income distribution is a very huge and complicated project, and it can't be done in one step," the State Council said in a statement.

Curbing the power enjoyed by state-owned firms has long been mooted as among the most important structural reforms the country's new leadership under Xi Jinping must undertake.

Raising the dividend payout from state-owned enterprises will also go some way to curbing criticism from China's trading partners that Beijing unfairly supports its state-backed firms by giving them tax breaks and access to cheap capital.

The move is seen as a vital step in developing potential funding for China's future pension, insurance and social safety net for its people.

"It's a good plan that came a little bit late," said Yuan Gangming, a researcher with the government's Chinese Academy of Social Sciences in Beijing. "The income gap in China is so big now that it brings huge risks of derailing China from its growth path."

Deposit rates are kept artificially low to provide cheap funding to government projects and loans. It also helps keep the exchange rate low, giving the country's export sector an edge. But the low interest rates hobble investment options for China's poor. Inflation rates outpace returns on savings deposits. Those able to invest in property, shares or collectables do so, but the poorer working or farming class often lack the resources or sophistication to join in.

China's National Bureau of Statistics this month released an updated estimate that the country's Gini co-efficient, a measure of income disparity, had reached 0.474 - well above the 0.40 level considered a trigger for social discontent. Analysts have suggested the true figure could be even higher than reported.