State Council approves sweeping new reforms
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.
Frequently Asked Questions about this Article…
The State Council approved a 35-point blueprint that aims to make interest rates more market‑oriented and boost returns on savings deposits, require state‑owned enterprises (SOEs) to raise their contribution to Treasury takings by 5%, increase dividend payouts from SOEs, raise minimum wages to at least 40% of average salaries, and increase spending on education and affordable housing. The reforms are designed to narrow income gaps and strengthen funding for future pensions, insurance and social safety nets.
The plan to loosen the Communist Party’s grip on interest rates aims to make rates more market‑oriented and provide greater returns on savings deposits. For everyday savers, that could improve returns compared with today’s artificially low deposit rates, but the government says these changes will take time to implement.
Yes. The reforms require SOEs to raise their contribution rate to Treasury takings by 5% and to increase dividend payouts. That matters to investors because higher SOE payouts can help fund public services, pensions and social safety nets, and also respond to international criticism that SOEs receive preferential support.
The reforms target higher, more market‑based deposit rates to provide better returns on savings. The article notes low deposit rates currently hobble investment options for poorer households—whose returns on savings are often outpaced by inflation—so the changes aim to help, though implementation will be gradual.
The blueprint explicitly aims to narrow the widening income gap by raising minimum wages (targeted at least 40% of average salaries), increasing SOE contributions and dividends for public funding, and boosting spending on education and affordable housing. The reforms respond to a reported Gini coefficient of 0.474, above the 0.40 level considered a trigger for social discontent.
Currently, deposit rates are kept artificially low in part to provide cheap funding for government projects and loans and to help keep the exchange rate low, which benefits exporters. Moving to more market‑oriented deposit rates could alter that dynamic over time, though the article notes reforms will be phased in and won’t happen overnight.
Officials warn the reforms will take time. The State Council described deepening income distribution reform as a very large, complicated project that can’t be completed in one step, so investors should expect gradual rather than immediate changes.
Raising dividend payouts from state‑owned enterprises is seen as a way to develop potential funding sources for China’s future pensions, insurance and broader social safety nets. Increased payouts and SOE contributions can bolster government resources to support these programs as income inequality and demographic pressures grow.
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