The minimum wage in the country will be raised by at least 13 percent a year during the 12th Five-Year Plan (2011-15), according to a State Council special employment promotion plan. The plan stipulates that the minimum wage should be increased to at least 40 percent of an average citizen's income.

Domestic demand cannot be boosted without setting up a rational wage-increment mechanism and a supporting institutional framework. And since the State Council's plan envisages both, it should also be seen as part of the efforts to transform the existing economic development model.

Only when people have enough disposable income will their consumption level increase. The plan rightly lays emphasis on increasing workers' wages, but it is impossible to maintain demand and consumption levels without fair distribution of national wealth.

Statistics show that per capita income in rural areas last year was 6,977 yuan ($1,107), compared to 23,979 yuan in cities. Besides, the average annual disposable income of urban residents is only 21,810 yuan, far from enough to boost consumption.

The consumer price index (CPI) in January increased by 4.5 percent year-on-year, higher than the predicted 4 percent. If the increase of workers' real income is not higher than the inflation, their purchasing power will actually decline.

Wealthy people are not sensitive to the CPI because they have many more sources of income than wage earners.

Studies show that in 1985, the income of the richest group was 2.9 times that of the lowest, but the gap widened to 8.9 in 2009. Some experts think that the real gap is much wider, though.

The lower an average worker's wage, the wider will be the income gap. And if more of the national wealth goes to the rich, the higher will be the chances of it flowing overseas. For example, well-off Chinese spent about $7.2 billion abroad during just the Spring Festival holiday.

So the State Council's plan may not reach its goal if the wealth gap is not narrowed and prices are not controlled.

(China Daily 02/13/2012 page8)