Ka Leo O Hawaii

Issue date: 3/5/08 Section: Commentary

Media Credit: Courtesy of MCT Campus Since 1989, China's GDP has grown at an average rate of 10 percent annually.

Editor's Note: This is the second installment in a three-part series about the economic, social and political rise of China.
Part I: Chinese suppression dims Olympic torch, March 3

Since market reforms were implemented in 1989, the Chinese economy has grown by an average of 10 percent each year. The World Bank reports that China has accounted for 75 percent of the global reduction in poverty over the same period. But this raises a question: With greater wealth and prosperity, will the Chinese people demand more freedom?

A year ago, the answer to that question would have been no. Why? Because average citizens were not benefiting from their country's new prosperity. Only about 6 percent of the government's revenue came from individual income tax, while the vast majority came from corporate taxes and tariffs.

This is because all of China's industries were geared toward the exportation of toys, electronics and other manufactured goods that were produced using cheap labor. Most of the 550 million people who moved from the countryside to urban areas began working in factories with Dickensian labor conditions.

Though their general welfare improved steadily, the marginal wealth of individual Chinese citizens did not increase at a similar rate. The average citizen didn't have enough bargaining power with the state.

Last November, however, the National Development and Reform Commission made a 180-degree turn in their attitude toward business. Instead of favoring companies structured to take advantage of cheap labor, the commission is leveling the playing field for companies that also want to profit from Chinese domestic markets.

An important change being implemented is an equalization of tax laws in order to foster domestic entrepreneurship. Until recently, foreign companies only paid taxes of approximately 13 percent of their income, while Chinese companies paid up to 30 percent. Now, both foreign and Chinese companies pay a standard rate of 25 percent of their revenue stream, which will promote economic prosperity for both citizens and the state.

Continued...

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