Solutions to Balance Efficiency and Equality in China's Economy

Evaluate solutions to the trade-off of equity and efficiency

in China's economy

China's significant progress in developing the economy and reducing poverty by 50% over the past two decades is undeniable (World Bank,2010). Unfortunately, the exacerbation of inequity in the society is of significant concern to the government and has become one of the most urgent issues to contend with. Government need to balance the equity and efficiency so that the imbalance could be reduced but not at the expense of the economy. Recently, China published the 12th Five-Year Plan(FYP) to address this issue at the beginning of 2010(KPMG 2011). Only with the guarantee that the majority can live a satisfying life, will Chinese economy develop steadily. This essay will put forward two tentative solutions to balance the equity and efficiency in China's economy. One is that the government should loosen restraints on private sectors which can resolve the current massive unemployment through creating more jobs. Another solution is to increase central government spending on higher education and ensure that local government is accountable for developing specific regional programmes. These solutions will be evaluated in terms of cost(money), time and how much of the population can benefit from these solutions.

One solution is that the government should give positive policies and responses to benefit the development of private sectors which can provide many opportunities for unemployed people. Currently, with the high unemployment rate, job creation is on demand. Statistics in 2006 shows that private sector is a main stream for job creation every year(Che, Han, Zhao,2008). Unluckily, He(2007) argues that private sectors in China are facing great discrimination against state monopolies in many aspects such as taxation, which trapped them in a dilemma. To address this, restrictive policies on private sectors need to be removed to create a favorable environment for their development. In Wu's research (2007) based on the model of Wenzhou, the development of private sectors there attributes to the positive responses from local government, which removed many barriers in their path of stretching. So it suggests that local government should interact with private sectors positively.

By evaluating this solution, we can see that this solution can succeed in long terms but problems such as high risks make it less practical. Government investment in funding for start-ups or struggling enterprises is costly. Although this investment may generate substantial return such as taxation paid by enterprises, it is worth mentioning that this return is of high risks as business can fail due to many factors. Time-consuming process is inevitable in this measure. It takes years for start-ups not only to create revenues but also to keep a foothold in a competitive global market. In addition, avoiding corruption in government is also crucial for this measure and it can take a long time to achieve. Lastly, it seems comforting that in 2005, private sectors accepted about 58.24 million employees, which are almost four-fifth of the new workforces (Yang, Zheng,2009). However, it's not targeted directly to the whole population even this solution could gradually resolve the massive unemployment. Although we can assume that with the local economy booming, all local residents there can benefit, this impact is likely to be subtle. So under the fact that there are more challenges than