Capitalism above the rule of law
When I read Chinese newspapers, I am frequently surprised by the size of the bribes corrupt Chinese officials accept. It’s not rare for an unscrupulous official to take trillions of won. But considering China’s sheer scale, only obvious flaws in the system make it possible.
But what’s more serious than corruption in China is the widening gap between the rich and the poor - which the Chinese recognize. In his “Capital in the 21st Century,” economist Thomas Piketty discusses the concentration of wealth and inequality on the mainland.
When he toured China last month, he was asked everywhere he went about possible solutions to the problem. More young Chinese people inherit wealth from the older generations, he said, and social mobility in China has drastically decreased. Introducing inheritance tax is important there, where a one-child policy is enforced, and taxation on real estate and progressive tax should be applied, he argued.
Why doesn’t China have inheritance tax? The early leaders of the People’s Republic of China believed that Communism would be imminent. In a Communist society where people work according to their abilities and divide it according to societal need, private ownership cannot, and should not, exist. When there is no private property, there can be no tax on it. After Deng Xiaoping’s reform, the 2004 constitutional revision recognized private ownership. But it won’t be easy to introduce inheritance tax now because of resistance to Deng’s wealth drive. Inheritance tax was discussed before the Third Plenary Session but didn’t materialize in the end.
Corrupt officials can own dozens of apartments because of the tax system. Residential real estate is not taxed, so they can “collect” apartments without being taxed. Even if the authorities want to impose a property tax on real estate, a housing registration system would have to be established. All land is owned by the state, so China does not need a registration system. Only land use rights for individuals are recognized, but apartments in China are more expensive than those in Gangnam District, Seoul.
Lately, the most emphasized slogan in China is “administration based on rule of law.” And the first step is to create laws and systems that are not complete and modify the existing ones to better suit reality. It’s a path China must take, no matter how far and rough it may be. A prescription by the best doctor, even Thomas Piketty, cannot treat a disease by itself. Necessary medicines should be identified and combined. Just as he wrote in the preface of the Chinese edition, “Political democratization and economic democratization always come together.”
The author is the Beijing correspondent of the JoongAng Ilbo.
JoongAng Ilbo, Dec. 13, Page 34
by YEH YOUNG-JUNE