Since its opening-up, China has led the world with average annual growth of 9.6 per cent from 1979 to 2005.

With foreign trade increasing by 17 per cent every year, China is now the third largest trader worldwide. More than 200 million people have been brought out of poverty.

The central government has just designed guidelines to facilitate sustainable development and promote social harmony, but the plan is held back by harsh facts.

In 2005, the per capita gross domestic product (GDP) was US$1,730 (Bt61,708) for China, a mere 4-per cent of that for the United States, $42,100 the same year.

The income disparity has been increasing in recent years. The average income of urban dwellers was 2.6 times that of rural dwellers in 1978 and the figure increased to 3.2 in 2005. The Gini coefficient, an index measuring income inequality, has reached 0.45, indicating a severe inequality in income distribution.

The social welfare system in rural areas cannot cover residents' medical care or old-age pensions. The social security fund for urban citizens also shows remarkable deficits.

Many people, especially those living in rural areas, are living on ultra low incomes, part of the ever-increasing income gap. They cannot afford family medical care or education for their children. They do not have the luxury of selecting jobs, such as refusing to work under dangerous conditions.

It is, therefore, the primary task of the government to bridge the gap between the rich and the poor as well as to encourage the continuing economic boom to generate more material wealth.

To narrow the gap, it is important to be clear about the distinction between the rich and the poor. While the poor can only generate income by their own labour, the rich can increase their wealth with their capital.

The most effective solution is to generate as many jobs as possible for the poor. In the process, as people are more highly paid, fewer will take jobs in highly polluting industries or work under dangerous conditions, and these industries will gradually shrink.

Citizens living in remote mountains or grasslands will move to cities and work as relatively highly paid labour. Rural workers' move to the city will naturally ease pressure on the environment of their original habitats.

Therefore, promoting employment is the key to achieving a harmonious society and supporting sustainable development of urban and rural areas, the economy and the society, human beings and nature.

The private sector has been the strongest powerhouse in creating jobs for all forms of economic enterprises in recent years.

During the 10th five-year plan (2001 to 2005), the employed urban population grew by 41 million, from 232 million to 273 million. At the same time, those employed by private businesses rose by 57 million, from 150 million to 207 million. The employed urban population would number 15 million less without the jobs created in the private sector.

With at least 40 million new urban jobs needed between 2006 and 2010, the prosperity of the private sector takes on additional significance. This is where a large proportion of the new jobs will come from.

Since more than 98 per cent of the country's private businesses are small- or medium-sized businesses, the development of these businesses should get appropriate attention from the authorities. The primary bottleneck in the development of small- and medium-sized private businesses is their difficulty in getting access to proper financial services.

We estimate that no more than 500,000 businesses can get financing from the banking system although the country has about 42.5 million private businesses. In other words, more than 98 per cent of all private businesses have no access to bank loans.

At the end of 2006, the World Trade Organisation five-year transition period for China ended. According to the Regulation on Administration of Foreign Banks issued on November 15, 2006, foreign banks will be allowed to handle business in renminbi under certain conditions. With the new regulations, competition among banks will definitely intensify in the coming years.

The experience of regional banks in Taizhou, Zhejiang Province in East China, confirms the experience of Muhammad Yunus, winner of the 2006 Nobel Peace Prize, and his Grameen Bank, a pioneer in micro-credit: small and medium businesses can be good bank customers. Loans made to them involve little risk and high reward.

Domestic banks should make full use of their extensive retail service network to offer more complete financial services to small- and medium-sized private businesses. This would be a new source of revenue not just for businesses but for the banks.

Establishing more small- and medium-size regional banks would be a good way to better serve private businesses. After all, regional banks better understand local businesses and the capability and credibility of their managers.

Lin Yifu

China Daily

BEIJING

Lin Yifu is the director of the China Centre for Economic Research at Peking University.

China Daily is a member of the Asia News Network.