Running head: CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 1

Chinese Student’s Perspective of Tax System’s Role in

Narrowing the Gap of Income

Cai, Ruilin

University of California, Davis

CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 2

Cover Memo for Peer Review

To be honest, writing a research paper is not easy for me – the last time I wrote a

research paper was 2 years ago, and I am not familiar with a research paper any more. Under

this situation, I didn’t find any strength part of my paper, but I did find many weaknesses. I

think the result part will be a little confusing for the audience since my logic is not very clear,

and this situation may also happen on my discussion part. In addition to that, I am also worrying

about my abstract part, I am not sure whether I write it in the right direction.

I have several concerns about my paper: is my result part organized and how can I

improve it? What do I need to talk about more in the discussion part? Do I really answer my

research questions? I am really unsure about my paper, so it may cost some time for you to

carefully read my paper – some parts may confusing and mislead you to the wrong direction,

and please tell me if it happens.

CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 3

Cover Letter

Writing a research paper is totally different with literacy narrative. The literacy

narrative talks about an own story, and the language style can be various to express my feeling,

however, a research paper requires me to do the survey and online search, which is more

academic than the literacy narrative, and the language I used in my research paper is more

formal and logical (though the literacy narrative also need to be logical). The peer review

process is also very helpful. Unlike the peer review session of the literacy narrative, this time

my partners paid more attention on the structure and format of the paper. As I revising my paper,

I changed a lot on the structure and organization, which made my paper be more logical and

reach the requirement of APA format.

For my topic, I think the audience may be interested in the current situation of

China’s tax system so that they can have their own thinking about the topic. In addition to that,

I think they also need to know the way I collect data and how I use the data which can increase

the reliability of my paper. Based on this understanding, I introduced different experts’ opinions

of China’s tax system in my literature review part which can help the audience to have a general

view of the tax system. Moreover, I talked about my researching method and the way I do the

survey in the method part to improve the reliability.

At this stage of development, I think my paper still have a long way to go to be an

appropriate research paper. In my opinion, I need provide more details in the discussion part to

better reach my conclusion, and I also need to carefully revise my literature review part since

there are some logic problems in that part.

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Abstract

The income inequality is a worldwide issue, and China’s government also struggles with this

problem. As the future generation of China, Chinese students’ thinking about social issues are

important, and this research paper is aiming to analyze Chinese students’ attitude of income

inequality in China and how they think about China’s tax system performance in controlling

this inequality. The paper collected data by doing a survey among Chinese students at UC Davis

and searching for related articles and journals online. After analyzing the data collected, the

paper comes up with the following conclusions: 1, most of the Chinese students in the survey

believe income inequality is a severe social issue in China and have substantial influence to

themselves; 2, an appropriate tax system can help to narrow the gap of income; 3, China’s tax

system still need many improvements to fit the current situation and play its role in narrowing

the gap of income.

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Chinese Student’s Perspective of the Role of Tax System in

Narrowing the Gap of Income

Wealth gap is a wicked problem that perplex many societies in the world, and income

inequality is an important part of this issue. China has the biggest population, and as we enjoy

the benefit the population brings to us, the issue of income inequality is also more notable with

the large population. Gini coefficient is an important tool for the government and organizations

to evaluate the wealth inequality situation of a country (range from 0 to 1, the higher the worse),

and the United Nations set 0.4 as the warning level. The income Gini Coefficient of China is

0.465 in 2016 (China Gini Coefficient, 2018), shows that the situation in China needs to be

improved. On the other hand, the tax system in China seems has many disadvantages that

prevent it from being an important role in narrowing the gap of income according to the online

sources. As Chinese students, we are the hard core of future China, and our thinking about

social issues is important, so my research paper focuses on Chinese students thinking about the

income inequality in China and how do they look at the role of tax in narrowing this gap.

Literature Review

Though Rein (2012) thinks China’s tax system is effective in narrowing the gap of

income, most of the articles and journals believe that the current tax system in China has many

disadvantages and doesn’t play the right role in the society. Rein (2012) claims that Chinese

Government’s consumption tax successfully control the gap of income, and “reduce income

taxes for low and middle income earners”; however, Perlberg (2013) opposes this kind of

opinion. He argues that the consumption tax occupies about 50% of the government tax revenue

in 2012, which is much higher than those developed countries (20%). It seems that a higher
CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 6

consumption tax can limit the consumption of high income group, however, it actually

increases the spending of normal families in their daily life, and has an even worse impact on

low income group compare to the high. Moreover, though the government raise the threshold

of individual income tax, the gap of actual disposable income is still big in China. Compare to

developed countries, China’s tax system is more complex (Alexander, 2017). The division of

different levels in the tax system is not clear, and doesn’t fit the current situation of wealth

distribution in China. This illogical tax system not only increases the cost of collecting tax but

also improve the pressure of people.

On the other hand, the gap of income is also reflected in the difference between rural

and urban residents. Most of the rural residents in China are under the average income level,

and some of them are still living below the extreme poverty line of $1.90 per day (Jennings,

2018). The population living in poverty in China have reduced from 90% to 1% since the

economic reform in 1978 (Graham, 2018), but the gap of income is also enlarged during this

process. Terry’s report (2013) shows the change of Gini Coefficient in China from 1981-2012,

and it is clear to see that Gini Coefficient grew rapidly from 1982 (below 0.3) to 2007 (nearly

0.5). In addition to that, Terry’s report also claims that as Chinese household income per capita

doubled from 2002 to 2007, the gap of income was actually broadened in China. The tax system

didn’t play a positive role in controlling this trend, and it actually hurts rural residents’ benefit

(Imai, Wang, and Kang, 2010). The rural tax is an essential tax for farmers in China in the past

2000 years, and farmers need to pay tax not only to the central government but also to the local

government, and this kind of tax significantly increased farmers’ pressure. Since 2006, Chinese

Government canceled the rural tax as a part of tax system reform. This action reduced farmers’
CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 7

pressure, and largely increased the life quality of farmers.

Research Question

How the Chinese students between 18-22 think about the social problem of income

equalities? Do they think tax is a good way to narrow the gap of the income? Why or Why not?

Method

I created a survey to collect opinions by using Google form. I posted the link of

survey on the social media, and all the participants of the survey are Chinese international

students at UC Davis. UC Davis is a famous public university in U.S., and its fee is not cheap

for non-California students (about $43000/year), which means most Chinese students’ families

are above the average income line. Based on this background, many Chinese students have

enough social experience so that they can have their own thinking to the social issues, which

ensure the survey to be effective. The survey consists of 10 questions, contains responders’

family situation, their understanding of income inequality in China and the role of tax system

in this issue, and their future expectations. In addition to that, I searched for related articles and

journals online to help myself have a deeper understanding of the issue and collect data. Since

there are many different formulas to calculate Gini Coefficient, I used the data from CEIC,

which comes from National Bureau of Statistics of China.

Results

The survey collected 33 responses, and their family’s annual incomes differ

considerably (shown below), which means the gap of income is also significant among the

Chinese international students’ group. About 90% of the responses think the gap of income is

big in China, while the others think the gap is acceptable; however, only half of the participants
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think the income inequality is a serious social issue in China. In addition to that, less than one

third of them have the general understanding of the minimum income level and the individual

income tax in China, and about 15% responses think the tax system for individual works in

China. Some of the participants suggest that providing more education opportunities can help

to increase the social mobility thus narrow the gap, and they also list some possible

consequence of extreme income inequality, such as high crime rate, riot and economy decline.

Moreover, 70% of the students hold negative attitude of narrowing the gap of income into a

small level, and most of them expect a future annual income below 200,000 RMB.

Discussion

The responses of the survey shows that most of the Chinese students know the issue

and understand the importance of controlling income inequality. However, only a few of them

know the minimum monthly income in their hometown and the detail of individual income tax

in China, which shows most students’ understanding of income is still superficial. The big

difference of family income among international students really surprised me. Due to the high

spending of study abroad, the family of international students should be at least the middle

expectation of annual income after

graduate (RMB)

9%
below 100,000
30%
18% 100,000 - 200,000
300,000 - 500,000
above 500,000
43%
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class, and even then there is still a gap of family income among the students, it is imaginable

how big the gap is compare to those who still living in poverty. Moreover, their expectation of

future annual income is also below the average line of UC Davis graduates (about

300,000RMB), and this trend is also effected by the big gap of income of working positions.

In the survey, some argues that social stratification always exists in a society and cannot be

avoided. It is true: asking the president of a country to have the same income as a common

laborer is unfair – though everyone is equal, their jobs not; however, the government should

try to balance the income of different classes since all the classes contribute to the development

of the society, and they should also enjoy the benefit of development. In addition to that, a

government is responsible for all the citizens in the country, not only for the rich class. I think

these are the reasons that the gap of income should be narrowed.

Conclusion

As a conclusion, most of the Chinese students in the survey believe that income

inequality is an important issue in China, but they don’t think the tax policy in China is effective

on relieving this issue, and their expectations of future income are also influenced by the

income inequality. To narrow the gap of income, tax is indeed a useful tool for the government

to concentrate the social wealth and redistribute them to the society, however, the current tax

system in China falls behind the actual situation, which makes the tax system play a negative

role in narrowing the gap of income. Though I tried my best to finish the survey, the number

of the participants still limit my research result. There are more than 2000 Chinese students at

UC Davis, and 33 only occupies a small proportion of this group, so the data collected is not

universal in the whole group. In the future, I think I may improve my research in two parts.
CHINESE STUDENT’S PERSPECTIVE OF TAX SYSTEM 10

Firstly, I will enlarge the range of my survey to collect more data from Chinese students to get

a general result. Secondly, I will pay more attention on the details of China’s tax system to

understand its role in a society deeply.

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References

Alexander, K. (2017, September 20). Why is China’s Tax System so Complex. Retrieved

from https://www.china-briefing.com/news/why-chinas-tax-system-complex/

China Gini Coefficient. (2018, October 25). Retrieved from

https://www.ceicdata.com/en/china/resident-income-distribution/gini-coefficient

Graham, A. (2018, August 2018). Beijing’s anti-poverty drive has lessons for all. Retrieved

from https://www.telegraph.co.uk/news/world/china-watch/society/decreasing-

chinas-poverty/

Imai, K., Wang, X. and Kang, W. (2010). Poverty and Vulnerability in Rural China: Effects of

Taxation. Journal of Chinese Economic and Business Studies, [online] 8(4). doi:

10.1080/14765284.2010.513177 Retrieved from

https://www.tandfonline.com/doi/full/10.1080/14765284.2010.513177?scroll=top&

needAccess=true.

Jennings, R. (2018, February 05). Despite China's Fast-Growing Wealth, Millions Still

Remain Poor. Retrieved from

https://www.forbes.com/sites/ralphjennings/2018/02/04/why-tens-of-millions-

remain-poor-in-china-despite-fast-growing-wealth/#5b6837647e9e

Perlberg, S. (2013, August 13). How China's Tax Structure Crushes The Poor. Retrieved from

https://www.businessinsider.com/how-chinas-tax-structure-hurts-poor-2013-8

Rein, S. (2012, February 07). What Obama Needs to Learn From China About Taxes.

Retrieved from

https://www.forbes.com/sites/forbesleadershipforum/2012/01/04/what-obama-
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needs-to-learn-from-china-about-taxes/#26c3ebc27d9a

Terry, S. (2013 August) Inequality in Focus. Poverty Reduction and Economic Management

Network, [online] 2(2). Retrieved from

http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documen

ts/Inequality-In-Focus-0813.pdf