When Peng Biao first shifted to the bustling city of Guangzhou from the remote mountain village she grew up in, she felt a world away from home. Like hundreds of millions of Chinese from underdeveloped rural areas, Peng was forced to leave her children and parents behind to find work in the country’s booming cities. Once she arrived, she was taken aback by just how stark the gap was between China’s rich and poor. “Compared to when we were kids or even 10 years ago, the conditions in the village have improved a lot, especially in terms of transport, health and hospital facilities,” said Peng, who works as an exhibition saleswoman. “But there is still a lack of good jobs and life is hard.” I’ve been working so hard, but I cannot afford to let my children and parents live here Peng Biao The average monthly income in Peng’s hometown, Renhua, is about 2,000 yuan (US$309), while a villager planting half a hectare of rice might only earn about 10,000 yuan a year - equivalent to the average monthly salary of a white-collar worker in Guangzhou. “I’ve been working so hard, but I cannot afford to let my children and parents live here. Property prices and living costs are skyrocketing,” she said. President Xi Jinping may have declared an end to extreme poverty late last year, but inequality remains stubbornly high in the world’s second largest economy and it poses a major challenge for policymakers who will attend the annual “two sessions” this week. Wealth disparity is constraining consumption just as Beijing is rolling out its “dual circulation” economic strategy, which aims to make the economy more resilient to external shocks by boosting domestic demand. China currently has 710 million people earning a monthly income of less than 2,000 yuan and 310 million people with a monthly income of 1,000 yuan, according to a report by the China Institute for Income Distribution (CIID) released last July. Although the number of people in extreme poverty is fewer than 10 million, a large portion of the population is living only slightly above the poverty line and is at risk of sliding back into destitution, the report said. Furthermore, while subsidies to rural villages have helped wipe out extreme poverty, the coronavirus pandemic has added new pressure on low and middle income families, said Peng Peng, executive chairman of the Guangdong Society of Reform, a think tank connected to the provincial government. Most households earning less than 100,000 yuan a year saw their wealth decline in the first half of 2020, according to the China Household Finance Survey. But families earning more than 300,000 yuan reported net gains. “The key to narrowing China’s wealth gap is how to increase the purchasing power of low-income households, most of whom are in rural areas,” said Peng, from the Guangdong Society of Reform. China has about 290 million rural migrant workers , accounting for about 66 per cent of the country’s urban workforce. But chronically low wages and a lack of social welfare support have limited spending among them and their families, which add up to more than 600 million people. The group’s average annual income was 56 per cent of urban non-private sector employees in 2017 and fell to 52.5 per cent in 2019. Raising the minimum wage – especially among migrant workers – and stepping up rural land reform to allow people to benefit from land appreciation may be key to solving the problem, analysts said. China’s GDP ‘paradox’: why young Chinese despair about future prospects despite rapid economic growth Reforming China’s social security and tax systems, including its assets-based tax legislation, have also been identified as important measures to narrow inequality. Tax incentives in China are often provided through direct taxes, such as personal income and property taxes, rather than via indirect taxes on sales and businesses, or value-added tax. Beijing depends on indirect taxes for more than 60 per cent of government revenue. Without a cut in indirect taxation, the nation’s tax burden will remain heavy. According to Peng, from the Guangdong Society of Reform, this year’s rural policy blueprint, the “number one document”, provides insight into how authorities plan to solve China’s wealth gap. In the document, the government says it will help more people who have been lifted out of poverty, but still have low incomes, find jobs in local areas. It will also focus on building a number of major regional and trans-regional infrastructure projects in designated poverty alleviation areas. But some analysts are not convinced this will be enough, saying the government cannot adequately narrow the wealth gap without committing to major reform. Professor Li Shi, an expert on income distribution at Zhejiang University in Hangzhou, said at a forum in Beijing last month that “income distribution reform is very complicated and there won’t be progress without large-scale changes” in taxation and labour market liberalisation. Xi Jinping has pledged to double the size of China’s economy by 2035, but can he rein in inequality? “Our research finds that the existing taxation and social welfare payment system has failed to narrow income inequality. In fact, they have actually made inequality worse,” he said, according to a transcript of his speech published by the School of Economics of Renmin University of China. For most people in Renhua village, the term “wealth gap” is a foreign concept; they know little beyond their immediate surroundings and few have seen the lives of the rich up close. “For many elderly villagers I know, they live in the same houses in the village for decades, eating vegetables and rice they plant, and eating meat once or twice a month,” said Peng Biao. “Apart from this, they dare not spend and think more.”