China to boost wages, cuts taxes to stimulate economy

There's perhaps no more-telling policy implementation difference between a democracy and a one-party state than a plan expected to be announced by China soon.

China is shortly expected to implement both wage increases and tax cuts to promote consumer spending and economic growth.

The National Development and Reform Commission is considering the measure, which would affect about 6.5% of China's employees. The policy will help keep the nation's economy growing at an adequate rate, so says economist David H. Wang.

"In a classic development trend, China is incorporating more and more people from the countryside into its cities, and therefore needs a high rate of growth, just to absorb these additional workers and maintain social stability. That means a GDP growth rate of a least 6-7%," Wang said. "These measures give China a reasonable, 50-60% chance of attaining that growth rate in 2009."

Prior to this year, China's problem had been runaway growth, which contributed to domestic inflation, construction sector excesses, and commodities price pressure, worldwide. But then the global financial crisis hit and both emerging market and U.S. economic growth slowed -- the latter slowing China's economy considerably, due to reduced demand for exports in the U.S. Further, global economic conditions deteriorated in latter 2008 to such a degree that China's GDP growth was in danger of falling under 5%, Wang said, "a rate tantamount to a recession in emerging market China."