* Increase in SOE dividend payout to 20 pct is very small
* Finance Ministry had discussed more ambitious plan
* Emerging market SOEs pay 33 pct--World Bank
* Plan vague on how dividend payouts will be spent
By Gabriel Wildau and Lucy Hornby
SHANGHAI/BEIJING, Feb 8 China's broad plan to
address income inequality promises to extract higher dividends
from profitable state-owned enterprises (SOEs) to finance a more
generous social safety net.
But the increased payouts may do little to channel wealth
towards boosting social security. The Communist Party's new
leadership has promised reforms to address the country's yawning
The new dividend payout levels also fall short of not only
international norms but payouts that minority shareholders in
non-state companies already enjoy, suggesting some conflict
within the government over the issue.
"There have been a lot of objections. I think that's one of
the reasons even this version of the reform has been postponed
several times," said Ding Shuang, senior China economist at
Citigroup in Hong Kong.
"At least it's a step forward, but it's still quite low. I
would see this as a positive move, but not sufficient," he said.
Under a sweeping plan to tackle inequality unveiled on
Tuesday, dividend payouts from SOEs to government shareholders
are to increase by 5 percentage points by 2015.
Last year, China's SOEs paid between 5 percent and 15
percent of their net profit in dividends to government
shareholders depending on their industry sector.
But the new 20 percent top rate will still be less than the
23 percent average dividend paid from net profits to
shareholders in Hong Kong-listed SOEs.
It is also far short of the 50 percent payout discussed
internally by China's Ministry of Finance last year.
Such a level would have made China's SOEs comparable to
publicly listed companies in the United States. U.S. industrial
companies paid out 50 percent to 60 percent on average between
1980 and 2000, a World Bank analysis shows.
The same analysis found an average 33 percent ratio for 49
SOEs in 16 developed economies between 2000 and 2008.
By comparison, Chinese central government-controlled,
non-financial SOEs paid dividends worth 9.0 percent of 2011 net
profits to the central government last year, official data
shows. That compares to 9.4 percent in 2010 and 7.3 percent in
The inequality plan includes measures to make property
speculators and the rich pay more taxes, in an effort to narrow
a wide income gap between the urban elite and hundreds of
millions of poor in both cities and rural areas.
In January, the National Bureau of Statistics released data
showing that income disparity in China had reached beyond the
level considered a trigger for social discontent.
China had also promised in talks with the United States that
it would increase SOE's dividend payouts to the government.
However, the latest plan is vague on how the dividend
receipts will be used. The MOF has fought a long-running battle
with the State-owned Asset Supervision and Administration
Commission (SASAC), the powerful agency responsible for managing
central SOEs, such as China National Petroleum Corp
and China Mobile.
While the MOF has battled to use dividends to support
general expenditures on programmes like healthcare, education,
and pensions, SASAC has recycled most SOE dividends back into
the state firms.
Of the 87.5 billion yuan ($14 billion) in non-financial,
central SOE dividends and share sales collected for 2011, 85
percent was ploughed back into SOEs in the form of financing for
corporate restructuring, mergers and acquisitions,
"technological innovation," foreign investments, and other
purposes, official data shows.
The latest plan says "a certain portion" of the 5 percentage
point increase will be dedicated to social welfare spending. The
World Bank has advocated that the bulk of SOE dividends be
devoted to social welfare.
"The income distribution plan only provides a blueprint but
lacks details at implementation level," noted Zhu Haibin, chief
China economist at JP Morgan in Hong Kong.
Companies in the most profitable sectors, including natural
resources, chemicals, electricity, telecoms, and tobacco are
subject to the highest rate. Arms makers, the postal service,
and state research centres pay the lowest rate.
Data on dividends paid by local government-owned SOEs is not
readily available. The most profitable SOEs are centrally owned,
and many local-government SOEs are exempt from paying dividends.
State banks and other financial firms are not controlled by
SASAC and have paid dividends to the government at higher rates
of around 35 percent in recent years.
($1=6.2317 Chinese yuan)
(Editing by Neil Fullick)