China needs tax changes to encourage philanthropy by the wealthy, and a better social safety net

China's fu'erdai stink, but they're not the main problem.

The United Front Work Department of the Communist Party of China Central Committee is trying to guide proper behavior for fu'erdai, or China's second-generation rich. The Party is rightly worried that the open flaunting of wealth could undermine social harmony.

After getting into hot water for saying that breast size is his main criterion for choosing a girlfriend, Wang Sicong, son of China's richest man and Wanda magnate Wang Jianlin, hit the headlines again for buying a pair of golden Apple watches for his dog. On his weibo micro blog, which has 12 million followers, Wang Jr. wrote that giving his dog four watches - one for each leg - "seems much too tuhao (vulgar rich), so I kept it down to two". It is hard to see what difference this will make.

The fu'erdai will continue blowing lots of money on luxury products; they may now just be more discrete in doing so. And for rebellious fu'erdai like Wang Sicong, who has loudly declared he has no interest in following in his father's footsteps, the new guideline perhaps will have no impact.

China would do better by addressing its widening wealth gap. According to the Gini Index, the standard yardstick for measuring socio-economic inequality, the degree of wealth concentration in China has risen by a third in the past 35 years and now exceeds that of the US. This rising disparity surely fuels perceptions among ordinary Chinese people that the deck is stacked in favor of the rich and their offspring.

China has indeed made notable progress in addressing this problem in recent years. In particular, the government eased the tax burden on villagers while improving the rural education and healthcare system. These moves seem to have played a role in the recent narrowing of the urban-rural income gap.

But despite these real gains, China still has much more to do to improve education and its social safety net. With respect to the former, according to a study conducted by Stanford University Institute for International Studies recently, China lags well behind not just member states of the Organization for Economic Cooperation and Development, but also its BRICS counterparts in terms of secondary and post-secondary education. And while most Chinese now have at least rudimentary health insurance, for many the coverage remains inadequate, with medical expenses creating crippling financial burdens.

Improving education and the social safety net would not only improve perceptions regarding the fairness of life and opportunity among ordinary people, but can also help rebalance the economy and address other problems such as the country's looming shortage of human capital.

Finally, while the rich should be asked to behave properly, they also need to be given incentives to do so. As the case of Bill Gates illustrates, for all their faults, the American super-rich can be very generous when it comes to philanthropy. While they do this in large measure because of noblesse oblige, the American tax system also provides strong incentives to act in this way.

A few Chinese billionaires, notably Alibaba founder Jack Ma, are now doing the same. But the donations made by China's super-rich to charity is still much lower than that of their American counterparts. As it seeks to promote private philanthropy, China should take steps, such as allowing tax breaks, to encourage its wealthiest citizens to be more charitable. That will at least lessen the flow of funds to Wang Sicong and other fu'erdai for splurging on gold Apple watches for their pet dogs.

The author is a research fellow at the Center for China and Globalization. The views do not necessarily reflect those of China Daily.