PUYANG, China (Reuters) - It's in poor places like Puyang that the ruling Communist party's battle to narrow China's yawning wealth gap will be won or lost.
Many residents of this county town about six hours' drive south of Beijing say their lives have improved thanks to tax cuts and increased spending on education, medical insurance and welfare.
But not everyone is content. Puyang, nestled in the northeastern corner of Henan province, is a study in contrasts.
Neat two-storey or three-storey houses stand next to run-down red-brick cottages whose inhabitants struggle to make ends meet.
"The rich are getting richer and the poor are getting poorer," said Li Weibo, a taxi driver in his late 30s.
The most extravagant buildings in town, as is often the case across China, are the offices of the local authorities, which in Puyang are so grand that townspeople call them "the replica of Tiananmen" after Beijing's massive main square.
It cost 32 million yuan ($4.4 million) of government funds to put the buildings up, a sum that raised eyebrows in the poor rural town especially when the official Xinhua news agency reported that 18 local officials were punished last June for improperly tapping public funds to construct them.
The symbols of abuse of power and inequalities -- if not downright corruption -- on display in Puyang are a direct challenge to President Hu Jintao's goal of spreading wealth more evenly and so forging a "harmonious society."
Indeed, the ruling Communist Party has warned that its grip on power could come under threat unless graft is checked.
A national audit in 2006 unearthed misuse of 46.88 billion yuan of government funds, down 53 percent from the year before.
Corruption and the growing wealth gap have prompted some experts, including Professor Wang Sangui, a specialist in rural development at Renmin University of China in Beijing, to suggest the government make tackling corruption as much a priority as boosting social spending.
"It's equally important to establish a system to hold people to account," he said.
Wu Jinglian, one of China's foremost economists, added: "Power leads to corruption. That's an undeniable truth. So how then do we restrict power? We have to depend on the rule of law."
Some economists suggest the government cut taxes rather than increase public spending so that more money is left in the pockets of the people instead of going into state coffers.
"People usually have clear ideas about what to do with their money, while governments always feel they don't have enough to spend," said Wang Yijiang, an economics professor at Tsinghua University in Beijing.
The abolition last year of China's 2,600-year-old agricultural tax had given a big boost to rural incomes, Wang noted.
He said Beijing should follow up by scrapping personal income tax, which now ranges from 5 percent to 45 percent.
"As long as people live a better life, they won't care too much about corruption," said Xu Changlin, a retired tractor driver who is among those benefiting from Beijing's strategy to spend more on education and other public services, rather than public works, as a way of raising rural living standards.
Xu's pension of 900 yuan a month dwarfs the measly 200 yuan he earned until three years ago as a tractor driver on a state farm.
"I'm quite content with my life now," he said as he sat in his courtyard enjoying the sunshine.
Xu and his wife spend most of their time looking after their grandchildren, while raising chickens and rabbits.
"Life is a lot better than before," he remarked.
Zhang Meifeng, a teacher approaching her retirement, is also doing better as her salary has more than doubled in three years to 1,700 yuan a month.
"Teachers are better treated now and competition for new openings is heating up," said Zhang.
Yet misspending and corruption by government officials -- including a recent case in which local officials misappropriated pension money for laid-off workers to build their own offices and a training centre -- has created a widespread misperception that a fat chunk of public money earmarked for places like Puyang never reaches the needy and deserving.
"Only officials can afford to buy big houses," said a shop owner named Wen, who declined to give his full name.
He said he doubted the punishment handed out to some local officials, who were ordered to hand over their homes for public auction, was harsh enough to serve as a deterrent.
"Those officials have a lot of power and money. They will get promoted again sooner or later," Wen said.
Editing by Alan Wheatley and Megan Goldin