Statistics show that the 20 percent low-income group in China's cities only get 2.75 percent of the country's total urban income, or equivalent to only 4.6 percent of the income of China's 20 percent top-level rich group.

The SDRC said the widening income inequality gap is occurring in line with China's economic and social development.

It attributes the growing income gap between different industries, between the employers and the employees, and the increase in income earned outside of main work as the main reasons for the inequality.

Professor Li Yingsheng of the Renmin University of China, who participated in the social investigation on urban income, said China is still lacking an income adjustment mechanism.

Professor Li urges the government to further increase the proportion of middle-level income groups and try to raise the income of the lowest-level groups, to achieve a stable social classification.

Officials with the SDRC said the government has also pledged to take tougher measures in the coming years to curb the increasing inequality and make China's income distribution more reasonable.

Judging from his recent record, Bush should largely get his way in clamping down on the budgets for domestic agencies that are passed each year by Congress. Last year, despite resistance from Democrats and old-school lawmakers in his own party, Bush got Congress to accept a freeze or a slight cut in almost every domestic agency budget.

``Every year of my presidency, we've reduced the growth of non-security discretionary spending, and last year you passed bills that cut this spending,'' Bush said last week. ``This year my budget will cut it again.''

Even though domestic non-entitlement programs take only one-sixth of all federal spending, they are in the administration's bulls eye as it tries to reel in the growing deficit.

The National Institutes of Health's budget is frozen at this year's level and the Centers for Disease Control and Prevention is being asked to take a 2 percent cut. Both programs lose ground as Bush puts a higher priority on the wars in Iraq and Afghanistan and hurricane relief.

The Pentagon would receive a nearly 5 percent increase in its budget, to $439.3 billion, defense officials said, with an additional $120 billion earmarked for operations in Iraq and Afghanistan. Those war funds would be spread over both the current budget year and fiscal 2007, which begins Oct. 1.

The budget also will project spending $18 billion more this year for hurricane relief along the Gulf Coast, bringing total spending in response to September's devastating storms over the $100 billion mark.

In his Saturday radio address, Bush pitched his ``American competitiveness initiative,'' which would double funding for basic research programs in the physical sciences over the next 10 years and improve training and recruitment of math and science teachers.

Bush also warned Congress last week he wants to eliminate or cut more than 140 programs to save $14 billion in 2007 alone. Last year, he succeeded in saving $6.5 billion with a similar request, winning from Congress about two-fifths of the spending cuts he sought.

Some of the new proposed cuts, such as eliminating the $107 million Commodity Supplemental Food Program, are likely to get a chilly reaction on Capitol Hill. The program provides food to low-income mothers and children under 6 years old, as well as to the elderly poor.

There's nearly universal agreement that policymakers eventually will have to tackle tackling runaway Medicare costs and Bush takes a politically perilous first step in that direction in his budget.

``We have to address these issues,'' said Senate Budget Committee Chairman Judd Gregg, R-N.H., who, like Bush is a member of the Baby Boom generation, whose claims on Social Security and Medicare threaten to swamp the budget in coming decades.

``It's not fair for our generation, when we have control over policy, not to look for a way to pass a more fiscally healthy nation on to our children,'' Gregg said.

While modest, Bush's endorsement of wringing tens of billions of dollars in savings from health care providers such as hospitals and nursing homes, may prove to be a difficult sell to his GOP allies on Capitol Hill. Hospitals are a powerful lobbying group and are typically some of the leading employers in lawmakers' districts and states.

``Think of lobbyists as a giant immunological system. And this (Medicare proposal) is a virus,'' said Alexander Vachon, a health care analyst. ``It is going to set off all these white blood cells to go eating on Congress.''

Still, by assuming the Medicare savings in the budget Bush can claim he is meeting his promise to cut the deficit in half - from an inflated $521 billion estimate for early 2004 - to $260 billion by the end of his presidency.

The budget meets that target by assuming Congress will agree to Bush's policy priorities and related spending cuts and new fees, even though many are unrealistic, particularly in an election year for lawmakers, or have been rejected repeatedly.

For example, better off veterans are again being asked make higher co-payments for prescription drugs and pay a new $250 annual enrollment fee for their medical care. Congress has rejected both three years in a row. A new proposal to raise fees on military retirees enrolled in the Pentagon's Tricare program isn't likely to fare much better.

A new Department of Homeland Security fee on air travel of $5 each way is likely to get stamped ``Dead on Arrival'' just as a comparable fee was last year.

The tax-based health initiatives Bush wants - boosting health savings accounts and making out-of-pocket medical costs deductible - face resistance because they reduce the revenue side of the budget and exacerbate deficits.

Despite Bush's call to curb the weed-like growth of benefit programs like Medicare and Medicaid, veterans in Congress aren't expecting much progress on the deficit.

``It'll largely be a do-nothing year, unfortunately,'' said top Senate Budget Committee Democrat Kent Conrad of North Dakota. ``We all know the history, which is that very little in terms of bold action gets done in an election year.''

Two days after President George W. Bush called for the US to end its "addiction to oil", John Negroponte, the Director of National Intelligence, said the combination of rising demand for energy and instability in oil-producing regions "is increasing the geopolitical leverage of key producing states".

Negroponte said in testimony to the Senate Select Committee on Intelligence, that the most important election on the African horizon will be held in spring 2007 in Nigeria, the continent's most populous country and largest oil producer. The vote has the potential to reinforce a democratic trend away from military rule—or it could lead to major disruption in a nation suffering frequent ethno-religious violence, criminal activity, and rampant corruption.

He said that speculation that President Obasanjo will try to change the constitution so he can seek a third term in office is raising political tensions and, if proven true, threatens to unleash major turmoil and conflict. Such chaos in Nigeria could lead to disruption of oil supply, secessionist moves by regional governments, major refugee flows, and instability elsewhere in West Africa.

If the cutback survives an expected court challenge, the reduction in aid will be substantial. In the Bay Area and other high-cost regions, for example, a woman providing foster care for grandchildren ages 7 and 10, who now gets $1,315 a month, would receive $723, the amount of a conventional welfare grant.

The higher aid total was ordered by the Ninth U.S. Circuit Court of Appeals in San Francisco in a March 2003 ruling that was binding in California and eight other Western states. The ruling said children who are placed with grandparents or other family members can receive federal aid based on their new foster parents' low incomes.

The government had argued that the aid should be based on the incomes of the parents from whose homes the children were removed.

Tucked into the federal Deficit Reduction Act, which won final passage Wednesday on a largely party-line vote of 216-214 in the House, is language declaring that the appeals court ruling was wrong and that long-standing federal law bases eligibility solely on the parents' incomes.

That might not be enough to overturn the appeals court ruling. Legal Aid lawyers plan to argue to a federal judge in Sacramento that the congressional declaration was an empty gesture, with no effect on the law that was the basis of the 2003 decision. That argument, if successful, would leave it up to Congress to change the law.

But, by including the provision, the Bush administration and congressional Republican leaders made their intention clear to rein in the appeals court and eliminate the benefits its ruling provided.

Rules for federal aid should be set uniformly by Congress, "not unilaterally by a court that wishes to legislate policy from the bench,'' said Rep. Wally Herger, R-Marysville (Yuba County), chairman of the House Ways and Means subcommittee that added the foster care amendment to the bill.

Congress "reaffirmed that our interpretation of the statute is the correct one,'' said Wade Horn, assistant secretary for children and families in the Department of Health and Human Services.

If children suffer a loss of aid, he said, "that will be a choice that the state will have made'' by not using its money to replace the federal funds.

Horn noted that California and its counties pay a higher foster care rate, equal to federal benefits, when a child is placed with nonrelatives or in a group home.

State welfare officials were unavailable for comment, but other participants in the debate expressed frustration.

"The talk from the feds is, 'Place the kids with relatives, we value relatives,' but then the funding doesn't match it,'' said Cathy Senderling, legislative advocate for the County Welfare Directors Association.

The state first estimated that a loss of federal funding would affect 4,000 California children, but last month scaled back that figure to 500 -- largely because documentation that might have made more children eligible has been difficult to find, Senderling said.

The congressional action "affects mainly people who need those benefits and help the most,'' said Yolanda Arias, one of the Los Angeles Legal Aid lawyers in the 2003 appeals court case. She said abused children's relatives, who have preference as foster parents in California, "will do without (their own needs) in order to keep the kids with them.''

Another Legal Aid attorney, Marjorie Shelby, said the savings projected by the administration, $370 million over five years, amounted to "petty cash in the federal budget.''

Their client, Enedina Rosales, took her 5-month-old grandson, Anthony, into her home after social workers removed the child from his mother's home, where he had been abused, the appeals court said. Rosales was later appointed as the boy's foster parent but was denied federal aid because his mother's income was above the eligibility standard.

Forced to take time off from work because of Anthony's medical needs, Rosales lost her job, took part-time employment and applied for welfare but had trouble making ends meet, the court said.

In ruling that Rosales was eligible for federal benefits, the court said federal law based eligibility on the income of the household where the child was living when he or she officially became a foster child. In Anthony's case, that was his grandmother's home.

The government's contrary interpretation "undermines the statutory protections for foster children that Congress meant to provide,'' Judge Marsha Berzon said in the 3-0 decision.

The ruling was the only one of its kind in the nation and left California and the eight other Western states with different standards for federal aid than other states. The Bush administration did not appeal to the Supreme Court but focused instead on countermeasures in Congress, an effort that bore fruit this week.