The right path

Over­com­ing vested in­ter­ests is the key to the suc­cess of wealth dis­tri­bu­tion re­forms to ad­dress gap be­tween rich and poor

China Daily (Hong Kong) - - FRONT PAGE - CHI FULIN The au­thor is pres­i­dent of the China In­sti­tute for Re­form and De­vel­op­ment.

Over­com­ing vested in­ter­ests is the key to the suc­cess of wealth dis­tri­bu­tion re­forms to ad­dress the grow­ing wealth gap.

fter 35 years of re­form and open­ing-up, China is now on track for re­forms to ad­dress its yawn­ing wealth gap. The key to their suc­cess lies in whether the on­go­ing re­forms take steps to­ward bal­anc­ing wealth dis­tri­bu­tion. This is a con­tin­u­ance of the coun­try’s re­form launched in 1979, which made an early break­through in knock­ing down the bar­ri­ers of egal­i­tar­ian dis­tri­bu­tion of wealth that en­abled the coun­try to gar­ner ex­ten­sive so­cial sup­port and co­he­sive­ness.

That the Chi­nese terms, fuer­dai, the sec­ond gen­er­a­tion of the rich, and pin­er­dai, the sec­ond gen­er­a­tion of the poor, are so of­ten cited in ev­ery­day dis­cus­sions il­lus­trates how press­ing the prob­lem of in­ter­gen­er­a­tional poverty is, and the dif­fi­culty the un­der­priv­i­leged have in mov­ing up the so­cial lad­der.

Ac­cord­ing to China’s Na­tional Bureau of Sta­tis­tics, China’s Gini co­ef­fi­cient, an in­dex re­flect­ing the gap be­tween the rich and poor, reached 0.474 in 2012, and the fig­ure has been above the in­ter­na­tion­ally rec­og­nized wan­ing line of 0.4 for the past decade,

Aindi­cat­ing an ur­gent need to ac­cel­er­ate in­come dis­tri­bu­tion re­forms and pur­sue the fol­low­ing three goals. First and fore­most, res­i­den­tial in­comes need to be in­creased. The cen­tral lead­er­ship set the goal at the 18th Na­tional Congress of the Com­mu­nist Party of China last year of dou­bling the av­er­age res­i­den­tial in­come from the 2010 level by 2020. Such a goal is at­tain­able with con­crete re­form mea­sures. Data from the Na­tional Bureau of Sta­tis­tics show that the per capita dis­pos­able in­come of ur­ban­ites grew by 6.8 per­cent in the first three quar­ters of this year, while that of ru­ral res­i­dents grew by 9.6 per­cent.

With a fa­vor­able pol­icy en­vi­ron­ment for the growth of res­i­den­tial in­comes, it is im­per­a­tive to in­clude quan­ti­fied in­di­ca­tors to mon­i­tor the progress made in rais­ing res­i­den­tial in­comes. For in­stance, should the GDP growth rate re­main about 7 per­cent over the next decade, res­i­den­tial in­comes should grow by no less than 7.5 per­cent on a yearly ba­sis and the share of la­bor re­mu­ner­a­tion in GDP should be raised to 50 per­cent.

Sec­ond, the mid­dle-in­come group, which is cur­rently around 25 per­cent of the to­tal pop­u­la­tion, needs to be ex­panded to build an olive-shaped so­ci­ety where the ma­jor­ity of the pop­u­la­tion is in the mid­dle-in­come group. The gov­ern­ment should work on rais­ing the pro­por­tion of the mid­dle-in­come group by 2 per­cent­age points on a yearly ba­sis, so the pro­por­tion will reach around 40 per­cent by 2020, which means a mid­dle-in­come group of around 600 mil­lion. This big­ger mid­dle-in­come group is of great sig­nif­i­cance, as it will prop up mod­er­ate growth and serve as a ma­jor driv­ing force for com­mon pros­per­ity.

Ex­pand­ing the mid­dle-in­come group will be no easy task, and the key lies in the third goal of ur­ban­iz­ing mi­grant work­ers so that they too can join the ranks of mid­dle-in­come earn­ers. For this pur­pose, the gov­ern­ment must be true to its pledge of push­ing for­ward land re­form and giv­ing farm­ers more prop­erty rights, and it needs to es­tab­lish a timetable for re­al­iz­ing the ur­ban­iza­tion of mi­grant work­ers by 2020. For in­stance, in a year or two, the gov­ern­ment should in­val­i­date the role res­i­dents’ house­hold reg­is­tra­tions play in giv­ing ac­cess to ba­sic wel­fare and re­place the house­hold reg­is­tra­tion in medium-and small-sized coun­ties and town­ships with a pop­u­la­tion reg­is­tra­tion sys­tem.

In three to five years, large and medium-sized cities, ex­cept for a few ma­jor cities, can fol­low suit, and in five to eight years, the gov­ern­ment can press ahead with com­pre­hen­sive pop­u­la­tion reg­is­tra­tion with a per­sonal iden­tity code as the unique iden­ti­fier. In this sense, the dual ur­ban-ru­ral house­hold reg­is­tra­tion sys­tem can be re­placed by a uni­fied na­tional reg­is­tra­tion sys­tem by 2020.

But wealth dis­tri­bu­tion re­form and the re­al­iza­tion of the afore­men­tioned goals will en­tail a painful process of breach­ing vested in­ter­ests. For in­stance, re­form of the over-reg­u­lated ad­min­is­tra­tive ap­proval sys­tem can ben­e­fit the econ­omy by stim­u­lat­ing the growth of small- and medium-sized busi­nesses and thus boost em­ploy­ment, which will brighten the res­i­den­tial in­come prospects for many. The suc­cess of the re­form, how­ever, is sub­ject to the will of the ad­min­is­tra­tive sec­tors. The new lead­er­ship has vowed to cut the ad­min­is­tra­tive ap­proval items by at least onethird in the com­ing five years, but at­tain­ing this goal will be im­pos­si­ble with­out breach­ing nar­row de­part­men­tal in­ter­ests. Like­wise, en­ti­tling farm­ers to more prop­erty rights, es­pe­cially their rights over farm­land, plays a key role in rais­ing farm­ers’ in­comes, but this will en­counter re­sis­tance as land sales are still a ma­jor source of in­come for lo­cal gov­ern­ment cof­fers.

There is no gain with­out pain. The lead­er­ship must not fal­ter in its re­solve to break the present rel­a­tively fixed wealth dis­tri­bu­tion pat­tern and ad­dress the cur­rently un­bal­anced dis­tri­bu­tion of wealth. Nor should it fal­ter in redefin­ing the gov­ern­ment’s role to be a pub­lic ser­vice provider and let­ting the mar­ket play a de­ci­sive role in the al­lo­ca­tion of re­sources. This is a pre­con­di­tion for build­ing a fair and sus­tain­able mar­ket eco­nomic sys­tem, where mov­ing up the so­cio-eco­nomic lad­der can be a mat­ter of dili­gence and con­stant im­prove­ment of per­sonal skills.

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