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