Road to common prosperity
Policy support, sustained economic growth, improved social security will keep China on track
Asociety of common prosperity should have an oliveshaped social structure in which the middle-income group is the major part of the population. The expansion of this group will not only inject fresh momentum into economic growth, but also lead to high-quality development.
In China, the National Bureau of Statistics in 2018 defined groups with annual household incomes between 100,000 yuan (purchasing power parity $24,202) and 500,000 yuan as middle-income groups.
The middle-income group now accounts for about one-third of China’s total population, up from 1.6 percent in 2002. The proportion remains low, but the absolute number exceeds 400 million — the combined population of Japan, Germany, the United Kingdom, France and Italy.
However, the distribution of the middle-income group is uneven, and most of them are wage-earners. In 2021, 72.8 percent of middleincome people were urban residents, and 55.8 percent from the eastern regions. About 60 percent of those in the middle-income group are selfemployed or employed in the private sector. Thus, stronger policy support for the private sector is required to stabilize and expand the middle income groups.
The proportion of middle-income employees in technology-intensive sectors is relatively high, while the proportion is low in labor-intensive sectors, such as manufacturing, construction and residential services.
But, technology-intensive sectors and monopolistic industries cannot create a large number of jobs.
In the future, the key to achieving common prosperity is to ensure the substantial growth of the sectors that account for a large number of the workforce.
About one-fourth of China’s middle-income group could be characterized as being vulnerable if we define vulnerable groups as those with yearly income of between 100,000 yuan and 120,000 yuan. By this standard, about 42.2 percent of the middle income group in rural areas is vulnerable.
There are several key factors that can affect the expansion of the middle-income group.
First, high growth rates of both the economy and residential income will help expand the middle-income group.
Estimates show that if average residential income’s growth rate can be maintained at 5 percent or above from 2018 to 2035, China will easily double the size of its middle-income group by 2035.
Second, the key to expanding the middle-income group is to bolster the income of low-income groups. The top 40 percent of China’s lowincome group, which accounts for 28.6 percent of the population, have the greatest potential to become the middle-income group in the future. They should therefore be the focus of policies.
Third, there are a series of factors constraining the vulnerable middle-income group and potential middle-income group from growing their income. Most of them have jobs requiring low technical expertise, facing the risk of being replaced at any time. Most of them are self-employed or work in private businesses, a majority of which are small and medium-sized enterprises, making their payrolls unstable. The social security benefits and public services they enjoy are insufficient.
They are also faced with inequality of opportunities in many fields, which restricts their income growth.
As the nation accelerates its shift to a path of high-quality development, it should strive to achieve a growth rate in keeping with its growth potential, thus laying a solid foundation for the expansion of its middle-income group.
The focus should be on improving the human capital of the low-income group, narrowing the gap in levels of human capital between different groups. It is important to promote equal public investments in human capital, enable more balanced allocation of resources for compulsory education, vocational education and higher education, and narrow the gap in infrastructure and services between urban and rural areas and different regions and schools.
The adjustment in income redistribution policies should be stepped up, and greater priority should be given to shoring up the weak links in the access to basic public services for low-income groups. The fiscal expenditure structure should be refined with stronger efforts made to shore up services to low-income groups in areas such as education, medical care and social security.
It is also important to promote and expand policies that allow rural migrant workers to enjoy basic public services such as compulsory education as they migrate to other regions. The children of rural migrant workers should be allowed to receive education based on their residence permits. The channels for connecting the social security and medical insurance of rural residents and those of urban residents should be unblocked, and more rural migrant workers should be allowed to enjoy benefits from affordable housing in urban areas.
It is important to improve the business environment and promote the development of small, mediumsized and micro enterprises and the private sector. Tax incentives and subsidies should be put in place to help smaller firms and self-employed individuals create more jobs. The rights of entrepreneurs, such as property rights, creditor’s rights and equity, should receive better protection. The nation must create an atmosphere where society respects business starters, entrepreneurs and taxpayers.