Middle-income group vital
- By Zhang Monan
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E-mail China Daily, July 22, 2013
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[By Jiao Haiyang/China.org.cn] |
Moreover, expanding the middle class is closely linked to the structure of the economy. Improvements in productivity are mostly led by capital productivity rather than labor productivity, so in the primary distribution the proportion of capital income in the total income distribution has increased. As capital has a more powerful position than human resources, it actually takes away the income that the rising productivity of labor should get.
That the middle-income group cannot afford to spend is one of the major reasons for the low consumption in China. In fact, the middle-income group in China is only slightly better off than the lower-income group, and most of them have become "mortgage slaves" because of the high costs of housing, education and healthcare bills. For instance, globally, housing accounts for 20 to 30 percent of a middle-income group household's income, and the ratio of housing price to income is around 3 to 6, which means it takes an average person's total wages of three to six years to buy an average dwelling. However, in China the ratio is much higher, and buying a house can sometimes overdraw the wealth earned by three generations.
Therefore, expanding the size of the middle-income group is not only the key for China to become an olive-shaped society, it is also the hinge for upgrading the economy. The government should initiate reform of national income distribution as soon as possible.
It should improve the primary and secondary tax systems, and structurally reduce people's tax burdens in order to realize the goal of adjusting the high-income group, expanding the middle-income group and raising up the lower-income group.
There should also be thorough reform of the housing system. It is necessary to launch a double-track pricing system in the housing market. The purchasing needs of investment and high-end demand should be taken care of by the market, while the government should consider regulating the consumption of self-occupation housing, and there should be reasonable institutional arrangements in land and financial policies to meet different housing needs.
Except for the accumulation of material wealth, the basis for increasing the size of middle class is to pay more attention to human capital. The government should invest more in cultivating human resources, by, for example, increasing the input into education. It is also quite important to establish a social mobility mechanism by reforming the household registration and social insurance systems, which can break the barriers among different income groups. In this sense, expanding the middle-income group is crucial to economic vitality, avoiding the middle-income trap and driving the rise of China as an emerging great power.
The author is the deputy director and associate research fellow of World Economy Study at the Economic Forecast Department of the State Information Center.
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