Narrowing the gap between rich and poor and between sectorsis necessary for the country to achieve sustainable development

At the moment, the issue of income distribution is the focus of attention for much of society. It's a hard nut to crack, especially when transforming the economic development model.

In essence it means changing the development orientation from prioritizing the size of the economy to prioritizing people's incomes.

Even while the size of the economy has been expanding, the consumption rate has been declining. The main causes of this are the continuously widening urban-rural disparities, regional disparities and the polarization of the rich and the poor, all of which have restrained the consumption capacity of the medium and low-income earners.

The income level of urban and rural residents has to be increased as soon as possible. The real growth of urban and rural incomes should not be lower than the GDP growth rate. It should be inclusive growth for all the residents and it should be real growth, not nominal growth. Labor remuneration should be in step with improvements in productivity. In recent years, the share of labor remuneration in GDP has been only about 35 percent after the primary distribution. In the next 10 years, the productivity in our country can be expected to grow by 9 percent every year. Taking inflation into account, the annual growth of labor remuneration should not be lower than 10 percent. So the share of labor remuneration in GDP should grow to be within the range of the labor remuneration of middle-income countries.

However, just increasing incomes is not enough, we must also narrow the income gap between rich and poor if we are to achieve sustainable development.

It is likely that the nominal income gap between urban and rural residents will be reduced from 3.33:1 to 3.1:1 in the 12th Five-Year Plan period. The gap required for an all-round well-off society is 2.5:1.

Controlling the income gap between sectors is also necessary. According to statistics issued by the National Bureau of Statistics, the highest income was 11 times the lowest income across sectors. The extraordinarily high incomes of monopolistic sectors should be regulated to narrow the gap between the highest income and lowest one to seven times. The key to upgrading the consumption of urban and rural residents lies in the formation of an equitable and rational national income distribution pattern.

According to international experience, 40 to 45 percent of the population will constitute the middle-income group in the later stages of industrialization. In China the middle-income group currently accounts for about 23 percent of the population, which shows that the development of the middle-income group lags behind the industrialization process.

Enabling 2 percent of the population to become middle-income earners every year means that in five years time they will account for 33 percent of the population. By 2020, this group will be 40 percent of the population, and closer to the level of middle-income countries.

In the forthcoming five-year plan period, it should be a priority to establish transparency. For example, "sunlight wages" should be promoted in sectors where gray income exists. On the basis of rationalizing wage standards, all sorts of subsides and allowances should be sorted out and regulated to improve the transparency of income.

Property rights also need to be better protected. This is not only a basic requirement, but also a basic guarantee that residents' property income will increase. The widening of the urban-rural income gap is largely due to the unsound rural land and property rights.

It is proposed that reform of the property rights system should be deepened in accordance with the Property Law. Protecting private property rights should be further strengthened in the whole legal system. And private property rights should be included in the basic rights of citizens so as to strengthen their protection. Administrative legislation in this regard should be further strengthened and implemented. Related provisions and regulations affecting the protection of private property rights such as the Regulations on Demolition and Removal of Urban Houses should be sorted out, amended and regulated. Related laws and institutions concerning requisition of private property should be streamlined and principles and procedures for requisition of private property should be further re-enforced.

More efforts should be made to establish legalized property declaration institutions and a multi-layered system of supervision should be developed.

The author is the director of Hainan-based China Institute for Reform and Development.

(China Daily 12/06/2010 page8)