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In his report to the 16th Party congress, Jiang Zemin, former general secretary of the Communist Party of China, proposed for the first time that the proportion of middle-income earners in China be increased.
The report to the congress was widely considered as crucial to the Party leadership transition. There are many important points in the report.
Among them, the call to increase the proportion of middle-income earners in China is definitely a key issue.
In the short run, it could help cultivate a stable consumer group to promote the economy and soften social contradictions.
In the long run, it will push the construction and completion of a social structure suitable to China's modernization. It will also fuel China's democratic development.
About 20 years ago, Deng Xiaoping, the launcher of China's reform, asked that some people be allowed to become rich before the rest of the population.
Now some Chinese have become rich but wealth has not reached the majority.
Farmers live in the lowest stratum of Chinese society, and the disparity between urban and rural residents has further expanded since the early 1990s. In 1978, the per capita annual income of urban residents was 2.57 times that of people in rural regions but the disparity dwindled to 2.2 times thanks to rural reform.
But, in 2001, the average annual income of urban residents was 6,859.60 yuan (US$828.70), 2.9 times the figure in rural regions, which was 2,366.4 yuan (US$285.90).
The actual gap might be bigger, since urban residents enjoy many government subsidies in education, medical treatment and public facilities. Some economists estimate that the actual income of urban residents is six times that of rural residents.
On the other hand, more and more urban jobless adults also suffered slow income growth, even more so than farmers.
Some Chinese have become rich but the population remains predominantly poor.
Farmers make up 64 per cent of the Chinese population, while 45 per cent of the urban population is classified as having a low income (less than 200 yuan or US$24 a month). Taken together, these two groups number nearly 1 billion.
Urban middle-income earners currently make up about 20 per cent of the urban population.
As a result, income disparity on the Chinese mainland has surpassed the levels in many other countries and regions. The National Bureau of Statistics has shown that China's Gini coefficient last year surpassed 0.4, a dangerous level of income disparity.
Therefore, when some Chinese billionaires are listed among the world's richest people by the United States magazine Forbes, the vast number of low-income residents felt quite infuriated at these individuals' huge wealth.
If the government does not implement effective policies, the income disparity will expand further, which might lead to serious social crises.
On that crucial point, Jiang's report proposed increasing the percentage of middle-income earners. Middle-income earners, due to their natural conservative tendencies, will be the most powerful social stratum to counteract social crises.
If the Party sticks to its consistent policy of prioritizing social stability, the expansion of the proportion of middle-income earners and the raising of the revenue of low-income earners will be quite urgent tasks.
The call in Jiang's report to the 16th National Congress of the Communist Party of China is also very likely to result in many specific policies to fulfil the goal of expanding the proportion of middle-income earners.
When the middle-income group becomes stronger, it will greatly stimulate the economy, especially when the Chinese economy is entering a new round of expansion.
The new round of economic expansion features rising consumption in the housing, car and travel sectors.
Middle-income earners could become the major consumer group for such purchases. They will play an important role in the policy to stimulate internal demand.
In the long run, increasing the proportion of middle-income earners is also quite significant.
When Lee Kuan Yew, former prime minister of Singapore, was elected in 1959, he was quite puzzled by the lack of a stable economy and what he saw as people's insufficient patriotism. But soon he found that the only way to solve the problem was to expand the income of the majority of the population and make them middle-income earners, or middle class. The strengthening of that group eventually made Singapore a prosperous country.
Lee's policy was anticipated 2,000 years ago by classical philosophers.
The Greek sage Aristotle (384 BC to 322 BC) used to say that a weak middle class was the origin of political instability. When there is not a large enough middle-class population, the nation will be divided into the rich and the poor. The two groups were natural enemies.
But, with a strong middle class, which would seek to solve contradictions in peaceful ways, democracy will naturally expand because democracy is a system of expressing one's interests through peaceful consultations.
The same thing will also happen in China.
But how can a strong middle class be cultivated? The most important thing is to protect ownership of private property because the middle class most needs such protection. Rich people can seek to ally themselves with politicians to protect their interests, while the poor have no property to be protected.
China's constitution does not yet have an article saying that private property is inviolable.
Another important measure is to increase public education so that more and more people can develop the skills required to get richer.
In particular, China should abandon its permanent residence registration system (hukou) and encourage more farmers to seek jobs in cities and live there. The 12-year compulsory education should be implemented more widely, and the development of the private economy must be further supported.
Only through these measures can Jiang's proposal to expand the proportion of middle-income earners really implemented.
Zhao Xiao is director of the macroeconomics department of the Economic Research Centre under the State Economic and Trade Commission.
(Business Weekly December 4, 2002)
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