The ongoing 17th National Congress of the Chinese Communist Party for the first time raised the need to balance equity and efficiency in primary income distribution. Experts inside and outside the Party pointed out that the Party's changing concept aims at curbing the deteriorating distribution situation and bridging the growing gap between the rich and the poor.
President Hu Jintao stated in his keynote speech at the five-yearly meeting, "A proper balance will be struck between efficiency and equity in both primary distribution and redistribution with particular emphasis on equity in redistribution." He also stressed the need to raise the share of work remuneration in primary distribution.
The income distribution policy has been an important item in the reports of the Party's congresses since China adopted its reform and opening-up policies. The main existing principle guiding income distribution in China has been: efficiency in primary distribution and fairness in redistribution.
With the Party turning to emphasize equity also in primary distribution, the income of low-income earners will be expected to increase quickly, according to Lin Yifu, Director of the China Center for Economic Research of Peking University. "This will help to reduce the worrying gap between the rich and the poor," he said.
Lin noted that low-income citizens could only gain wealth via their own labor force while the rich can gain theirs through both their labor force and capital. Increasing the proportion of work remuneration in primary distribution will allow the low incomers to share more achievements brought about by economic development, he said.
"Only when the income of the low income earners increases faster than that of the rich, can the gap be narrowed in China," Lin added.
Wu Zhongmin is a professor in social science with the Party School of the CPC Central Committee. According to him, emphasizing fairness in primary distribution implies that the ordinary people could not only get benefits from redistribution but also their rights in primary distribution are guaranteed.
The growing income gap constitutes a potential threat to the country's future development. A questionnaire conducted on more than 100 prefectural and county officials studying at the Party School in 2006 showed that their answers to the question "Currently, what problems shall be dealt with properly by our nation?" were mostly "the income gap."
Wu Zhongmin remarked, "China's widening income gap has many causes. One of them is the lack of fairness in primary distribution."
"Lack of equity in primary distribution will increase the difficulty of redistribution and further cause serious social problems," Wu said.
Lin Yifu said that the stagnation of development in some Latin American countries had much to do with improper distribution. Those countries failed to ensure efficiency and fairness in primary distribution. As a result, many people lost their jobs and became poor. In order to win the support of the electorates, their governments adopted many high welfare policies in redistribution. Those policies were far beyond their economic development. In turn it caused serious budget deficit and frequent fiscal and financial crises.
The Party Congress' report also claims that by 2020, a reasonable and orderly pattern of income distribution will for the most part be in place with middle income people making up the majority and absolute poverty basically eliminated.
Wu Zhongmin commented that China's consumption demand was low in recent years. One of the important reasons was the insufficient consumption capability of a large proportion of low-income earners.
The head of the Institute of Population and Labor Economics under the Chinese Academy of Social Sciences, Cai Fang, agreed with Mr. Wu. He gave an example: low-income workers tend to have higher consumption expectations. They will buy more goods with increased income to improve their life standard. But if a rich man earns 100,000 yuan each month, an extra 10,000 yuan is less likely to prompt him to buy more goods.
According to Cai, another valuable essence of the report is that the income distribution has been extended from direct income area to social security, public service and the aid to special groups, such as the old-age security, pension insurance and medicare system. Thus both urban and rural residents can benefit from the public services.
"In addition to adjusting income distribution, a lot of other measures such as promotion of employment and entrepreneurship and balanced development of compulsory education can help to improve people's livelihoods in an all-round way," he said.
(China.org.cn by Zhang Ming'ai, October 19, 2007)
