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Central Economic Work Conference pri- oritized expanding the proportion of middle-income earners as one of three major forces to boost domestic demand, once again signaling the central government’s high-profile drive to reform income distribution. Increasing the proportion of middle-income earners will be the focus of income distribution reform. Experts said raising migrant workers’ income will be essential to expand the proportion of middle-income earners.
In face of complex and volatile international political and economic environment and changing domestic situation, the Central Economic Work Conference pointed out we must firmly hold on to the strategy of expanding domestic demand, focus more efforts on protecting and improving people’s livelihood, accelerate the development of service industry, increase the proportion of middle-income earners.
Low proportion
In recent years, the Central government has on several occasions promised to boost the proportion of middle-income earners. CPC General Secretary Hu Jintao stressed the urgency to "accelerate the adjustment of income distribution struc- ture" and build a "spindle" society. Premier Wen Jiabao also published an article on "Qiu Shi" magazine committing to "a gradual formation of an ’oval-shaped’ distribution pattern with middle-income groups accounting for the majority."
"Spindle" or "oval" structure is especially important for social stability and expansion of domestic demand, but in reality, the proportion of middle-income earners has been kept at a low level, there is a limit to what the government measures can achieve.
Middle-income group mainly refers to the collection of individuals and families whose income falls into the middle range within a certain period of time. Currently, China has no uniform or generally accepted methods and standards to define middleincome earners. Deputy Director of Institute of Fiscal Science, Liu Shangxi was quoted by "Di Yi Cai Jing" as saying the so-called middle-income concept is a median, rather than an average, it will be changing with per capita GDP.
Regardless of the criteria, the conclusion is the same, that is, the proportion of Chinese middleincome earners is significantly lower than the average level. Some research has even showed an apparent downward trend in China’s middle-income groups in recent years. Income distribution in China is showing a clear tendency towards polarization. The middle-income group has continuously seen their wealth shrinking, with high and low income groups expanded significantly. Middle-income groups fluctuate a lot, showing an overall downward trend in their proportion of total population.
The expansion problem
The middle-income group has the following features: First, higher level of education. With more education received, they tend to find more stable jobs with relatively high incomes. The second is urbanization. Urbanization is not only the intrinsic driving force for China’s economic growth, but also the process of wealth accumulation. In terms of population distribution, middle-income groups mainly concentrate in cities and towns. Third, More financial assets. Middle-income groups usually invest in housing, stocks, funds and other financial products.
Low-income people tend to consume more, but mainly focus on basic items, such as food and clothing, failing to take on the leading role in creating sufficient demand. On the other hand, middle-income consumers focus on more expensive items, such as durable goods, cars, culture and entertainment, with much greater power in fueling the overall economy and upgrading consumption structure.
Currently, there are several factors constraining middleincome group’s ability to consume: First, less stability in employment. Many middle-income people are employed by big companies. In the context of economic slowdown, some companies are beginning to lay off or downsize their work force, which in turn impact middle-income group’s confidence in consumption and cut their expenditure as a result. Second, the declining income generated from asset investment. Currently, property sector and stock market have hit a downturn, with declining income generated from asset investment, consumption by this group will also fall. Third, interest burden from the housing loan also has a squeeze-out effect on their spending. Most middle-income earners purchased their apartments with loans, to pay their debt on a monthly base, these people will be more cautious and budget-conscious to save money.
Liu Shangxi said, in order to turn more low-income earners into middle-income earners, we must rely on the improvement of human capital, which means improving worker’s capacity to land employment and launch their own business. This is very important for those migrant workers who account for the major part of low-income groups. To become middle-income earners, Migrant workers have to receive continuous training to become mid-level technicians. Government needs to put more investment into the public employment services, vocational training, and encourage people to start their own business to develop grass-root economy.
Central Economic Work Conference also proposed to adhere to a more active employment policy next year, provide jobs through multiply channels, enhance employment service, support labor-intensive industries and small enterprises.
"The government must consider the introduction of effective measures that will enable the second generation of migrant workers to settle in the city, provide them with medical care, social security, children’s education among other public benefits, so they are likely to become middle-income earners, unlike their predecessors who used to do temporary jobs and found it hard to become middle-income earners.”Liu Shangxi said.
Central Economic Work Conference also noticed this problem and proposed to attach more importance to living and working conditions of migrant workers, help them find a gradual solution in terms of employment, housing, medical care, children’s schooling as well as other problems, allow qualified migrant workers to settle in the city in an orderly manner.