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Three Traps Ahead of the Development of the People's Livelihood

Submit Time:10-12-2015 | Zoom In | Zoom Out

Author:Feng Lei, Zhang Rui | Source:Guangming Daily


The CPC Central Committee has made it a clear target in the "Proposal for the 13th Five-Year Plan" to complete the building of a moderately prosperous society in all respects by 2020. The five conceptions of development, that is, innovative, coordinated, green, open and sharing, are the actualization of the thinking of scientific development. Development should be made for the people, by the people and to the benefit of the people. What institutional arrangements will be established in the next 5 years to enable the entirety of the people to feel reciprocated during the process of joint ans sharing development? What can be done to boost the impetus of development to ensure that the people make steady progress toward common prosperity?

1. Bridge the income gap to cross over "middle-income trap"

[Data] As shown by the national statistics, the gap between the rich and the poor calculated at the annual income is of an inverted "U" shape, indicating that it once expanded but has narrowed in recent years. The figures released by the National Bureau of Statistics show that the Gini coefficient of the national resident income was 0.479 in 2003, 0.473 in 2004, 0.485 in 2005, 0.487 in 2006, 0.484 in 2007 and 0.491 in 2008. And then it gradually declined to 0.473 in 2013 and 0.469 in 2014. These specific figures indicate that the income gap is becoming narrower but not so much.

Those Latin American countries, which did not rid themselves of "the middle-income trap", have an important feature, that is, a widening gap between the rich and the poor.

The next five years will be critical as to whether China walks through "the middle-income trap".

As is planned, China's GDP and the per capita income of urban and rural residents in 2010 will be doubled by 2020. It is estimated by experts according to the two goals of doubling that China's GDP will reach 100 trillion yuan by 2020 and approximate the current economic scale of the United States, and that by then the per capita GDP is expected to exceed 10,000 USD.

The target of 10,000 USD as an important node is often viewed as a mark indicating the successful avoidance of "the middle-income trap". Countries and regions which are internationally recognized successful in avoiding "the middle-income trap" are Japan and "Four Asian Tigers", of which only Japan and South Korea as comparatively large economies achieved successful transition from low-income countries to high-income ones. Japan's per capita GDP came close to 3000 USD in 1972 and went above 10,000 USD in 1984. South Korea's per capita exceeded 3000 USD in 1987 and reached 11469 USD in 1995. It took Japan about 12 years and South Korea 8 years to make the transition from middle-income countries to high-income ones.

By the end of last year, China's GDP reached 63.6 trillion yuan, with shares from Guangdong and Jiangsu Provinces hitting 6 trillion yuan; the per capita GDP nationwide approximated 7485 USD while that in 8 provinces exceeded 10,000 USD. The rest 20-odd provinces, especially provinces in the central and western regions, have to catch up in five years.

For next five years, efforts will be made to further narrow down the income gap between urban and rural residents and increase the proportion of resident income to the primary distribution of national economy. The Proposal for the 13th Five-Year Plan states that efforts will be made to ensure that resident income increases in step with economic growth and work remuneration rises in step with increases in labor productivity.

In addition to the two "in step with", the Proposal for the 13th Five-Year Plan creatively proposes "two determination mechanisms", that is, improving the scientific mechanism for wage level determination and improving the mechanism for market-based evaluation of factor contributions and contribution-based allocation. "The two new mechanisms are of great significance," said Su Hainan, vice-chairman of China Association for Labor Studies. At present, unreasonable income disparities are found between urban and rural residents, between different regions, different sectors and even inside and outside the public system. And the key to narrow down income gap is to promote a systematic reform and better coordinate economic and social policies.

"Some economic policies per se assume a social role while some are destined to bring about economic results. An economic policy to break the monopoly, for example, is conducive to narrowing the pay gap between sectors, while a policy intended to eliminate identity discrimination is favorable to ensuring and raising the income of rural migrant workers." Su Hainan said that it is therefore necessary to make growing efforts to coordinate economic and social policies and incorporate the reform of income allocation systems into the general plan of local economic and social development.

2. Narrow urban-rural and regional disparities to help people out of "the poverty trap"

[Data] From 1978 to 2014, China has seen an accumulative reduction of more than 700 million people living in poverty. In recent two years, nearly 30 million people were lifted out of poverty. As the goal of completing the building of a moderately prosperous society in all respects by 2020 is drawing near, poverty reduction and alleviation are put to the test. In light of the statistics of the National Bureau of Statistics, more than 70.17 million people in rural areas nationwide are still living below the poverty line (with daily income less than 1 USD), accounting for 7.2% of the total rural residents. Of those, poverty-stricken people in Henan, Hunan, Guangxi, Sichuan, Guizhou and Yunnan Provinces all exceed 5 million. Across the country, there are more than 200,000 people without access to electricity, thousands of households without access to "clean" drinkable water, and 77,000 villages without passenger transport. People who are sent into poverty by illnesses account for more than 40% of the total poverty-stricken population.

As is explained by the theory of development economics, poverty trap refers to the vicious cycle in economy out of which a developing country is hard to lift itself when stuck in it. Poverty trap can be categorized into two: technological and population traps. Because of poverty, many people are deprived of opportunities to receive good education, and human capital degrades as a result. The lack of material capital input dismisses many chances for upward development.

How to lift 70.17 million poverty-stricken people out of difficult situations is an important test for upcoming five years. Poverty does not mean a living standard, both materially and spiritually, lower than the basic standards, but also the deprivation of opportunities.

The Proposals for the 13th Five-Year Plan makes it clear to require common participation, common efforts and common sharing in development, stand fast in baselines, give prominence to focus points, improve institutions, guide public expectations, stress fairness of opportunities, guarantee basic livelihoods, and bring the entirety of the people towards a comprehensive moderately prosperous society. It also stresses that efforts are made to take targeted measures to help people lift themselves out of poverty and explore a system that offers support to asset proceeds of the poor population, which is of far-reaching significance.

As shown by statistics 2014, the per capita GDP of Shanghai reached 15843 USD while that of Qinghai and Guizhou was respectively 6390.9 USD and 4213 USD, less than half of and one-third of that of Shanghai.

The key is to reduce the regional disparity in public service. Studies by Research Academy of China Development Bank show that there are comparatively large disparities in infrastructure areas between different regions, and that in 2013, the highway network density in Shandong, Shanghai, Henan, Chongqing and Jiangsu reached 140 kilometers / 100 while that in Xizang and Qinghai was less than one-tenth of those developed regions. The railway network density in Beijing, Tianjin and Shanghai has exceeded 5 kilometers / 100, almost equivalent to that in the EU. The railway network density in Xinjiang, Qinghai and Tibet, however, is merely 0.29, 0.26 and 0.04 kilometers / 100

In addition, the R&D expenditure, which is an important indicator to measure regional innovation strength and development potential, reached 837.06 billion yuan in the eastern regions, 205.56 billion yuan in the central regions and 142.05 billion yuan in the western regions by 2013.

Urban-rural and regional disparities have to be narrowed down before poor people are lifted out of the “poverty trap” and a moderately prosperous society in its real sense is built. To this end, public finance needs to be used for "public purposes" with growing efforts. Transfer payments to the western regions by the central government budget from 2000 to 2012 amounted to 8.5 trillion yuan, accounting for about 40% of the national total. A steady increase in transfer payments from the central government budget to the central and western regions was registered in 2013 and 2014. And the Proposals for the 13th Five-Year Plan further points out that efforts will be made to raise the join construction capacities for public service and the sharing level, and increase transfer payments to old revolutionary regions, ethnic minority regions, border regions and poor regions. That is of great significance to the drive to bolster the weak spots and promote balanced development.

3. Narrow down the gap in public service to avoid "the welfare trap"

[Data] According to incomplete statistics, the minimum wage standards for 2015 have been scaled up in at least 23 regions this year, and the number of regions where the minimum wage standards are so adjusted this year has topped the number for last full year. Shenzhen and Shanghai, in particular, have raised their minimum standards above 2000 yuan and respectively to 2030 yuan and 2020 yuan, while the highest minimum hourly wage is 18.7 yuan, still in Beijing. The minimum monthly wage in the first-class regions of Guizhou Province has grown to 1600 yuan while that in Jiangxi Province to 1530 yuan.

Although there remains greater downward pressure on economy this year, the number of regions where the minimum wage standards are scaled up increases and overtakes the number for last year, indicating that more attention is paid to the people's livelihood in all regions.

Currently, at least 13 provinces have announced their programs of reform on the dual system of pension, which make a detailed arrangement of pension payment for the transitional period, with the lower guaranteed and the higher capped. Up to the end of September, 6.85 million units of government-subsidized housing came under construction and 6.25 million units have been basically completed, respectively accounting for 92% and 130% of the annual targets. At present a total of 39.15 million units of government-subsidized housing have started construction, surpassing the targets set forth by the 12th Five-Year Plan.

Growing efforts will be made to guarantee the people's livelihood for upcoming five years. It is clearly stated in the Proposals for the 13th Five-Year Plan that efforts will be made to extend financial aid to all economically poor students, raise the remuneration of technical personnel, improve the mechanism for the minimum wage growth, and comprehensively implement insurance structures for major illnesses among the urban and rural population, which are all threaded by the scientific concept of "shared development".

"In particular, the Proposals for the 13th Five-Year Plan points out that efforts will be made to establish a more equitable and more sustainable social security system'. And the two "more" are highly relevant." Su Hainan points out based on his analysis that, in view of the comparatively large income gap still in existence, "more equitable" of the two "more" is relevant with the current problems we are facing, while "more sustainable" is representative of scientific development ideas. That means efforts will be made to raise the level of social security on the one hand and to avoid the "welfare trap" on the other hand by doing things according to our financial capabilities.

For one thing, prominent problems are found with education, medical care and housing, and it is imperative to raise the lower level of the people's livelihood. For another thing, equal importance should be attached to the current stage of development and actual capacities while the government responsibilities are stressed. The expenditures on social security in European countries account for 30% or so of their GDP, but for some of them, the expenditures amount to nearly 50% of their GDP. In the period of rapid economic growth, such a social security system offering care "from cradle to grave" can improve the life quality of residents. When there appears economic slowdown, such expenditures will outweigh the financial budget and force the government to leverage high welfare from time to time, which in turn may give birth to sovereign debt crises. The core of governance for all countries in the world is to improve the people's livelihood, which concerns people's support, national stability and social development. But the people's livelihood should be guaranteed and improved on the basis of the economic development and the national situations, and it should be done in a step-by-step manner.

It is noteworthy that the Proposals for the 13th Five-Year Plan sets a new goal, that is, completing the building of a moderately prosperous society in all respects. In particular, the target, that is, "efforts will be made to double 2010 GDP and the per capita income for both urban and rural residents by 2020", is prefixed by "on the basis of making China's development much more balanced, coordinated and sustainable", which is of profound implication.

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