By EO Editorial Board
Issue 594, Nov 12, 2012
Cover
Translated by Zhu Na
Original article: [Chinese]
The report of the 18th National Congress put forward a goal to double the gross domestic product (GDP) and per capita income of urban and rural residents by 2020.
According to the National Bureau of Statistics, in 2010 per capita disposable income of urban residents was 19,109 yuan and that of rural residents was 5,919 yuan.
According to Li Yang (李扬), vice president of the Chinese Academy of Social Sciences, as long as GDP average annual growth reaches about 7.1 percent and the growth of per capita income is about 7 percent, then the goal should be met.
The goal isn’t surprising. Over the past 30 years, China’s average annual GDP growth has exceeded 9 percent. Even in the aftermath of the global financial crisis the growth rate stayed above 8 percent. Aside from the mere targets though, it appears the central government is sending another signal that deserves attention.
We believe that the goal shows China will seek more efficient growth in the future, and will closely link ordinary people’s practical economic interests with national economic growth.
This is not a small change. In the past we’ve emphasized the country’s overall economic growth. The 16th Party Congress in 2002 aimed to quadruple the GDP by 2020 based on the 2000 level. Then the 17th Party Congress in 2007 set the goal of quadrupling per capita GDP by 2020 based on the 2000 level.
For the income growth of urban and rural residents, neither the 16th nor 17th Party Congresses put forward specific quantitative targets. Although the Fifth Plenary Session of the 17th CPC Central Committee set the goal of synchronizing residents’ income growth with economic development, it didn’t mention any specific targets.
This is the first time that the Party Congress has announced the two goals together. It’s obvious that the central government’s intention is to give consideration to both economic growth and people’s livelihood and social fairness. Over the past three decades China has made great progress in overall economic growth and people’s living standards have also improved greatly. However, the growth rate of national wealth has been much faster than ordinary people’s incomes.
Data shows that from 2002 to 2011, per capita disposable income for both urban and rural residents increased 1.8 fold. During the same period, the growth of fiscal revenue increased 4.49 fold.
China’s Gini coefficient - the indicator of wealth inequality - has already exceeded the 0.4 “warning line” and could now be as high as 0.5. Regional imbalances and the widening gap between rich and poor have created huge challenges for China’s stable economic and social development.
Because of this, allowing the people to enjoy more dividends from economic growth has become a prevailing priority for leaders.
We believe that the goal of doubling the GDP by 2020 is a sure thing. Although China’s economy has entered a mild growth period, as long as external economic factors don’t continue to deteriorate, we should achieve 7 percent annual growth.
In terms of income growth for urban and rural residents, growth reached 9.2 percent and 8.1 percent respectively over the past decade. Continuing this momentum in the future is realistic.
However, that doesn’t mean it will be easy. Leaders apparently are aware that the past method of relying on exports and huge national investment to push economic growth isn’t sustainable.
China’s current population bulge of working age people has boosted production greatly in past decades and seen huge economic gains made through exports. But future manufacturing prospects are less optimistic as this group ages.
Furthermore, the growth driven by investment easily leads to high inflation, which reduces people’s wealth. Given that large projects and funds tend to flow to state-owned enterprises, the distribution of wealth is tilted to the state rather than the private sector. Besides, China’s investment in infrastructure is already very advanced, which has laid a solid logistical foundation for the future development of China’s economy. But it also means there’s less room for investment to drive the economy.
This status quo growth model that relies on exports and investment has limited and decreasing benefits for the people. Therefore, the goal of doubling income depends on speeding up economic reform, breaking up state-owned monopolies and liberalizing the interest rate. It also depends on social reform that focuses on establishing a good social safety net and developing mature social intermediary organizations. And finally, it depends on political reform that focuses on improving government transparency and ensuring ordinary people’s rights and interests.
Only when these reforms make a breakthrough will social wealth have an abundant flow.
