Op-Ed Contributors

Prioritizing income distribution

By Chi Fulin (China Daily)
Updated: 2010-12-06 07:16

Narrowing the gap between rich and poor and between sectorsis necessary for the country to achieve sustainable development

At the moment, the issue of income distribution is the focus of attention for much of society. It's a hard nut to crack, especially when transforming the economic development model.

In essence it means changing the development orientation from prioritizing the size of the economy to prioritizing people's incomes.

Even while the size of the economy has been expanding, the consumption rate has been declining. The main causes of this are the continuously widening urban-rural disparities, regional disparities and the polarization of the rich and the poor, all of which have restrained the consumption capacity of the medium and low-income earners.

The income level of urban and rural residents has to be increased as soon as possible. The real growth of urban and rural incomes should not be lower than the GDP growth rate. It should be inclusive growth for all the residents and it should be real growth, not nominal growth. Labor remuneration should be in step with improvements in productivity. In recent years, the share of labor remuneration in GDP has been only about 35 percent after the primary distribution. In the next 10 years, the productivity in our country can be expected to grow by 9 percent every year. Taking inflation into account, the annual growth of labor remuneration should not be lower than 10 percent. So the share of labor remuneration in GDP should grow to be within the range of the labor remuneration of middle-income countries.

However, just increasing incomes is not enough, we must also narrow the income gap between rich and poor if we are to achieve sustainable development.

It is likely that the nominal income gap between urban and rural residents will be reduced from 3.33:1 to 3.1:1 in the 12th Five-Year Plan period. The gap required for an all-round well-off society is 2.5:1.