Making more people wealthy

By Chi Fulin (China Daily)
Updated: 2011-01-20 07:56
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Income distribution, tax readjustment and fiscal expenditure can all facilitate growth and bridge gaps in next five years

The transformation of China's economic development mode will in essence realize a transformation from prioritizing the size of the national economy to prioritizing a moderately prosperous society in an all round way and providing an equitable and sustainable development path.

In recent years, China's economic growth has kept expanding rapidly, while domestic consumption has been continuously declining.

The main reasons for this are the continuously widening urban-rural disparities, regional disparities and the widening income gap between the rich and the poor, all of which restrained the consumption capacity of medium and low-income earners.

The sluggish growth of the consumption capacity among middle and low-income groups and their reluctance to consume have led to insufficient domestic demand. As a result, the whole economy has depended a great deal on exports and investment to be the driving force and the rich-poor income gap has continually widened.

A development mode that allows all Chinese residents to prosper will need to raise domestic consumption. Under such a development orientation, it is an important policy target for the government to increase people's incomes and distribute more social services to people.

The essence of this mode is reforms that establish an institutional foundation to distribute the country's wealth to more people.

A basic requirement for such a system is that people's incomes grow moderately faster than the country's economy and that middle and low-income groups have a moderately faster income growth rate than the high-income group.

This will speed up the transfer of the country's wealth to ordinary people and greatly increase their consumption capacity and inclination to spend.

If people's consumption rate increases from the current 35.6 percent to more than 50 percent over the next five to 10 years, or by an annual average growth of two to three percentage points, domestic consumption will become the main driving force of national economic growth.

Reforms that prioritize increasing rural people's incomes will be a major step toward improving social fairness and building a harmonious society.

An equitable and reasonable national income distribution pattern should be established to bridge the income divide between urban and rural areas.

To smoothly push forward people-prioritized reforms, the long-standing urban-rural dual structure in social and economic development should be broken to promote fair and balanced development between urban and rural areas.

In addition, the current unreasonable "same labor with different remuneration" income arrangement between urban- and rural-sourced workers should be discarded for the sake of equal development of the country's labor market.

To expedite these reforms, an overall income distribution reform program should be worked out as soon as possible, a move also indispensable to stepping up the transformation of the country's long-controversial economic development model.

To this end, reforms of the country's fiscal and taxation system should be accelerated. The prevalent fiscal and taxation system has long prioritized the development of the size of the economy and proven to be the main obstacle to the transformation of the economic growth model.

The country's fiscal revenues and expenditure structures should be overhauled to incorporate the monies produced by State-owned assets and land transfer fees into the government fiscal budget to form a standardized and unified fiscal budgetary system across the country.

At the same time, a structural tax reduction policy should be adopted to reduce the ratio of enterprises' production taxes and change the unreasonable personal income tax.

The proportion of economic construction and administrative management costs should be lowered by a large margin and the ratio of spending on public services should be increased.

The government must try to achieve a breakthrough in the push for its functional transformation from an investment and production-dominated to a consumption and services-dominated one.

Deng Xiaoping once said: "We should allow some people to get rich first, and the rest will follow."

It's time for the rest to follow.

The author is the director of Hainan-based China Institute for Reform and Development.

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