Expanding middle-income earners key to long-term growth

Policy support

Regardless of naturally restraining factors, how can policies be better implemented to promote social mobility and as a result help drive momentum?

First, the government should keep promoting social mobility by deepening reforms and institutional building. At the current stage of development and at a time when the nation faces disruptions from the COVID-19 pandemic and external uncertainties, policymakers should carry out reforms that will clearly bring about increasing returns and lead to the removal of various institutional obstacles that hinder economic growth, income growth and social mobility.

With the goal of basically achieving socialist modernization by 2035, China in the next 13 years will be at an important period where its each step of deepening reform of the economic system, adjusting social policies and promoting system construction is crucial to the nation's prospects. China is also trying to lift its per capita GDP from the $12,000 level to $23,000, which has already been achieved in developed nations. Accordingly, the level of social mobility that the nation is supposed to achieve should also be lifted to the developed stage. Specifically, primary distribution, redistribution and tertiary distribution, in addition to playing their respective roles in the economic system, should be well integrated and function as a whole to promote social mobility.

Second, China should, on one hand, continue to promote its new-type urbanization, and at the same time promote the transfer of additional rural labor to urban areas. Meanwhile, the country should facilitate its urban registration for rural migrant workers to expand the middle-income group.

In this way, reform dividends can be created from both supply and demand sides. From the supply side, it is possible to increase the supply of nonagricultural labor, increase the labor participation rate and promote the reallocation of resources to increase productivity, all of which can increase the economic growth rate. From the demand side, by increasing residential incomes, narrowing the income gap and alleviating socioeconomic worries, consumption can be expanded so as to unleash the true market potential that China possesses.

Redistribution should be intensified while government social spending should be expanded. By observing figures of reference nations, one can find that along with increases in per capita incomes and per capita GDP, government spending — especially government social spending — will also make up a larger proportion in the GDP, thus reflecting its role in effectively driving growth. Following this, the government should also further expand social spending as a key way to upgrade the redistribution system, boost public services and improve people's livelihood.

Last but not least, tertiary distribution should be gradually enhanced as an important supplement to primary distribution and redistribution so as to involve more individuals, enterprises and industries. Also, as a means of resource reallocation, tertiary distribution will undoubtedly lead to more achievements by both individuals and enterprises in more fields. Promotion of such distribution can be done via sectors such as philanthropy, volunteer activities, corporate social responsibility and more.

The writer is the chief expert of the National High-end Think Tank at the Chinese Academy of Social Sciences. The article is an op-ed by the writer for the China Finance 40 Forum, a think tank.

The views don't necessarily reflect those of China Daily.