Source: Guangming Daily

It is the spirit of Xi Jinping Thought on Socialism with Chinese Characteristics in the new era to; commit to a people-centered approach; regard as our goal the people's aspirations to live a better life; see that all our people have a greater sense of fulfillment as they contribute to and gain from development; and continue to promote well-rounded human development and common prosperity for everyone. The spirit is reflected in the basic policy that underpins our endeavors to uphold and develop socialism with Chinese characteristics in the new era, and is the key to solving the problems caused by unbalanced and inadequate development. Just as many other issues related to the people’s livelihood, improving people’s income is also the most pressing, most immediate issue of greatest concern to the people, as well as the work that requires our persistent efforts in response to the evolution of the principal contradiction in Chinese society. The 19th National Congress of the CPC puts improving the people’s income in a prominent position, sets clear goals, deploys practicable strategies and proposes effective measures.

The report delivered at the 19th National Congress of the CPC makes improving people’s income an important approach to ultimately achieving common prosperity for everyone

China has seen extensive support and participation from the public during its efforts to create the development miracle over the past decade. That’s fundamentally because the reform and opening-up have led to significant improvements in both national strength and people’s living standards. Since the 18th National Congress of the CPC, in particular, a package of policies related to people’s livelihood have been promulgated and implemented, benefiting the people’s lives and giving people a stronger sense of fulfillment. When mentioning the economic and social achievements China has made since the 18th National Congress of the CPC, we often cite the verse that “the landscape here is beyond compare”. It’s “beyond compare” not only because China’s economy has maintained a medium-to-high growth that’s incomparable to other countries, but also because the people have actually benefited from the reform and opening-up. By contrast, many countries throughout the world see either stagnation in development or the failure to share the benefits of economic growth and technological progress in an extensive and equal manner, which are important reasons that aggravate the economic or political contradictions in some countries or regions.

With the continued and fast economic and social development in China, people show diversified and multi-layered demand for life and increasingly aspire to a better life. But China remains a developing country, and is an upper middle-income country internally by per capita GDP. The 19th National Congress of the CPC summarized the principal contradiction facing Chinese society in the new era as that between unbalanced and inadequate development and the people's ever-growing needs for a better life. It also proposed the goal of improving the people’s income, made it an important part of the efforts to achieve common prosperity for everyone, and made comprehensive strategic deployment.

One detailed objective set by the 18th National Congress of the CPC was that by 2020, China’s GDP and average income of urban and rural residents will respectively double those in 2010. With the objective expected to come true, the 19th National Congress of the CPC, when mentioning finishing the building of a moderately prosperous society in all respects in 2020, proposed to “enable people to lead a better quality of life”. That is an objective with richer connotation than that about doubling the income.

The 19th National Congress of the CPC defined a two-step approach for the fulfillment of the second centenary goal after finishing building a moderately prosperous society in all respects by 2020, i.e. basically realizing socialist modernization by 2035 and building China into a great modern socialist country by the middle of the century. The report described the first-step objectives this way: “People are leading more comfortable lives, and the size of the middle-income group has grown considerably. Disparities in urban-rural development, in development between regions, and in living standards are significantly reduced; equitable access to basic public services is basically ensured; and solid progress has been made toward prosperity for everyone”. The report described the second-step objectives this way: By the middle of the century when China is built into a great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful, “common prosperity for everyone is basically achieved, and the Chinese people enjoy happier, safer, and healthier lives.”

It’s noteworthy that the 19th National Congress of the CPC didn’t set any GDP growth or doubling objectives for the two-step approach. That certainly reflects that China’s economy enters a new normal when high growth is less likely and underlines the need to change the view on political achievements that puts lopsided stress on high growth speed. Most importantly, the move matches the grand goal more directly with the purpose of development, highlights improving people’s income and living standards, centers on ensuring and improving people’s livelihood amid development and aims to make all the people have a more equitable access to more outcomes of China’s reform and development. Only in that way can the building of a moderate prosperous society be recognized by the people and stand the test of history.

The report delivered at the 19th National Congress of the CPC stresses improving the people’s income in step with economic development and in tandem with increases in labor productivity

The report delivered at the 19th National Congress of the CPC pointed out that we will work to see that individual incomes grow in step with economic development, and pay rises in tandem with increases in labor productivity. The descriptions enrich the meaning of “in step with economic development” and “in step with improvement in labor productivity” previously proposed. This explicitly stresses that we shall not only prevent the situations in which income growth falls behind economic growth or pay rise lags behind increases in labor productivity, but also avoid the opposite situations in which income outgrows the economy and pay outpaces labor productivity, as that will cause income growth and pay rises that are unsustainable.

During China’s reform and opening-up, with the fast development of the economy, the income of both urban and rural residents experienced unprecedented growth which were supported by improvements in labor productivity. Since 1978, China’s GDP has increased by 29 times, and the per capita GDP has risen by 20 times. At the same time, the standards of consumption in urban and rural areas have improved by 16 times, and labor productivity (average GDP created by every laborer) increased by 16.7 times. In different periods, however, the increases in labor productivity are not completely aligned with pay and income rises, which causes varying income distribution results.

For example, in 1990s and the first decade of the 21st century, the rises in pay and residential income, particularly the rise in rural resident income, lagged behind the improvement in labor productivity. That caused the widening gap between urban and rural income, a rising Gini coefficient in residential income, a declining proportion of pay to national income and some other results adverse to the improvements in income distribution. After that, the income of urban and rural residents grew in step with labor productivity, and some groups even saw their income outgrow labor productivity. Correspondingly, income distribution improved, too. In 2016, the gap between urban and rural income narrowed to 2.36, and the Gini coefficient fell to 0.465.

During the process of securing a decisive victory in building a moderately prosperous society in all respects and embarking on a journey to fully build a modern socialist China, improving people’s income in step with economic development and in tandem with increases in labor productivity is not only an important part of the focus on coordinated and shared development, but also a practical requirement for maintaining sustainable economic growth.

First, we shall expand the domestic demand supported by residential consumption. Steady income growth that’s in step with and in tandem with economic growth and constant improvements in social security serve as the basic guarantee for improving people’s living standards and expanding residential demand for consumption. On one hand, that helps foster new demand that drives economic growth and achieves dynamic balance between supply and demand at a higher level. On the other hand, that helps bring into play the fundamental role of residential consumption, reduce the excessive dependence of economic growth on export and investment, and realize balance among consumption, export, and investment.

Second, we shall work to move the national economy from a stage characterized by fast growth to one featuring high quality. The consumer demand based on constantly increased income can provide signals and impetus to improving the quality of the supply system and expanding quality supply. To build a modern economic system, we need to let the market play a decisive role in resources allocation and give better play to the role of governments. The diversified consumer demand arising from improved income needs to be reflected through concrete price signals, and that is further translated into the market impetus for supply-side industrial restructuring and product quality improvements.

Finally, we shall build income increase and pay rise on a stronger and more sustainable foundation. Unit labor cost is one of the indicators reflecting the industrial competitiveness of a country. It’s proportional to pay and inversely proportional to labor productivity. That is, if pay rises faster than labor productivity, that will cause unit labor cost to increase and thus reduce the international competitiveness of the industry. As a result, pay rise will be checked by the overly fast decline of economic growth and reduction of jobs, which makes it hard to sustain income growth. As the pay for unskilled laborers rises faster than labor productivity, China’s manufacturing industry saw a 25.8% surge in unit labor cost during 2011-2014, compared with little changes in the unit labor cost in other major manufacturers like Germany, Japan, US and South Korea. That led to a decline in the comparative advantages of China’s manufacturing, which is adverse to both economic growth and income growth.

Main approaches the 19th National Congress of the CPC deployed to improve people’s income

It’s the responsibility of the government to ensure and improve people’s livelihood and increase people’s income. The government must not only deploy policies in its capacity, but also fully stimulate the people to make their own efforts, and work to see that everyone performs their duties and shares the benefits on the platform of public policies. Only through concerted efforts from top to bottom and forming an effective policy system at the macro level and an incentive mechanism at the micro level that helps improve residential income can we achieve the goals set in the 19th National Congress of the CPC and meet the urgent expectation of the people.

First, we must make promoting employment the biggest move to improve the people’s livelihood. As economic development enters a new normal, the issue about employment shows new characteristics. That is, while the quantity contradiction tends to ease, conflicting and structural contradictions become increasingly prominent, and it’s more challenging to improve the quality of employment. The key to removing the conflicting contradiction is to improve the mechanism of the labor market and enhance the alignment between the supply and demand of labor. The key to solving the structural contradiction is to improve the skills of laborers and make human capital endowment more adaptive to the transformation of the mode of economic growth and the upgrading of the industrial structure. The key to improving the quality of employment lies in the establishment and improvement of the systems in the labor market and the formation of harmonious labor relations. The government shall shift its focus from policies aimed to promote economic growth and create more jobs to improving the alignment in the labor market and the quality of employment and to providing comprehensive public employment services.

Second, we must make improving labor productivity the fundamental means to increase income. After outpacing labor productivity for some time, the increase in the income of both urban and rural residents has slightly slowed down over the past 1-2 years as pay rises faster than labor productivity. To fulfill the objective of income doubling by 2020 and even higher objectives about sustainable income increases in the longer term, we must further improve labor productivity. There are generally three approaches to improving labor productivity. First, we can replace labor with capital, i.e., replacing human labor with machines or robots. The process needs to be matched with the improvement in the quality of laborers, or there might be undesirable results like the decline in capital return or employment repulsion. Second, we can improve the total factor productivity as a part of labor productivity. The report delivered at the 19th National Congress of the CPC called for improving the total factor productivity, which was the first time the Party did so at a national congress. Third, we can improve the quality of human capital. That is the precondition and important guarantee for replacing labor with capital and improving the total factor productivity.

Third, we must make expanding the middle-income group the focus of improving the people’s income. After realizing the goal of lifting the rural people below China’s current poverty line out of poverty by 2020, the key to ensuring the constant improvements in people’s income is to sustain the increase in the income of the group. The report delivered at the 19th National Congress of the CPC proposed for the first time to remove the institutional weaknesses hindering the flows of laborers and talents. That involves efforts in three aspects: First, we must maintain the momentum of the horizontal flows of laborers and allow them to flow from the regions, urban and rural areas, industries and enterprises with lower productivity to those with higher productivity. That will increase individual and family income at the micro level, and improve labor productivity at the macro level; second, the government shall create sound policy environment and public service platforms to promote the vertical flows among laborers, give everyone the opportunity to achieve self-development and change social identities through hard work, and thus stop the intergeneration transmission of poverty; third, we must deepen reforms in relevant fields, and eliminate the institutional obstacles hampering the horizontal and vertical flows of laborers.

Finally, we must make performing the function of redistribution the focus of increasing the people’s income. Both international experience and China’s reality show that to improve the income of all the people, how to distribute the cake is as important as how to make the cake big. During distribution of the cake, initial distribution is as important as redistribution and both require the government to perform a series of indispensable functions. In initial distribution, the government shall work to create the policy environment to make everyone have equal access to training, jobs and public services. In redistribution, the government shall resort to reforms and legal means, and reasonably adjust the order of income distribution and the results of initial distribution, assume the cost of institutional reforms and restructuring and protect the rights and interests of disadvantaged groups in the labor market through taxation, labor-related legislation and law enforcement, transfer payment, social security and supply of other basic public services.

(The author is the Vice President of CASS and a member of the Academic Board of Shanghai Academy)