As the Communist Party of China (CPC) celebrated its centenary, China has also announced it has eradicated absolute poverty and completed the building of a moderately prosperous society in all respects, a praise-worthy achievement. 

According to the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and Long-Range Objectives Through the Year 2035 adopted by the fifth plenary session of the 19th CPC Central Committee, one of the major goals for the long-range prospect of basically realizing socialist modernization by 2035 is that “people will lead a better life, and more notable and substantial progress will be achieved in promoting well-rounded human development and achieving common prosperity for everyone.” To be specific, this means the “per capita GDP will reach levels of moderately developed countries, and the middle-income group in China will expand significantly in size. Equitable access to basic public services will be ensured. Disparities in development between urban and rural areas, between regions, and in individual living standards will be significantly reduced.”

Given China’s national conditions, an essential way to increase the size of the middle-income group, optimize the pattern of income distribution, and reach common prosperity is by generating more opportunities to develop and increase incomes for low-income groups.

Low-income group remains large

China still stands at the primary stage of socialism, with its developmental level and income level remaining low. Judging from its economic development level, China is still an upper middle-income country whose per capita GDP is only slightly higher than the global average, and far lower than that of developed countries. Although the Chinese per capita GDP exceeded $10,000 in 2020, its average per capita disposable income merely stood at $4,734, with the urban and rural per capita disposable income at about $6446 and $2,519 respectively.

The Chinese middle-income group remains small. Based on calculations from the National Bureau of Statistics, in 2018, China’s middle-income group took up slightly more than 30%, and 65% of the population belonged to the low-income group. In addition, the income of many low-income earners was merely slightly above the absolute poverty line in rural areas in 2020. The number of people earning less than 500 yuan a month exceeded 110 million, while the figure for those earning less than 1000 was over 300 million in 2019. This is a fact that we should soberly bear in mind.

While Chinese people’s income gaps remain large, it is highly relevant to increase earnings for low-income groups, expand the size of the middle-income group, adjust excessive incomes, and prohibit illicit income. The income gap continued to increase from 1978 to 2008: the Gini index climbed up from 0.3 to nearly 0.5, while urban-rural gap remians large.

After 2008, the national residential income gap and rural-urban income gap both dwindled for a period of time, but in recent years the national income gap started to bounce back, pulling the Gini index back to nearly 0.47. This indicates that a big gap between different Chinese income groups persists, while some factors continue to widen the gap and diminish effects of the government’s secondary distribution.

One of the driving forces behind the national income gap is the yawning gap within people’s property incomes. Since the income from property is usually exclusive to high-income groups, the increasing ratio of property income—out of the entire income mix—inevitably amplifies the earning gap. From 2013 to 2020, the nominal GDP growth of urban per capita property income reached 8.9%, 1.4 percentage points higher than urban disposable income. The reason behind soaring residential property income and a stretching distribution gap is the expanding divide in property distribution. Chinese residents’ property accumulation increased rapidly over the past 20 years, along with it an extended property gap and income gap, two factors that are mutually reinforcing. Therefore, policy-makers need to actively reduce the property gap.

‘Key groups’

Based on China’s basic national realities, a key method of leading all Chinese people towards common prosperity is to ensure that low-income households are able to increase their income in a steady manner. For that to happen, we need to prioritize “key groups” that are able to help others get richer. This means we must apply incentive measures to help certain groups of people earn more, who, in turn, help more people profit.

In October, 2016, the State Council decided to support seven key groups with six measures. The seven key groups include skilled talent, new professional farmers, researchers, entrepreneurs of small enterprises, enterprise managers, government officials at the primary level, as well as people with financial difficulties but work capability.

For these key groups of people to prosper, the government must provide them with the right conditions for development, and a stable market where their legitimate business activities and income sources can be protected, where they can also fully use their personal initiative. This requires the government to have the right policies and regulations in place, and a thorough system to motivate these key groups. Policy-makers need to evaluate different key groups’ characteristics, especially their actual contributions to boosting employment and helping others in increasing their incomes.

Equitable opportunities

It is important to create equal opportunities for various types of low-income groups to develop and earn more. Low-income people can be categorized into two groups: those with labor capacity yet scarce opportunities; those lacking labor capacity.

For the first type of workers, it is essential to offer them more opportunities to develop themselves and increase their income sources from primary distribution. Low-income people tend to concentrate in the country’s rural areas and central and western regions, where policies are most needed to increase people’s incomes in a bid to balance development between urban and rural areas and among different regions.

In particular, we need to focus on two important ways to increase rural residents’ earnings. The first is to improve policies affecting rural migrant populations.

It is necessary to accelerate the process of acquiring urban citizenship for rural migrants, which will help channel rural labor forces into urban areas or developed districts with more employment opportunities. The second method is to further implement the rural vitalization strategy, and fully leverage land resources.

Equitable access to basic public services for low-income groups is also a must. The National Standards for Basic Public Services (2021 Version) wrote that basic public services include ensuring people’s access to childcare, education, employment, medical services, elderly care, housing, and social assistance. These public services run through people’s entire lives by safeguarding people’s growth periods in an early stage of life, providing employment security during youth and middle age, and protecting the ability to survive during their old age.

Basic public services enjoyed by some segments of the population are still very inadequate. For example, quite a few infants and young children in remote and less developed regions are suffering from malnutrition and have poor access to preschool education, forcing them to confront the reality of “losing at the starting line.” Moreover, the penetration rate of compulsory education in the past several decades has been improved, but there is still a huge gap between different regions and between urban and rural areas. The educational conditions in rural and remote areas are far from satisfactory. In another example, problems such as imbalance, insufficiency, and unsustainable pensions are rather prominent, and gaps in pension treatments are relatively huge between urban and rural areas and between different types of pensions. Particularly, the pension treatment of farmers is disproportionately low, which is not only substantially lower than that of urban residents but even lower than the absolute poverty line in rural areas. To better handle these problems requires thorough scientific research, an objective understanding of the basic facts and serious study of possible solutions.

Income-increasing measures should give attention to both the enhancement of income levels and the prevention of risks with low possibilities but huge impact.

We believe two types of risks are in particular need of attention. First, economic risks. Hefty loss for low-income groups caused by natural disasters or market environmental changes can be prevented and properly handled. Second, health risks. Poverty caused by chronic and severe diseases in low-income groups should be prevented and properly addressed. To solve economic risks requires creating a stable environment for development, improving technical skills of low-income laborers, reducing the probability of risks, and providing a risk response and relief mechanism to minimize subsequent losses.

Solving health risks requires sufficient economic support for medical expenses from the medical security system on the one hand and attending to economic burdens beyond medical costs on the other hand.

Generally speaking, China still has a long way to go before it can meet the goal of common prosperity listed in the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035.

Although the country has recently eliminated absolute poverty and completed the building of a moderately prosperous society in all respects, its low-income group still takes up a large chunk of the population, while a huge development gap persists between urban and rural areas as well as among different regions.

We are faced with an urgent task, that is, to utilize all tools we have to help low-income groups earn more. This includes tapping people’s potential, while providing them with basic public services.

Li Shi is the dean of the Institute for Common Prosperity and Development at Zhejiang University and Zhan Peng is an associate research fellow from the same institution.