Raising average incomes is key to long-term growth

Visitors try outdoor camping equipment at a park in Huzhou, Zhejiang province on June 22, 2022. [Photo/VCG]

Among a population of over 1.4 billion in China, there are more than 400 million middle-income people – a massive demographic indeed. But to further exploit China’s advantage of having such a colossal consumer base – or in other words, market potential – and fully unleash consumer demand to better drive the country’s economic growth, it is necessary to continue to expand the ranks of middle-income people to achieve a more balanced and balanced social structure with a large middle-income group and small high-income and low-income groups. The formation of such a structure is also an important step that China is aiming for in its pursuit of common prosperity.

The key to achieving such training, as we see it, lies in upgrading social mobility.

take shape

Since China’s reform and opening up, people’s horizontal mobility has improved significantly, including between urban and rural areas, provinces, industries, occupations, enterprises and geographical regions. In particular, urban-rural labor mobility has made a huge contribution not only to improving rural incomes, but also to overall economic growth in recent decades. Viewed in this light, China already presents a highly mobile society in terms of population and labor force.

Although the incomes of both urban and rural residents have maintained relatively rapid growth in recent years, there is still a gap between the two as measured by the country’s Gini coefficient. One of the important reasons we see for the income gap is the lagging development of vertical mobility in China, which hinders the nation’s construction of a more equitable social structure. Building a ladder for low-income people to gain better education, employment, and higher incomes still has a long way to go.

In addition, the middle-income group, the National Bureau of Statistics said, has some 400 million consumers. Given the total population of over 1.4 billion, the size of the middle-income group is still not large enough. Middle-income households consisting of two parents and one child earn on average between 100,000 yuan ($14,050) and 500,000 yuan a year. These wage earners are still primarily urban residents and, as a group, have yet to build a large consumer base strong enough to better stimulate the economy. It also reflects the fact that the well-balanced social structure has not yet been formed.

Restricting factors

So what is preventing the development of social mobility in China from playing its role of driving the formation of a balanced society?

In the early years after reform and opening up, China’s horizontal mobility was very smooth, thanks to the rapid economic growth rate, rapid development of the education system, and timely adjustments in industrial structure. There were such vast opportunities in the market that when certain groups of people benefited from development opportunities, other groups did not see much negative impact. However, when economic growth slows, social mobility, especially of a horizontal nature, also tends to slow. Indeed, in such circumstances, social mobility will to some extent generate “zero-sum” outcomes, as the seizing of opportunities by some groups may affect or even harm others. Therefore, in general, slower economic growth has a negative impact on social mobility.

At the same time, China faces a rapidly aging society. In 2021, the country’s population growth rate – the natural growth rate after taking births and deaths together – is 0.34 per thousand and is expected to reach zero growth this year. Furthermore, the proportion of people aged 65 and over among the total reached 14.2% in 2021. With the above figures and by international standards, China has in fact officially become an aging society.

An aging society will also slow down social mobility. From the perspective of individuals, as people age, they tend to seek less professional, residential and lifestyle changes, which will reduce horizontal mobility and push the macroeconomic structure of society towards an aging society. From a social point of view, an aging society will have to adapt to changes to create an age-friendly environment, including that of employment, entrepreneurship and living conditions, which may take more time as desired. Social mobility is also affected by an aging society as such.

It should be noted that a declining rate of economic growth conforms to the law of changes in the stage of development. Aging is an irreversible trend, and the effect of reducing social mobility to some extent is inevitable. However, by removing various barriers in social and economic operations, there are still many opportunities in China to promote social mobility.

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