Fairer economic growth to escape income trap

With its per capita gross domestic product rising to about 30,000 yuan ($4,500), China is at a critical point if it is to avoid the middle income trap and push living standards closer to those of rich economies.

Robust economic growth in 2010 has allowed China much of the wherewithal to underpin an encouraging rise in average income levels.

But if the 12th Five-Year Plan (2011-15) is to become a cornerstone for sustainable and inclusive development in the coming decades, Chinese policymakers should seize the current momentum of sound income growth to enrich people as fast and fairly as possible.

By narrowly outpacing the country’s 10.3 percent GDP growth, Chinese farmers have gained themselves a bigger slice of the growing national wealth. Policymakers should build on this favorable trend of income growth to aggressively tilt the distribution of national wealth in favor of domestic consumers, especially those with less income.

Latest statistics show that the per capita net income for rural residents was 5,919 yuan ($896) in 2010, up 14.9 percent year-on-year, or an increase of 10.9 percent after deducting price factors. That means, for the first time in a decade, Chinese farmers’ income growth has surpassed that of urban residents who earned 11.3 percent more last year, or 7.8 percent in real terms.

But such a change is certainly far from enough to make a substantial dent in the country’s widening urban-rural income gap. Farmers still earn one third the income of urban residents on average.

However, it does signal a crucial shift in the distribution of the country’s growing national wealth in favor of the poor. Small as it is, without such incremental improvements in income distribution, China’s efforts to boost domestic consumption into a leading growth engine would be to no avail.

Keeping that in mind, the Chinese authorities have pledged that in the new five-year-plan-period incomes will “keep pace with economic growth” and wages will “increase in line with improvements of productivity”.

A lesson that policymakers should draw from many other countries’ failure to escape the middle-income development trap is that no efforts should be spared to fight the growing wealth gap.

Though different countries have to follow their own development paths due to their own national conditions, widening income disparity may be unavoidable for developing countries in their early years of economic growth. But all the roads that lead to common prosperity feature a period of rapid income growth that also helps narrow wealth disparity.

After three decades of sizzling economic growth, it is time for China to transform its economic model toward fairer, more consumer-led growth.

(China Daily, Feb. 1)