Narrowing the gaps
Supply-side structural reforms required to promote common prosperity and high-quality development
China has achieved remarkable economic growth since it launched reform and opening-up more than four decades ago. But three big problems still plague the country's long-term economic prospects, namely the gaps between different regions, between urban and rural areas, and between the rich and the poor. Narrowing these three gaps is necessary to realize common prosperity.
In 2020, the per capita GDP of five eastern provincial regions, namely Shanghai and Jiangsu, Zhejiang, Fujian and Guangdong provinces, reached 105,000 yuan ($16,464) on average, while that of six western provincial regions-Qinghai and Gansu provinces and the Xinjiang Uygur, Inner Mongolia, Ningxia Hui and Tibet autonomous regions was 53,000 yuan on average.
The "big five"－big capital investment, big enterprise groups, big technology, big markets at home and abroad and auxiliary big facilities－can boost the development of the western region. For instance, the region's agricultural products cultivated through large-scale drip irrigation can be transported to other regions in the country as well as overseas markets via the country's highly efficient logistics system, and electricity generated from photovoltaic power stations in the western region can be transferred to the eastern region through ultra-high voltage transmission lines.
Since the 18th National Congress of the Communist Party of China in 2012, the urban-rural divide has been significantly narrowed, with about 98.99 million rural people shaking off poverty and all impoverished counties removed from the poverty list. But statistics show that in 2019, the annual per capita income of residents in the low-income group and lower-middle-income group was 11,485 yuan. These residents, mainly living in rural areas, numbered 610 million and accounted for 40 percent of the country's households. It means there is still a long way to go to narrow the gap between urban and rural areas. The remedy is to make the cake of the rural economy bigger by pursuing high-quality development and demolishing the unreasonable dual urban-rural system that impedes the free flow of factors and resources by deepening supply-side structural reform.
A major problem the country's farmers face is that 97 percent of their income comes from labor remuneration, while some urban residents have other sources of income such as house rentals and equity gains.
To solve this problem, the Third Plenary Session of the 18th CPC Central Committee in 2013 launched a reform of the rural property system that aims to increase farmers' property incomes by facilitating the transfer of rural collective construction lands and farmers' contracted lands and homesteads. In August 2019, the newly revised Land Management Law gave the green light for rural collective construction land to be rented, transferred or mortgaged at the same price as State-owned land. By revitalizing the "three plots of lands" in rural areas, land resources will be transferred in an orderly manner in accordance with the law to create conditions for increasing farmers' income from property.
Reform of the household registration system is also necessary so that migrant workers can settle in cities. Since the 18th National Congress of the CPC, the Central Committee has been actively promoting reform in this area, proposing that by the end of the 13th Five-Year Plan period (2016-20), 200 million rural migrant workers would have settled in urban areas. In the past two years, this reform has been further accelerated.
It is expected that by 2035, 100 million rural residents will have moved to and settled down in the coastal cities and another 100 million will become permanent residents in inland cities. After doing so, it is anticipated that they will join the middle-income group in another 10 to 15 years. At the same time, the existing urban middle-income population will expand from 400 million to 600 million. Since the property income of those who remain in rural areas will continue to increase due to the gradual implementation of the "three plots of land" policy, 100 million rural residents will also enter the ranks of the middle-income group.
China has more than 4,000 listed companies, among which there are about 40 financial enterprises, including banks, securities and insurance companies. These financial companies account for nearly half the total profits of all listed companies in China. The high profit of the financial sector is attributable to the high threshold of access, and their monopolistic status in the market. As a result, employees in the financial sector enjoy disproportionately high incomes.
In recent years, China has also witnessed a booming internet platform economy along with resulting monopolistic behavior, and disorderly expansion of this industry. The country should ramp up its anti-monopoly efforts and strengthen the supervision of the platform operators to curb the disorderly expansion of capital, thus stimulating effective market competition. These platform companies should not be allowed to take advantage of their big databases to make inroads into public service sectors and financial sectors.
The real estate industry has been one of the biggest drivers of the Chinese economy in the last decade or so. But it has also led to rising wealth inequity. Recently, the property market has been experiencing a slowdown, with some of the country's leading developers mired in financial difficulties. It is the time to overhaul the real estate industry and guide it back onto a healthy development track. In the short term, appropriate policy adjustments should be made to stabilize the market, while in the long run, supply-side structural reform should be carried out to adjust the housing credit policy and promote the development of the rental housing market.
To sum up, to promote common prosperity and high-quality development, the country should further unleash the potential of the forces of production, optimize the distribution of resources among regions to smooth the flow of factors between urban and rural areas, and strive for coordinated development among sectors.
The author is chairman of the Academic Committee of the International Finance Forum and a distinguished professor of Fudan University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.
Contact the editor at editor@chinawatch.cn
