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News Analysis: China's rising middle-income group to spur slowing economy

Xinhua, May 19, 2016 Adjust font size:

Confronted with a prolonged slowdown, China is pinning hopes on a growing middle class to help the economy hold up against headwinds and transition to a consumption-led growth model.

A recent high-level economic conference agreed on more efforts to expand the group as it is significant to "building a moderately prosperous society, propelling economic restructuring and safeguarding national prosperity and stability."

Measures announced during the meeting were to improve the income distribution mechanism, increase human capital investment and strengthen property protection.

"Currently they account for 30 percent of the 'wealth pyramid'," Chang Xiuze, a prominent economist with Tsinghua University, said, "Affluent people make up 10 percent and low-income and poor people 60 percent."

There is no clear definition for the group, but an annual income range between 60,000 yuan (about 9,200 U.S. dollars) and 120,000 yuan is considered a reasonable range.

Chi Fulin, director of Hainan Institute for Reform and Development, predicts an annual consumption increase of 750 billion yuan in the next decade if the group rises to 40 to 45 percent of the population. "China will then be the world's largest consumer market," he said.

Consumption contributed 84.7 percent of economic growth in Q1, a significant jump from 66.4 percent at the end of 2015..

Chang advocates an oval-shaped wealth structure with around 60 percent in the middle and less at either end. "More needs to be done to increase employment, strengthen support for innovation and entrepreneurship and build a modern vocational education system."

The Communist Party of China (CPC) Central Committee decided in 2013 to contain high incomes and expand the number of middle-income earners. Pensions, income tax thresholds and the minimum wage have since increased, while salaries for executives of state-owned enterprises have fallen.

By 2020, the government wants to double per capita income from the 2010 level and eliminate poverty. China's Gini coefficient, a wealth gap index, dropped for the seventh consecutive year in 2015, albeit the figure of 0.462 is still above the international alert line of 0.4.

"A declining Gini coefficient indicates that China's economic policies are working," said Zhou Tianyong, of the Party School of the CPC Central Committee. Endi