800 million: How China plans to double its middle-income population
Shoppers riding an escalator in a mall in Beijing / Reuters-Yonhap
Xiao Mei, a kindergarten teaching assistant living in the suburbs of Hangzhou in eastern China, has barely seen her income rise for three years and is not optimistic about her chances of getting a pay rise any time soon. Still, she counts herself as relatively fortunate.
"At least I haven't had my pay cut or lost my job," she said, adding that several of her friends had suffered such setbacks recently.
Earning around 6,000 yuan ($845) a month — well below the local average of 13,500 yuan for public-sector workers, according to municipal government figures — the 38-year-old feels stuck in a low-income cohort and uncertain about her future prospects as China's job market remains stubbornly sluggish.
Xiao's plight reflects the scale of the challenge facing China as it embarks on an ambitious drive to nearly double the size of its middle-income population over the next decade.
According to the government's most recent estimate, more than 400 million of China's 1.4 billion people are currently living on a middle income. At a press conference last month, Commerce Minister Wang Wentao projected the figure would rise to 800 million in the next 10 years.
In its proposals for China's next five-year plan, also released last month, the Communist Party's Central Committee vowed to steadily expand the middle-income cohort to create an "olive-shaped" income distribution chart.
The goal reflects a shift in approach by Beijing, as the proposals call for the government to "invest more in people" by ramping up spending on human capital and social safety nets — from childcare and senior care to health and education.
China's traditional growth model based on investment in physical assets is now seeing diminishing returns, and the country needs to start investing more in human capital if it is to remain competitive and win the global technology race, according to a guide to the next five-year plan's proposals issued by the party-run Xuexi Publishing House.
"China has long underinvested in people's livelihoods and holistic development," the guide stated. "Boosting funding for education, healthcare, and senior care is essential to safeguard and improve livelihoods, achieve high-quality living and promote prosperity for all."
The efforts to increase investment in human capital and expand China's middle-income population should go hand in hand, reinforcing and driving each other, said Yang Tianyu, a professor at Renmin University of China's School of Applied Economics in Beijing.
"When a society's middle-income group keeps growing, it means that investments in human capital are yielding returns," he said. "Workers' skills and incomes rise together, creating a virtuous cycle of economic growth and improved livelihoods."
Five years ago, when China's previous five-year plan was released, China's National Development and Reform Commission defined the middle-income group on its website as families of three with annual incomes of 100,000-500,000 yuan.
They should also have stable jobs, comfortable lives, strong spending power and high demand for housing, cars, culture, sports, travel, healthcare and education, it added.
At the time, China had about 140 million households, or more than 400 million people, in that bracket, according to the economic planner. No central government agency has since released an update on this figure, but state-owned newspaper Economic Daily wrote in an article last year that the middle-income population had surpassed 500 million.
Beijing increasingly views excessive inequality — particularly China's wide urban-rural income gap — as a key obstacle to raising domestic consumption, which is now a vital growth engine as the country's real estate boom fades and global trade barriers intensify.
Pension benefits, for example, are highly uneven across different Chinese social groups. Elderly people in rural areas, which account for 55 per cent of the country's retirees, receive an average of just 244 yuan per month (or about $1.1 per day), economists from Nomura said in a note last month.
Amid efforts to push the economy from an investment-driven to a consumption-led growth model, households may experience tangible changes in the coming years, such as more affordable childcare, education and senior care, according to Chen Bo, an economist and a senior research fellow at the National University of Singapore's East Asian Institute.
"One major reason for China's exceptionally high savings rate is precautionary deposits, leaving money to sit idle in banks," he said.
"In the future, as a system with reliable protections like a steady pension is established and runs smoothly for years, public trust will be built and people will feel secure and start spending."
Xiao, the Hangzhou resident, said she was eager to see lower living costs and better social benefits. "If these materialise and my salary increases steadily, I may be able to live the so-called 'middle-class' life," she said.
Read the story at SCMP.