The Great Significance of Expanding the Middle-income Population to the Promotion of Common Prosperity

Achieving common prosperity is the essential requirement of socialism, the essence of the socialist system with Chinese characteristics, an important feature of the Chinese-style modernization path, and the common expectation of all the people. Expanding the middle-income population and improving the pattern of income distribution are the keys to achieving substantial progress in promoting common prosperity. Since reform and opening up, the Party and the state have always regarded expanding the middle-income population to be the top priority for improving income distribution and have made clear strategic deployments. The 16th Party Congress proposed that “with the goal of common prosperity, we must expand the proportion of middle-income people and raise the income level of low-income people,” revealing the important relationship between expanding the consumption of the middle-income population and economic development. The 17th Party Congress pointed out that “we must basically form a rational and orderly income distribution pattern, with the middle-income population in the majority,” linking the expansion of the middle-income population with the improvement of the income distribution pattern. The Third Plenum of the 18th Central Committee proposed that we must “work hard to narrow the income distribution gap between urban and rural areas, regions, and industries, and gradually form an olive-shaped distribution pattern.” The 19th Party Congress further raised the expansion of the middle-income population to the level of development strategy and raised the “middle-income population ratio” to become the first stage goal of the “two-step” development strategy for the period from 2020 to the middle of this century, indicating that the Party Central Committee attaches great importance to expanding the middle-income group. The Fourth Plenum of the 19th Central Committee reiterated that it is necessary to regulate the order of income distribution to “protect legal incomes, increase the income of low-income people, expand the middle-income population, regulate excessive incomes, clean up and regulate hidden incomes, and ban illegal incomes.” In 2021, the 10th meeting of the Central Financial and Economic Affairs Commission more clearly proposed that we must “reasonably regulate high incomes, ban illegal incomes, form an olive-shaped distribution structure with a large middle and two small ends, promote social fairness and justice, promote the all-round development of the people, and make solid progress towards the goal of common prosperity for all the people.” This is actually an important sign of the expansion of the middle-income population and the formation of an olive-shaped distribution pattern for common prosperity. On the basis of adhering to China’s basic socialist economic system, expanding the middle-income population is in line with the basic direction of China’s economic and social development and will help accelerate the realization of the strategic goal of common prosperity.

Expanding the Middle-income Population Is Conducive to Promoting High-quality Economic Development

The foundation of common prosperity is “prosperity,” and only the sustained development of economic strength and social productivity can lay down a solid material foundation for the ultimate realization of common prosperity. The increase of the middle-income population can effectively expand consumer demand, thereby stimulating the comprehensive development of society and the economy. The China Macroeconomic Analysis and Forecast Report (2021) shows that residents at different income levels in China have different consumption propensities. The report calculated the average marginal propensity to consume of high-, middle-, and low-income families from 2010 to 2018 as 0.45, 0.71, and 0.37, respectively. That is to say that middle-income families have the highest average marginal propensity to consume, significantly higher than the other two types of families. Therefore, under the premise of stable income growth, expanding the proportion of the middle-income population can release greater consumption potential and add-on effects. A more specific analysis found that the service consumption characteristics of the middle-income population were more obvious. It is the main force for medium and high-end goods demands and service consumption in fields such as education, medical care, leisure, and tourism. It can exert great social consumption potential and stimulate social employment growth and economic development. Among these features, the middle-income population has a greater demand for education and training, and the demand and consumption of education is also an investment in human capital. This will better promote the formation and increase of human capital throughout the whole society, thereby promoting the development of science and technology (S&T) and the improvement of labor productivity, fundamentally promoting high-quality economic development, and consolidating the material foundation for common prosperity.

Expanding the Middle-income Population Is Conducive to Improving China’s Income Distribution Pattern

To achieve common prosperity, all people must “commonly” enjoy the fruits of prosperity on the basis of economic “prosperity,” that is, when the majority of people become rich together, the increase in social wealth can benefit the majority of the population. In this, the “olive type” benign social distribution pattern praised by academia and policy research circles has the basic characteristics of being large in the middle and small at both ends. This means the middle-income population accounts for the majority, and the poor and high-income wealthy populations are minorities. In this distribution pattern, most people share the fruits of development. However, our research found that the current distribution pattern in China is not directly shifting to an olive type but is changing from a pyramid type to a gourd type.

This means that, although the current middle-income population in China has increased significantly compared with the previous period, its overall scale is still small. It is still far from the requirements of an olive-shaped distribution, and there is still a lot of room for improvement, such as the fact that the proportion of the low-income population is still too large. Therefore, in social and economic development, more attention should be paid to raising the income level of the low-income population to the middle-income level, so as to effectively expand the scale of the middle-income population. This will directly promote the improvement of China’s income distribution pattern so that it will gradually approach the typical olive-shaped distribution pattern and eventually accelerate the transformation to the ideal olive-shaped pattern.

Expanding the Middle-income Population Is Conducive to Social Stability

The middle-income population usually has a stable and abundant income base, relatively high social status, relatively fair development opportunities, and relatively stable life. In a certain sense, it is often representative of mainstream social values and the cornerstone of social stability and development. Therefore, when most members of society enter the middle layer of society and form an olive-shaped society, it indicates that the process of economic development has entered a sustainable state, and the social order has entered a relatively stable state. In this way, a good social environment can be formed for solidly promoting the sustainable and stable development of the society and economy and ultimately achieving common prosperity. In the process of the economic transformation and development of an economy from a low-income stage to a middle-income stage and then to a high-income stage, the gradual expansion of the middle-income population can effectively alleviate some potential unstable factors caused by the adjustment of interest patterns and the change of values, relieve the class antagonism caused by the gap between the rich and the poor, and contribute to social stability. In short, the constant increase in the middle-income population means that the poor population will gradually account for a minority, the income gap between groups will gradually narrow, and equitable social and economic development will ultimately be achieved.

Measurement of China’s Middle-income Population and Definition of Income Distribution Pattern

The income distribution pattern in China is still a gourd-shaped pattern with a relatively small middle-income population, which is far removed from the target olive-shaped distribution pattern. Expanding the size of the middle-income population is of great significance. This requires us to give more accurate descriptions and characterizations in terms of concepts and measurements. Based on previous research, we believe that the middle-income population cannot be completely and simply equated with the middle-income class or the middle class. These concepts are related but distinct. Among them, terms such as middle-income class or middle class more often reflect changes in occupational structure and social structure. They are mainly measured using occupational indicators or identity standards. For example, in developed countries, many professionals, such as lawyers and accountants, are often considered to belong to the middle class or middle-income class, but workers or proprietors are generally not considered to be middle class, even if their income is high. This shows us that “class” is a concept that emphasizes sociology significance. Relatively speaking, the middle-income population generally refers to a group in a country and society/economy that is measured and calculated according to a unified income level. Compared with high-income people and poor people, their income level is in the middle level of the overall population or around the intermediate level. In other words, a single income indicator is used for measurement. This measures and reflects the differences in the proportions of the population corresponding to certain income standards. Therefore, the middle-income population mainly reflects the changes in the income distribution pattern among all residents. The expansion of the middle-income population represents a general increase in the income level, an increase in spending power, and an improvement in the income distribution gap among the majority of residents. This is a necessary condition for the formation of an ideal olive-shaped distribution pattern. Therefore, it is a concept that emphasizes economic significance. It is true that the concepts of economics and sociology have differences as well as overlaps and connections, but this article believes that in most cases in the current context of China, the economic concept of the middle-income population is better able to reflect the actual situation.

In addition, domestic and foreign academic circles also have different measurement standards for the middle-income population. Therefore, the results obtained by different scholars and research institutions vary significantly. In general, the more common definition methods include absolute and relative standards. An “absolute standard” refers to the use of absolute indicators such as income or expenditure to define the middle-income population. For example, the World Bank defines the middle-income standard as a per capita (adult) daily income of 10-100 U.S. dollars. Converted into RMB at the exchange rate of 1:7, this is 25,000-250,000 RMB per year. However, based on per capita disposable income of 22,000-65,000 RMB, the research group of the Institute of Social Development of China’s National Development and Reform Commission calculated that the middle-income population in China increased from 1.62 percent in 2000 to 21.25 percent in 2010. The proportion of the urban middle-income population was about 36.78 percent, and the proportion of the rural middle-income population was about 5.75 percent. In addition, the Chinese National Bureau of Statistics used an annual average household income of 100,000 to 500,000 RMB as its standard and estimated that, in 2017, there were about 140 million households in China and a total of 400 million people meeting the standard, accounting for about 28.6 percent of the country’s total population. This is the source for the claim that there are about 400 million people in China’s middle-income population that the media has often mentioned in recent years. Aside from the factor of different measurement years, we can still see that the measurement standards and results are quite different.

A “relative standard” refers to setting the upper and lower percentiles around the median income of residents as the standard for the middle-income population. Since the median personal income changes every year, the middle-income range defined by relative standards also changes year by year. For example, some scholars define the 95th percentile of urban residents’ income as the upper limit of the middle-income population and the lower limit as the 25th percentile of urban residents’ income. According to this standard, the proportion of the urban middle-income population in China in 2006, 2008, 2011, and 2013 were 27 percent, 28 percent, 24 percent, and 25 percent, respectively, showing a general downward trend. Another scholar draws on the standard of 67 percent-200 percent of annual median income for more than 200 countries in the world for the upper and lower limits of the income standard of the Chinese middle-income population in the corresponding years.  In this method, the proportions of the Chinese middle-income population in 2007, 2013, and 2016 were 20.2 percent, 27.3 percent, and 28.9 percent, respectively, a gradual increase. This article prefers the relative standard adopted by most people in academia, using a fixed percentage of 100 percent to 200 percent of the annual median income of residents as the standard for defining the middle-income population. That is, 100 percent of the median is the lower limit of the middle-income population, and 200 percent of the median is the upper limit. According to this standard, for example, the median income of all residents in China in 2019 was 26,523 RMB, so the proportion of the overall middle-income population in China was 37.34 percent. Specifically, the proportion of middle-income people among urban residents was about 29.25 percent, and about 7.39 percent in rural areas. This means that about 80.20 percent of the Chinese middle-income population is concentrated in urban areas. This reflects one aspect of the huge income gap between urban and rural residents in China.

In general, no matter which standard is adopted or whether urban and rural areas are measured separately or together, the proportion of the middle-income population in China is still relatively low, although its development trend is gradually expanding. Therefore, when we comprehensively examine the changes in the proportions of the low-income population, high-income population, and middle-income population, that is, the changes in the proportion of the populations of all income groups, we can clearly find that after the income distribution pattern of Chinese residents changed from the “flying saucer” pattern at the beginning of reforms to the “pyramid shape,” it did not directly transition to the ideal “olive shape.” Instead, it gradually formed something similar to a “gourd shape,” consisting of one main and one secondary group, namely two income groups. The main group is composed of low-income people, and the secondary group is composed of middle-income people. This is different from the “pyramid shape” in which low-income people form the majority group, and it is also different from the “olive shape” in which the middle-income population is the majority group. The “gourd-shaped” pattern is the result of the development of the middle-income population, but also its insufficient development. That is to say, with the gradual improvement of the economic development level and the new phenomena derived from it, the gourd-shape low-income “main group” has shrunk compared with the pyramid-shape pattern, so that a “secondary group” appears at the middle-income level. This is the basic feature of China’s current distribution pattern of resident income. Obviously, such a “gourd-shaped” pattern is still far from the ideal “olive-shaped” pattern, which highlights the fact that the proportion of the middle-income population is still too small in general. If we stall in this state, we risk falling into the “middle-income trap.” According to the experience and theoretical conclusions from developed economies, only when the proportion of the middle-income population reaches more than 50 percent can a more reasonable “olive-shaped” distribution pattern and social structure be formed. We can see that continuing to work hard to expand the middle-income population is an important task for China going forward in the new stage of development.

The Difficulty of Expanding the Middle-income Population Lies in Increasing the Income of Rural Residents

China’s overall income distribution pattern is “gourd-shaped,” mainly due to the excessive urban-rural income gap caused by the dual economic system (Chen Zongsheng, 2015, 2020). The main contradiction in the large urban-rural gap is not that the income of urban residents is too high, but that the scale of the rural low-income population is too large, that is, the income of rural residents is generally too low. Therefore, the difficulty and focus of expanding the middle-income population in China in the future lie in continuously improving the income level of rural residents as a whole in the process of rural revitalization and reducing the proportion of the low-income population, thereby expanding the middle-income population in the country. ²

First of all, the gap between urban and rural areas in China is still too large. After decades of urban-oriented development, the rural economy has become the main contradiction in the “unbalanced and insufficient” social development in China, and the income distribution of urban and rural residents has been in a state of unfairness for a long time. First, the gap between urban and rural areas in China’s provinces has generally been excessively large for a long time. In 2013, the average urban-rural income ratio of 31 provinces and municipalities nationwide was 2.81. The highest was 3.56 in Gansu Province, six provinces and autonomous regions had income ratios greater than 3, and 24 provinces and municipalities had an income ratio between 2 and 3. By 2019, the national average was 2.64. Gansu still had the highest ratio at 3.36, Yunan, Guizhou, and Gansu had ratios greater than 3, and 27 provinces and municipalities had ratios in the 2-3 range. The urban-rural income ratios in the most developed regions such as Beijing and Shanghai are also in the 2-3 range, which offers ample proof that the areas surrounding major Chinese cities are covered by rural low-income belts. Second, the gap between urban and rural areas in China has declined in recent years, but the decline is not large, and overall, the excessive gap is stable. After peaking at 3.33 in 2009, the average urban-rural income ratio only dropped to 2.64 by 2019. Third, the large urban-rural gap has led to a persistently large overall income gap in China. After 2000, China’s total Gini coefficient remained in the 0.4 to 0.5 range for a long time, which is recognized by the international academic community as too large. China’s international ranking is low. The breakdown analysis confirmed that the gap between urban and rural areas accounted for about 60 percent of the overall gap for a long time. Even in 2019, it still accounted for 54 percent. We can see that the main reason for the large gap between urban and rural areas in China is that the gap between urban and rural areas is too large, and narrowing the gap between urban and rural areas is also the primary task in achieving common prosperity (Chen Zongsheng and Yang Xilei, 2021).

Secondly, it should be noted that the “main contradiction” that produced the excessive gap between urban and rural areas in China lies in the relative lack of development in the vast rural areas and the slow growth in the income of rural residents. This is shown by the fact that, first, the low-income population with a per capita monthly income of less than 1,000 RMB is mainly distributed in rural areas. On May 28, 2020, when Premier Li Keqiang attended the press conference of the third session of the 13th National People’s Congress and answered questions from Chinese and foreign journalists, he pointed out that there are still “600 million people in the low- and middle-income populations in China, and their average monthly income is only about 1,000 RMB.” After careful screening and calculation, it is not only the case that “600 million people earn less than 1,000 RMB per month” in the current national condition but also that 400 million of them are rural residents. Second, the average income of rural residents is mostly lower than the national average. In 2019, the per capita disposable income of national residents was 30,733 RMB. In the same year, only the top 20 percent high-income population in rural areas was slightly above this level, while more than 80 percent of all people were lower than the national average. Third, the proportion of the income of rural residents in all strata as a share of the national average continued to decline from 2013 to mid-2019. Specifically, the lower the income of households, the greater the decline. The income share of 80 percent of farmers and 86 percent of the population decreased by varying degrees (Chen Zongsheng and Yang Xilei, 2021).

The above analysis shows that the difficulty and focus of expanding the middle-income population in China going forward will be in rural areas. Only by continuously and rapidly increasing the income of rural residents, accelerating the narrowing of the urban-rural gap, and gradually increasing the focus on the populous rural low-income population can we effectively reduce the proportion of the low-income population. Correspondingly, the scale of the Chinese middle-income population will be expanded, thereby promoting the transformation of the entire social income distribution from its current gourd-shaped structure to an olive-shaped structure.

Accelerate the Increase in Rural Residents’ Income to Expand the Middle-income Population in Rural Revitalization

The vast majority of rural residents in China belong to the low-income population, and the gap between urban and rural areas has been too large for a long time. This has resulted in a gourd-shaped distribution pattern, which is basically rooted in the constraints of the urban-rural dual system. This includes the constraints of the dual distribution system, but more importantly, it includes the constraints of the dual development system, that is, the result of the long-term one-sided implementation of the urban economic development orientation. Therefore, in the new development stage, we should gradually transition from an urban development orientation to a strategic focus that prioritizes rural revitalization and development. Moreover, such development is fair and balanced development. It is based on the premise of eliminating the income inequality between urban and rural residents and the unbalanced development of the dual economy. It can be said that only by eliminating the urban-rural dual system and realizing the unification of the dual economy can we effectively increase the income of rural residents, truly and effectively expand the proportion of the middle-income population, and substantially promote the common prosperity of all urban and rural people. To this end, we must make efforts in the following areas:

Accelerate the reform of the household registration points system and effectively promote new urbanization in the promotion of rural revitalization. Accelerating urbanization is the most effective means to reduce the rural low-income population and increase the middle-income population. Since reform and opening up, China’s rate of urbanization has increased at a rate of more than 1 percentage point per year for an extended period. As a result, a large number of rural people have been transferred to urban non-agricultural employment, thus shedding their low-income status. This rate seems to have declined in recent years. Since 2018, it has dropped to less than 1 percentage point per year, which has slowed down the decline of the rural low-income population. However, considering that China’s rural areas still account for 60 percent of the registered population, it still exceeds the demands of the agricultural industry. Among this population, 20 percent are so-called “migrant workers,” who have rural household registrations but actually live in cities as non-residents. Therefore, we must accelerate the reform of the household registration system and improve the current points system so as to promote the urbanization of rural residents. In addition to promoting the transfer of a portion of the low-income population who currently have rural residence permits (户口, hukou) to existing large, medium, and small cities, it is more important to promote the urbanization and modernization of the rural areas themselves, vigorously develop other non-agricultural industries such as the service industry and processing industry, promote the integrated development of the industry, urban space, and people (产、城、人) of small towns, and raise the income level of the rural population.

We must raise the educational level of rural residents and improve the quality of rural education. Since 2015, the proportion of labor wage income in the disposable income of rural residents has exceeded that of business operation income, becoming the largest source of income for rural residents. Its proportion should further increase in the future. An important factor that affects how rural residents, and especially the floating population, obtain wage income is the level of human capital. Therefore, the education and training of rural residents have become critical measures. Moreover, in order to further improve the human capital of the younger generation in rural areas in the future, we must direct more resources to the education of rural residents, improve the quality of education, and effectively promote the realization of equalization in basic compulsory education. In addition, strengthening the business training of the rural labor force and improving the employment skills of the rural labor force are also important steps.

We must increase the business operating income of rural residents. In recent years, the effects of various policies oriented to “agricultural, farmer, and rural area” issues have continued to increase, and the labor income and business operating income of rural residents have continued to increase. These are the two main sources of income growth for farmers. In the future, we should actively promote supply-side structural reforms for agriculture, fully implement the policies and measures to support and benefit agriculture, accelerate the adjustment of the agricultural industry structure, cultivate a competitive modern agricultural economic crop industry system, cultivate famous products and distinctive industries with market competitiveness, promote the high-quality development of modern agriculture, and increase the proportion of income rural residents earn from business operations.

We must increase the property income of rural residents. Currently, the proportion of rural residents’ property income is still at a relatively low level, and property income only accounts for 2.35 percent of the per capita disposable income of rural residents, much lower than the 10.37 percent of urban residents. The central government has repeatedly emphasized the need to increase residents’ property income and its share of total income. Therefore, we should continue to deepen the comprehensive reform of the rural system in the rural revitalization strategy and steadily promote the revitalization of idle homesteads and abandoned public welfare construction land so that it enters the market, and urban technology and capital. In combination with the technology and capital of cities and towns, we must revitalize the collective assets that are idle or inefficiently used by village collectives and explore more channels to increase the property income of rural residents.