Helping the middle-income group grow

China's middle-income population is growing and playing an important role in the economy. How to boost the vitality of the middle income group is of key importance for the country to avoid the middle income trap.

The 19th National Congress of the Communist Party of China had listed raising the middle-income group as one of its strategic objectives. China has the largest middle-income group, which plays a vital role in transforming the economy from an investment-driven to a consumption-driven one. Because of the important role the middle-income group plays, it is necessary to enhance its consumption abilities and prevent debt risks.

Several measures need to be taken. First, the incomes of lower income groups need to be raised. Compared with middle income groups, lower income groups are more likely to deposit money in banks. Increasing their numbers will, therefore, boost the total deposit rate. It will also help lower income people become middle incomers soon.

A large portion of lower income people, namely migrant workers, have agricultural land in their hometowns but work in the cities for better incomes. It is necessary to reform the housing registration, or hukou, system, to enable them to enjoy the welfare measures their urban counterparts enjoy.

Next, the tax structure must be adjusted to make redistribution of social wealth fairer. As 60 percent of middle incomers' incomes come from their wages, it is necessary to lower their tax rates so that their dispensable income increases. Redistribution of social wealth also plays a key role in giving a boost to the incomes of those in the lower and middle income groups.

The social security system needs to be improved to stabilize people's income expectancy. On the one hand, more investment channels can be opened to guide different groups to better invest for profit; on the other hand, the medical insurance system can be improved so that people don't need to save for medical expenses.

Also, there is the need for greater supervision of the financial and the credit market system. Financial institutions can play a positive role in boosting people's consumption based on loans, which in turn boosts circulation of the whole society and accumulates wealth.

－LI CHANGAN, A PROFESSOR OF ECONOMICS AT THE UNIVERSITY OF INTERNATIONAL BUSINESS AND ECONOMICS