Defining middle-income groups with Chinese characteristics: The middle-income group as an indicator for building a moderately prosperous society in all respects

As of three years ago, China has risen from its former status as a low-income country to become a middle-income country. And it is already moving toward becoming a high-income country. During this period, Chinese society has the dual characteristics of both a "growing society” and an “advanced society”. The goal of social development is not only to allow more people to rise out of poverty and become wealthier, but also to pursue a fair and reasonable income distribution pattern. Thus, the measurement of middle-income earners in both absolute and relative criterion models has a rationale. Considering it is a policy that "raising the proportion of middle-income group” is an indicator of a moderately prosperous society in all respect, and an indicator of social development in China's 13th Five-Year Plan, the absolute criterion model is more applicable. It can more accurately reflect the growth speed in proportion and number of people who are rising out of poverty and becoming wealthier, and ultimately, enjoying a higher standard of living. While the relative criterion model can reflect the changing trend of income inequality, it camiot directly reflect the growth of the number of people who have reached a higher living standard. At the same time, the income level of middle-income earners, classified according to the relative criterion model, is still relatively low, and it is, therefore, difficult for them to be generally accepted as middle-income earners by the public. According to the Chinese General Social Conditions Survey of the Institute of Sociology of the Chinese Academy of Social Sciences in 2015, the median annual income of Chinese people aged 18-69 (excluding school students) in 2014 was 21,000 yuan (that is, half of the population had an aimual income that was lower than 21,000 yuan, while the other half had an annual income equal to or greater than 21,000 yuan). The lower-income limit of the "middle-income group” as defined by the relative criterion model is 15,750 yuan (75%of the median), while the upper limit is 42,000 yuan (200% of the median). That is, the “middle-income earner” has a monthly income of 1,313 yuan (15,750/12 months) to 3,500 yuan (42,000/12 months). Obviously, defining the “middle-income earner” by this criterion would be difficult to gain public acceptance, as many individuals in this income bracket may have difficulty maintaining a "moderately prosperous” standard of living. If the middle-income group is defined in this way, an increase in the proportion of the middle-income group will probably imply a decline in income inequality and a larger number of people at lower income levels. Therefore, the proportion of middle-income groups as defined by the relative criterion model is not suitable as an indicator of China's social development at the present stage, nor is it suitable as an indicator for building a moderately prosperous society in all respects during the 13th Five-Year Plan.

The absolute criterion model is primarily used to measure the proportion of people who reach a certain income level, or standard of living, among a given population. In this sense, when the proportion of middle-income earners rises, it means that more people have risen out of poverty and reached a decent standard of living with increased wealth. A "decent standard of living” can also be understood as a moderately prosperous life. Building a moderately prosperous society means allowing a majority of the population to live a moderately prosperous life. Therefore, the proportion of middle-income group as defined by the absolute criterion model can be considered as an indicator for building a moderately prosperous society for the 13 th Five-Year Plan.

One difficulty associated with the absolute criterion model is choosing an appropriate income criterion by which to define the middle-income group. The determination of income criteria for middle-income earners in China is just as difficult as the determination of income criteria for the global middle class. Among countries around the world, there exist developed countries with high-income levels and consumption rates, developing countries with lower-middle income levels, and very poor countries where even the "high-income” earners may earn less than the poverty line for a developed country. The same is true across China. The income and consumption levels between regions vary greatly. In rural and small towns in the central and western regions, a standard "mid-level income” may be sufficient to maintain a moderately prosperous life. However, the same income may be difficult to provide basic living needs in such large cities as Beijing, Shanghai and Guangzhou. Scholars from China and other countries or regions have proposed many complex statistical methods in an attempt to solve these problems, but the most widely used indicator is the one currently proposed by the World Bank. “10-100 US$ per capita”, which is sometimes adjusted to “10-50 USS per capita” or “10-20 US$ per capita”, depending on the development level of the given country or region.

At this stage. World Bank criteria can serve as a reference for China to set middle-income criteria. The poverty line as defined by the World Bank is 1.9 USS per person,¹ 2-9 USS for the low-income group, 10-100 USS for the middle-income group, and more than 100 USS for the high-income group. Under this classification criterion, the daily income per capita is converted into annual income according to an exchange rate between the USS and the yuan of 6.6 (2015 exchange rate), and the upper- and lower-income limit of the middle- income group is 24,000-240,000 yuan annual. This annual income, with which people can generally maintain a moderately prosperous life in most parts of the country, fits well into the preconceived notion that the public typically has regarding middle-income earners. According to the results of the Chinse General Social Conditions Survey in 2015, the Institute of Sociology of the Chinese Academy of Social Sciences calculated that 18.4% of the population aged 18-69 in China (excluding students in school) belonged to the low-income group in 2015 (annual income less than 4,600 yuan), while 33.3% belonged to the lower-middle income group (annual income between 4601 and 23,999 yuan), 47.6% belonged to the middle-income group (annual income between 24,000 and 240,000 yuan), and 0.6% were in the high-income group (annual income greater than 240,000 yuan).

However, the lower boundary of 24,000 yuan would be too low for residents of megacities and metropolitan areas, such as Beijing, Shanghai. Guangzhou and Shenzhen. In these large cities, an income of 24,000 yuan is typically regarded as a low-income level. In order for a uniform criterion to reflect differences across regions, middle-income groups can be further divided into three categories: 24,000-59,999 yuan (equivalent to 10-25 USS) daily per capita for the low- middle-income group, 60,000-119,999 yuan (25-50 USS) for the middle-income group, and 120,000-240,000 yuan (50-100 USS) for the high-middle income group. In rural areas, towns and small cities, a low-middle-level income is sufficient to lead to a moderately prosperous life. However, in large and medium-sized cities, a medium-income level is needed to maintain a moderately prosperous life, while low-middle-income individuals are only able to come close to (but not fully attain) to a moderately prosperous life. Based on the further classification of middle-income groups and the overall goal of expanding middle-income groups.

local governments can, under the overall goal of expanding the middle-income group, focus on expanding the middle-income group based on standards that are set according to the local situation.