IV Focus on Boosting Residents’ Disposable Income to Intensify Income Distribution Reform

Lassalle once argued the main task of the socialist movement is to realize equalized distribution. Marx criticized that contention by stating that distributional relation is the other side of productive relation, and the irrationality of capitalist distribution fundamentally lies in the unreasonable private ownership of the means of production. In China, the gap between the rich and the poor is among the largest one across the world, and unequal distribution is extremely prominent. With ever-increasingly serious social contradiction emerging during the 13th Five-Year Plan period, strategic goals of economic development can hardly be achieved unless action is made to curb that momentum. In the reform of income distribution, the key to increase residents’ disposable incomes lies in reasonable adjustment of the distribution of residents’ property incomes as well as breakthrough in the reform of property rights system. Only by doing so can people truly share the fruits of economic growth and resident’s income growth keep up with overall economic growth. The three aspects mentioned will help improve current national income structure. In particular, coordinated reform of state-owned enterprises and improvement of social security system is fundamentally important in terms of significantly reducing social security payment, raising social security standards for middle- and low-income groups, and turning those true owners of state-owned assets. Meanwhile, the following measures should be taken to push forward income distribution reform.

A Make Strict Restriction on Compensation Package of Executives in State-Owned Enterprises

In recent years, compensation package for the management, especially for the executives in China’s state-owned enterprise management, is matching with that in large companies and giant multinational companies in developed economies. However, the risks assumed by managers at the state-owned enterprises and private enterprises are quite different. Against the basic principle of labor capital market, unreasonably high compensation in state-owned enterprises is a kind of misappropriation of public welfare. Hence, it is imperative to strictly limit compensation package for the executives in state-owned enterprises. We will establish rewards and punishment system in light of the characteristics of state-owned enterprises and make on overall reduction of compensation package standards.

B Push Forward Property Rights Reform of Natural Resources

As mentioned earlier, in China, unclearly determined property rights of natural resources not only lead to huge waste of resources but also facilitate embezzlement through private grants of mining rights among some people, which, as a result, has become the hotbed for power corruption and unfair social distribution. Besides, owing to the unclearly determined property rights, revenues of state-owned natural resources are inappropriately occupied by the central government and central enterprises, forming the income gap in different regions. Therefore, during the 13th Five-Year Plan

Basic Concepts of Economic System Reform 103 period, mechanism reconstruction will be centered on the establishment of a rational sharing system of public resources revenues.

C Moderately Reduce Macro Tax Burden

Firstly, we need to establish a scientific and effective budget management system to strictly control financial budget and to ensure a reasonable reduction of macro tax through institutional methods. On such basis, we will moderately lower macro tax by centering on structural tax reduction. Meanwhile, we will reduce tax burdens on companies and residents to boost residents’ disposable incomes. Besides, in order to streamline the taxation system for adjustment of personal income distribution, we will launch the reform of personal income tax by establishing a mixed personal income tax system that combines comprehensive declaration and classified deduction. We will establish and perfect property tax system to strengthen positive adjustment of distribution of incomes and social wealth.

D Promote the Market-Oriented Reform of Interest Rates, Improve Supervisory System of Capital Market

Under the control of China’s government, deposit interest rate has been lower than the inflation rate for a long time. This is a statutory deprivation of the interests of the depositors (mainly the residents). In order to safeguard the legitimate interests of depositors, to guarantee reasonable growth of residents’ property incomes, and to truly improve the quality of state-owned banks, it is necessary to promote the market-oriented reform of deposit interest rates by allowing the market supply and demand to determine the relation between deposit and loan interest rates. In addition, we will consummate the supervisory system of capital market through rules improvement, strict enforcement, and expansion of public participation to effectively supervise capital market, to restrict excessive speculation in the capital market, to improve quality of listed companies, to maintain the value-added function of capital market, and to protect the interests of small and medium-sized investors.

E Build Land Rights Protection Mechanism

As mentioned earlier, in China, since farmland is collectively owned, the government places various restriction on the disposal rights of farmland. In addition, currently, the management of urban construction land not only lacks flexibility, but it has evolved into a kind of governmental franchise, becoming a cash cow for local governments. As a consequence, farmers can hardly turn their possessed value-added assets to property incomes, which constitutes one of the reasons to push up real estate prices and push down disposable incomes of urban residents. In addition, we must loosen controlover lands and make institutional changes in light of the development of socialist market economy with the aim of protecting land rights, optimizing distribution layout of residents’ incomes, improving allocation efficiency of land resources, and promoting social harmony. In the long run, we will make sure supply and price of urban construction land will be independently determined between landowners and users under the government’s city planning. Besides, in terms of the ownership rights and use rights of the rural farmland, we will guarantee buyers and sellers can directly make transactions according to law without governmental intervention.

F Promote Market-Oriented Reform and Develop Modern Supervisory System in Competitive Industries

The efficiency and price in monopoly industries are closely connected with the fair distribution of national incomes. Extremely high costs or high profits will over-occupy the public interests. In recent years, it has become a prevailing phenomenon that costs climb sharply and profits remain extraordinarily large in some industries. As consequence, we must advance the market-oriented reform in those sectors, expand market access requirements, lower entry threshold, and introduce social capitals into oligarchy areas that should have been highly competitive, including telecommunications, oil, and banking. We will see to it that price control system be flexible, namely, price control should be liberalized in highly competitive areas. We should speed up the establishment of a modern market economy-oriented supervision system to restrict high profits and unreasonable expenses of monopoly enterprises, and to curb the exploitation on consumers with the unreasonable rise of prices of products or services.


Bai Zhongen, Qian Zhenjie. “Distribution of the Elements of National Income: Story behind Statistics”, Economic Research, vol. 3, 2009.

Economic Center at National Development and Reform Commission. “Research Report on China 2020: Trend and Strategy”, 2011.

Liu Shujie. “On Modern Supervision Concept and China’s Regulation Modernization”, Economic Review, no. 6,2011: 1-7.

Liu Shujie, Wang Yun. “A Study on Rational Adjustment of Residents’ Incomes”, Macroeconomic Research, no. 12,2009: 11-16.

Mashiko Aoki, Wu Jianglian. From Authority to Democracy: Political Economics in Sustainable Development, Beijing: China Citic Press, 2008.

Wu Jinglian. “Let History Illuminate the Road of the Future: On China ‘s Reform on Market Economy”, Comparative Economic & Social System, no. 5, 2009: 1-10.

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