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Zhang Xiaojing: Regulating the wealth accumulation mechanism must consider not only the fairness of distribution but also the sustainability of accumulation

Academy News

Cailianshe, October 24 (Reporters: Wang Quanbao, Guo Songjiao) The Report to the 20th National Congress proposed the improvement of the distribution system. Among its points, it emphasized the need to "regulate the order of income distribution and regulate the mechanism of wealth accumulation."

In fact, since last year, multiple central-level meetings have mentioned relevant distribution systems. The 10th meeting of the Central Committee for Financial and Economic Affairs on August 17 last year proposed correctly handling the relationship between efficiency and equity, and constructing a foundational institutional arrangement in which primary distribution, redistribution, and tertiary distribution [1] are coordinated and integrated. The Central Economic Work Conference in December of the same year also proposed leveraging the functions and roles of distribution, adhering to distribution according to work as the mainstay, improving policies for distribution based on factors of production, and increasing the intensity of regulation through taxation, social security, and transfer payments. It supported enterprises and social groups with the will and ability to actively participate in public welfare and charitable causes.

This time, the Report to the 20th National Congress further proposed to "regulate the order of income distribution and regulate the mechanism of wealth accumulation." How should this expression be understood? How should the relationship between distribution and accumulation be balanced? To this end, Cailianshe conducted an exclusive interview with Zhang Xiaojing, Director of the Institute of Finance at the Chinese Academy of Social Sciences (CASS), Director of the National Institution for Finance and Development, and Director of the National Balance Sheet Research Center.

In Zhang Xiaojing's view, when discussing the regulation of the wealth accumulation mechanism, one must not only consider whether wealth distribution is fair and reasonable but also whether wealth accumulation is sustainable. It is unrealistic to discuss wealth distribution in isolation from wealth accumulation.

Zhang Xiaojing has long been engaged in the tracking and analysis of macroeconomic and financial conditions. He was selected for the national "Ten Thousand Talents Program" as a leading talent in philosophy and social sciences, and as a "Cultural Master and 'Four Batches' Talent" [2]. He led the compilation and regular release of China’s national balance sheet and is responsible for estimating and releasing China’s quarterly macro leverage ratio. Additionally, he has participated in and presided over research and evaluation work for the National 11th, 12th, 13th, and 14th Five-Year Plans, and has led major commissioned projects for the Office of the Central Financial and Economic Affairs Commission as well as several major bidding projects for the National Social Science Fund.

Zhang reminds us that, viewing the current state of wealth distribution, the intensity of redistribution needs to be increased; however, special care must also be taken to maintain the compatibility and balance between redistribution policies and incentive policies.

Focusing on Development: Wealth Accumulation and Distribution Are Equally Important

Cailianshe: The Report to the 20th National Congress proposed "regulating the order of income distribution and regulating the mechanism of wealth accumulation." How do you understand this expression?

Zhang Xiaojing: Examining the present, the state of income and wealth distribution in China is not optimistic. The Gini coefficient for income distribution is around 0.466, while the Gini coefficient for wealth distribution is much higher. The widening distribution gap not only restricts the improvement of resident consumption potential but also easily creates conflicts of interest and social internal friction, potentially even constituting a factor for social instability. Therefore, regulating the order of income distribution, regulating the mechanism of wealth accumulation, and solidly promoting common prosperity have become realistic and urgent tasks, which must be placed in a more prominent position on the Central Government's policy agenda.

Looking to the future, solidly promoting common prosperity is highly consistent with achieving the Second Centenary Goal [3]. From the perspective of the history of socialist development, in the "process of quantitative accumulation and developmental change increasingly approaching a qualitative leap," common prosperity will be one of the most prominent signs of a "qualitative leap." From the perspective of promoting socialist modernization, common prosperity is an important characteristic of Chinese-path modernization. Regulating the order of income distribution and the mechanism of wealth accumulation are necessary paths to achieving common prosperity.

Focusing on development, wealth accumulation and distribution must not be neglected at the expense of each other. China is the world's largest developing country, and China is still in the primary stage of socialism [4]. Development remains the foundation and key to solving all of our country's problems. Economic development is fundamental to realizing the grand strategic goal of socialist modernization. From the perspective of development, wealth accumulation is the foundation and the prerequisite. Therefore, when we discuss regulating the wealth accumulation mechanism, we must consider not only the fairness of distribution but also the sustainability of accumulation. Talking about distribution in isolation from accumulation is unrealistic.

Cailianshe: In your view, what problems currently exist in China's income distribution order that need to be regulated?

Zhang Xiaojing: First, the urban-rural income gap remains large; the property income of rural residents (especially land revenue) needs more effective protection.

Second, regional gaps remain large. This involves the people-centered New-type Urbanization Strategy, the Regional Coordinated Development Strategy, and the intensity and precision of redistribution means such as government taxation, social security, and transfer payments.

Third, the share of labor income within national income is continuously declining; the relationship and relative positions of capital and labor need adjustment and rebalancing.

Fourth, the government's capacity to regulate income gaps through redistribution policies needs improvement. China's intensity of income redistribution is lower than that of OECD countries. After taxes and transfer payments, the Gini coefficient in OECD countries can drop by as much as 35.3%, while China's redistribution policies only reduce the Gini coefficient of the income gap by about 10%.

Protection of Property is the Prerequisite for Sustainable Wealth Accumulation

Cailianshe: In your view, what issues should be noted regarding "regulating the wealth accumulation mechanism"?

Zhang Xiaojing: Regulating the wealth accumulation mechanism requires focusing on the following three points:

First, the sustainability of the wealth accumulation mechanism. This sustainability is reflected in two aspects: First, "those with permanent property have permanent hearts" [5]—the protection of property is the prerequisite for sustainable wealth accumulation. Second, polarization should be avoided in the process of wealth accumulation. The nature of wealth (capital) is to accumulate and expand; if allowed to accumulate infinitely, it will eventually lead to its opposite (such as the so-called "Occupy Wall Street" movement), which is unsustainable. Therefore, it is necessary to avoid excessive polarization through various institutional and policy arrangements, including taxation, regulation, anti-unfair competition, and advocating for charity and public welfare.

Second, the regulation of the wealth accumulation mechanism must be conducted within a rule-of-law framework. The socialist market economy is essentially a rule-of-law economy. It must take the protection of property rights, the maintenance of contracts, a unified market, equal exchange, fair competition, and effective supervision as its basic orientation. Regulating wealth accumulation must be done according to law. Progressive taxation, property taxes, and inheritance taxes all need to be advanced in an orderly manner based on national conditions and thorough demonstration.

Third, balancing the compatibility between redistribution policies and incentive policies. China is still a developing country, and wealth accumulation remains an important prerequisite for future development. Therefore, while redistribution needs to be strengthened, we must avoid creating "reverse incentives" where strong redistribution policies suppress the creativity and vitality of market entities. The resulting negative effects could suppress the wealth creation of the entire society, which we must strive to avoid.

The Real Accumulation of Wealth for Chinese Households Only Began with Reform and Opening-up

Cailianshe: Recently, your book Wealth Accumulation and Distribution in Traditional China: A Study of Social Wealth in the Yangtze River Delta in the 1820s was published and has received widespread social attention. What are the core views of the book regarding wealth distribution?

Zhang Xiaojing: Looking at the wealth-to-income ratio (an important indicator used by Thomas Piketty, author of Capital in the Twenty-First Century, to measure inequality; a higher ratio means greater inequality), the wealth-to-income ratio in the Yangtze River Delta, represented by the Hua-Lou region [6], was roughly around 3 (2.91–3.21). This was similar to the United States and Sweden during the same period and far lower than Northwestern European countries like Britain, France, and the Netherlands at that time (or earlier). This result suggests that the level of wealth accumulation in the Yangtze River Delta was not high, and social distribution was relatively fair.

Regarding specific wealth distribution:

  1. Between the public and private sectors: In the 1820s, the household sector accounted for 94.23% of assets, while the public sector accounted for only 5.77%. Households held an absolute dominant position. Meanwhile, assets directly controlled by local governments accounted for only 3.13% of total social wealth. This indicates that Hua-Lou society was a typical "small government" or "limited government."
  2. Between urban and rural areas: Rural residents in Hua-Lou held over 25 million taels of wealth, with an average of about 330 taels per household. Urban residents held over 15 million taels, averaging about 320 taels per household. The urban-rural gap was small. It can be seen that although the urbanization rate in the Yangtze River Delta had increased compared to the past, development between urban and rural areas remained coordinated.
  3. Internal distribution within the household sector: The top 10% of wealthy families held 53.55% of household wealth (approx. 1,740 taels per household); the middle 80% of families held 44.07% (approx. 180 taels per household); and the bottom 10% held only 2.39% (approx. 78 taels per household). The average wealth of wealthy families was about 10 times that of middle-income families and 20 times that of poor families. Compared to other regions (where the top 10% in Europe held over 80% of private wealth), the wealth polarization in the Yangtze River Delta was not severe. Given the relatively sufficient supply of public goods, it could be called a model of "common prosperity" in the pre-industrial period.

Cailianshe: Based on your observations, what are the characteristics of China's current wealth accumulation?

Zhang Xiaojing: I believe the current characteristics are:

  1. The high savings and high accumulation before Reform and Opening-up facilitated rapid wealth formation, but this was mainly reflected in government wealth; household wealth growth was negligible. At the beginning of New China [7], the foundation was thin, people lacked adequate food and clothing, and the nation faced the heavy task of "catch-up" development. Thus, mobilizing resources, forced savings, and increasing the accumulation rate became the central tasks. High accumulation under forced savings accelerates wealth formation, but the wealth formed is primarily government wealth. The growth of household wealth is a story that began after Reform and Opening-up.
  2. Since Reform and Opening-up, China has created a growth miracle. Social wealth (the sum of net wealth of all sectors) has accelerated significantly, even exceeding the growth rate of national income. The speed of personal wealth accumulation is "unprecedented": developed economies took centuries, whereas for Chinese households, true wealth accumulation only began with Reform and Opening-up.

According to our latest estimates, as of 2019, China's total net social wealth reached 675.5 trillion yuan, with a per capita net social wealth of 482,000 yuan. Within this, household sector wealth accounted for 512.6 trillion yuan, with per capita household wealth reaching 366,000 yuan.

In 1978, per capita household wealth was less than 400 yuan. After Comrade Deng Xiaoping’s Southern Tour speeches in 1992 [8], it crossed 4,000 yuan. It broke the 10,000 yuan mark in 1995, 100,000 yuan in 2009, and reached 366,000 yuan in 2019. The compound annual growth rate of per capita household wealth was 19.8% from 1978–1989, 25.7% from 1990–1999, 18.9% from 2000–2009, and 13.3% from 2010–2019. The growth was fastest in the 1990s.

Cailianshe: What, then, are the characteristics of China's current wealth distribution?

Zhang Xiaojing: Regarding wealth distribution, I think there are several characteristics:

  1. Before Reform and Opening-up, although distribution tilted toward the government, the internal distribution among residents was relatively equal, with no serious polarization.
  2. After Reform and Opening-up, the entire society unleashed unprecedented vitality. With marketization and the development of the non-state economy, household wealth accumulation began to outpace government accumulation. Because rural reform took the lead, rural incomes grew rapidly in the early stages, narrowing the urban-rural gap.
  3. Since 2000, with accelerated globalization, urbanization, and real estate development, wealth accumulation has accelerated, but differentiation has also intensified.

Credit Suisse’s Global Wealth Report 2021 shows China’s wealth Gini coefficient rose from 0.599 in 2000 to 0.711 in 2015, eased to 0.697 in 2019, but rose again to 0.704 in 2020 under the impact of the pandemic. A recent study, supplementing missing high-income data using "rich lists," suggested the wealth Gini coefficient might be as high as 0.8.

Furthermore, based on the World Inequality Database, in 2000, the top 10% in China held less than 50% of total household wealth, lower than in the US, France, or the UK. Since then, China's wealth distribution has risen rapidly from a relatively equal level, surpassing European countries that emphasize social equity (like Britain and France) and approaching the levels of Russia and the US. The share of wealth held by the top 10% rose from under 47.8% in 2000 to 66.7% in 2011 and has remained basically stable over the last decade.