Helping low- and middle-income earners make money is the core task for this year!

Ask AI: Why is rising income for low- and middle-income earners becoming a key to economic transformation?

Sometimes, a crisis is not entirely without benefits.

Moreover, we should really thank the downturn, because it forces policymakers to make certain adjustments that were previously impossible to complete.

This is because whether it’s a country or a business, everyone moves forward through continuous trial and error: when problems arise, you optimize and adjust; when problems arise again, you optimize and adjust again… and in that state, society keeps developing and making progress.

The most typical example is the U.S. stock market. People think the U.S. stock market is the highest-quality market in the world, because the system is fair and information is transparent. But the question is: since the U.S. stock market was born, has it always been this publicly transparent?

Absolutely not. In the first 50 years of the U.S. stock market, compared with the “A-shares” market, things could only be worse, not better. As for the so-called system, information, and so on, all of them have only gradually improved after repeated “bombs” and near-disasters, when the system was patched and repaired.

This is the evolution of the U.S. stock market over the past 100-plus years as summarized by Grok. It is precisely after each round of vulnerabilities and “explosions,” regulators, through legislation and iterative rule changes, have carried out remediation, making the overall market’s resilience increasingly strong. All of this has accelerated the process of the U.S. stock market becoming the most mature and most liquid market in the world.

This kind of evolutionary, growth-by-iteration process is the most典型 example of an anti-fragile process. And the ultimate result of anti-fragility is: you live longer, and you live better.

What this tells us is: don’t be afraid to make mistakes. What matters is how you respond once those mistakes have already occurred.

If corrections are made in a timely way—improving the system, optimizing procedures—then this is a benign cycle of positive feedback and evolutionary progress.

If it’s something else, then it’s negative feedback, and you need to be on guard!

The reason I’m writing all of this is that after the New Year, starting with the two sessions (the NPC and CPPCC), I saw some reflections brought on by certain institutional changes.

For the first time in history, the growth of residents’ income was written into a central government decision document.

Last month, the full text of the “15th Five-Year Plan” for the 2026–2030 period was released. It clearly proposed implementing a plan to increase the income of urban and rural residents. The plan is aimed at effectively increasing the income of low-income groups and raising the proportion of low- and middle-income earners.

The goal is to form an “olive-shaped” distribution pattern.

This is the first time a central decision document has planned, and systematically, to increase residents’ income.

So why do this?

In the government work report delivered on the morning of March 5 at the two sessions, the premier said that the government will formulate and implement the plan to increase the income of urban and rural residents as an important task for implementing a series of measures under the special campaign to boost consumption.

From this, we know the purpose of increasing residents’ income is to boost domestic consumption.

A fact that everyone knows is that over the past few years, the domestic economy has undergone a major transformation.

Earlier, it was always investment-led: from the start of industrialization, and on through urbanization after 2010—none of it was not driven by investment as the engine for growth.

Now, the marginal utility of investment is declining, and exports have also run into geopolitical crises—leaving consumption as the biggest, and the most reliable, lead driver.

But for all kinds of reasons, domestic consumption has remained lackluster, and even “pulling it hard” hasn’t been able to lift it.

The data calculated by Liu Yuanchun, president of Shanghai University of Finance and Economics, is that in 2020 China’s household consumption rate was 38.8%. Argentina’s per-capita GDP is similar to ours, but its consumption rate is 63%—still lower than the U.S.’s 68% and the U.K.’s 64%.

What result does this cause? At the critical moment of transformation, consumption falling behind drags down the economy’s underlying fundamentals.

So, if consumption is breaking down, is there any other remedy?

There isn’t.

The contradiction is right here. If consumption can’t be relied on and there’s no other option, then the only choice is to come back to consumption in the end.

The ultimate answer is: do everything possible to lift consumption.

If consumption can’t be lifted, what should you do? Sort out every process, identify all pain points and difficulties, then tackle them one by one—break through and connect them.

Put more seriously: it’s a crisis-driven shutdown reform!

So, for consumption, the core point of the central policy is to increase income for low- and middle-income groups.

Why are incomes for low- and middle-income groups low?

As said by the former deputy director of the Leading Group Office of the Central Committee for Financial and Economic Affairs, it is a problem with the income distribution system. More specifically: in the initial distribution of national income, the share of residents’ income is low; the gap in residents’ income is large; and the low-income group is large in size and has low income.

Previously, I saw data from Caixin showing that the income of an industrial worker in the United States can support 4.5 people, while in China, a worker’s income can support only 1.5 people.

So, China must ensure full-family employment in order to cover the household’s day-to-day expenses.

That’s the difference brought by income distribution institutions. Using Yang Xiaokai’s theory, it’s called China’s “latecomer disadvantages.”

According to data from the Organisation for Economic Co-operation and Development, in the initial distribution of national income, from 2008 to 2020, China’s residents’ income share averaged 51.4%, while the U.S. was 64.7%; in the redistribution stage, China’s residents averaged 57.97% and the U.S. was 77.36%, which is even lower.

This is also why we are particularly concerned about GDP growth rates. Because only when growth is stronger, when everyone divides the cake, each person can get more.

This is precisely the important significance of the “15th Five-Year” institutional reforms.

These are the clearest signals we can see regarding reform of the income distribution system.

Because increasing residents’ income cannot mean the government directly hands out money to residents. Instead: first, maintain a reasonable economic growth rate and keep expanding the cake; second, improve institutional mechanisms such as income distribution to fundamentally resolve the ratio relationship between what people contribute and what they earn.

During the next five years in the “15th Five-Year” plan period, this institutional reform will be a major battlefront.

It can be expected that if this reform is completed successfully this time, China will successfully cross the middle-income trap, and the country’s economic strength will reach a new level.

Matching this macro policy is the investment-direction reform that has recently been much discussed—shifting from investing in things to investing in people.

In the past, money was invested in factories, infrastructure, and real estate—this was investing in things.

In the future, you will invest money in people: education, healthcare, social security, childcare, retirement, and income growth.

This is a systemic solution for residents’ issues related to employment, income levels, income expectations, and the social security system.

Still the same saying: China’s policies are all “out in the open”—everything is a deliberate strategy. And once a decision is made, it will be implemented consistently, and it will also have policy continuity.

So as long as you study carefully and really understand the policies, you will understand the direction of the future.

Source: MiZhai (ID: MizhaiPlus)