Inclusive Growth toward a Harmonious Society in the People's Republic of China: Policy Implications

Article excerpt

This paper examines the policy implications of adopting a development strategy anchored on inclusive growth for the People's Republic of China (PRC). In response to rising inequality, more and more developing Asian countries are embracing inclusive growth, with its focus on creating economic opportunities and ensuring equal access to them, as the goal of development policy. Inclusive growth provides an effective means to create a harmonious society in the PRC. The paper argues that an inclusive growth strategy for the PRC requires continued reforms to keep growth high and sustainable, carefully designed redistributive policy to promote equal access to opportunities, and good governance and strong institutions to ensure economic and social justice and an even playing field.

I. INTRODUCTION

The remarkable economic growth of developing Asia, including the People's Republic of China (PRC), during the last two decades has been accompanied by rapidly rising income and nonincome inequalities. Concern is growing that the inequalities are leading to increasing political and social tensions in some countries and pose significant risks to the sustainability of Asia's growth. Reducing inequalities is a major development challenge facing developing Asia today. In response to this challenge, more and more Asian countries are adopting inclusive growth, with its focus on creating economic opportunities and ensuring equal access to them, as the goal of development policy.

This paper examines the policy implications of adopting a development strategy anchored on inclusive growth for developing Asia and for the PRC. Section II analyzes why developing Asia is embracing inclusive growth. Section III discusses the concept of inclusive growth as a development strategy and its policy ingredients. Section IV examines what inclusive growth implies for the PRC's policy choice in its march toward a harmonious society.

II. WHY IS DEVELOPING ASIA EMBRACING INCLUSIVE GROWTH?

Developing Asia has experienced rapid economic growth during the last two decades. For the region as a whole, per capita gross domestic product (GDP) at 2000 constant prices increased from $424 to $1,030 between 1990 and 2005, growing at an annual rate of 6 percent. This pace has few parallels in history. Across the region, growth was most pronounced in East Asia, at over 9 percent, and was driven largely by the PRC. Southeast Asia grew at an annual rate of 3.2 percent despite interruptions caused by the 1997 financial crisis. South Asia grew at 3.8 percent annually; although low, this growth nevertheless represents a significant improvement from the past, in particular, in view of the more recent acceleration in growth in several countries, including India and Pakistan. The rapid growth has led to a dramatic reduction in the level of extreme poverty in many countries. According to Ali and Zhuang (2007), the number of people living below the $1-a-day poverty line in developing Asia declined from 950 million in 1990 to about 600 million in 2005 (Table 1).

Despite rapid growth and reduction in extreme poverty, developing Asia still faces daunting challenges in the years ahead. In 2005, its average per capita GDP at 2000 constant dollar terms was less than 3 percent that of Japan and that of the United States, suggesting that the region has a long way to go in catching up with the income level of the developed world. Moreover, about 18 percent of its population still lives in extreme poverty, on less than $1 a day.

An emerging challenge for developing Asia is rapidly rising inequalities, leading to an increasing concern that the benefits of Asia's spectacular growth are not being equally shared. According to a recent Asian Development Bank (ADB) study, 15 out of 22 developing Asian countries1 experienced increasing income inequality between 1990 and 2005 (ADB 2007b). In the early 1990s, only four of the 22 had a Gini coefficient exceeding 0. …