Boost household incomes, says top economist

In 1993, before the reform materialized, central government revenue accounted for only 22 percent of total fiscal revenue. In 2012, it climbed to 47.9 percent. In 1993, the fiscal revenue to GDP ratio was 11.2 percent. In 2012, it was 22.6 percent.

The rise of government income ratio was accompanied by a decline in the household income ratio. According to Song Guoqing, a Peking University economics professor and an academic member of the central bank's monetary policy committee, the share of household income in the national income pie was 67.5 percent in 2000. It steadily declined to 58.3 percent, the lowest point in history, before it picked up a bit to 60.8 percent in 2011.

The fall of the household income ratio was considered by many economists as the underlying reason for China's excessively low household consumption ratio, which now stands at 35 percent of GDP, way behind international norms.

Zhu Min, vice-president of the International Monetary Fund, has said that raising the household income ratio is key to rebalancing the country's economic growth model.

"Investment to GDP ratio has reached nearly 50 percent. What's worrying is the steady decline of the marginal return of investment. That means adding investment could do very limited good for growth," Zhu said.

The only way to boost domestic demand is to create more money-making opportunities for people, according to Zhu. This can be realized by boosting the service industry and tilting government expenditure toward livelihood areas instead of big investments.

However, Song said raising the household income share should not only be viewed from a "boosting consumption" perspective, which he said sounds like "feeding the cow with the purpose of milking it".

"Gaining income for households in itself is a purpose. Whether they spend it or save it, it is their decision," said Song.

Liu said to make way for a better household income ratio, the corporate income ratio should be reduced. Reform should be implemented to squeeze the incomes of resource and monopoly corporations.

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