OECD Secretary-General

Inclusive Growth and Urbanisation in China


Remarks by Angel Gurría, OECD Secretary-General, delivered at a joint OECD/NDRC seminar

24 March 2014, Beijing, People’s Republic of China

NDRC Vice Chairman, Xu Xianping, NDRC experts, colleagues, ladies and gentlemen.

It is a great pleasure to be here with you today for the joint OECD/NDRC seminar on Inclusive Growth. I am thrilled to share some of the key results of our ongoing and exciting work on Inclusive Growth.

I hope that this morning we can set the ball rolling on a significant and mutually beneficial dialogue that will demarcate a path along which China can grow more inclusively. Working together we can ensure that the benefits of increased growth are felt up and down this country, by businessmen in Shanghai and farmers in Ningxia alike; and by both migrant workers and non-migrant workers, here in Beijing.

The Changing Face of China: The Foundations for Inclusive Growth

Rapid rates of economic growth have changed the face of China. This dramatic change has in part been partly driven by the fastest pace of urbanisation in recorded history, which in 2012 saw China count more urban dwellers amongst its population than rural ones. The figures are spectacular: in the five years to 2013, real national income rose at an annual average rate of 8.6% , and the number of people living in absolute poverty fell to 82.5 million.

China's achievements have been immense and you deserve credit for the way in which you have managed the phenomenal pace of economic expansion and urbanisation. But, in recognising China's undoubted success in fighting poverty and raising living standards, we should also reflect on the potential obstacles to sustaining that success. In particular we should discuss the threat of inequality to wellbeing and how it can dampen long-term economic growth.

Despite a gradual reduction over the last five years, China’s latest Gini co-efficient - a standard measure of income inequality - remains strikingly high at 0.47. This is higher than the OECD average of 0.32 , and just below the levels of inequality seen in the most unequal countries in the OECD area like Mexico, Chile and Turkey.

Of course, this is not to say that China is the only country where inequality is an issue. On the contrary, inequality is attracting attention worldwide. Nowhere more so than in OECD countries, where the gap between rich and poor is wider than it has been in 30 years. Indeed, the average income of the richest 10% of the population in the OECD is now around 9.5 times that of the poorest 10%, whereas it stood at only 7-fold 30 years ago.

The destructive effects of inequality extend far beyond income! Access to employment, healthcare outcomes and educational opportunities are all disproportionately determined by socio-economic status. Most strikingly, recent data from 15 OECD countries showed that, at age 30, people with the highest levels of education could expect to live, on average, 6 years longer than their poorly educated peers .

The OECD's Approach: an innovative tool for policy makers

The OECD's Inclusive Growth Initiative came about in the wake of the financial crisis, due to growing concern amongst our member countries about the long term consequences of growing unequally. Our goal is to enhance policy makers’ understanding of the adverse effects of rising inequality on growth, with the overarching aim of turning inclusiveness into a driver of strong economic performance.

The OECD’s Inclusive Growth framework takes up this challenge. Unlike traditional approaches to tackling economic inequality, our approach is multi-dimensional It takes account of non-income related outcomes, such as employment and health; giving us a better gauge of prosperity.

Our approach also emphasises the distributional aspect, so that policies can be orientated towards specific social groups, such as the poor or the median household. It explicitly recognises that policies affect different social groups in different ways, and that this needs to be taken into account during the process of policy formulation.

Most importantly, our approach is policy relevant and actionable. This helps policy makers to identify, analyse and exploit synergies among policies that can boost both equity and growth, and aids them in taking compensatory action when trade-offs are present.

Our innovative approach has generated a good deal of interest in OECD countries, and can be of enormous value to a key strategic partner like China.

Growing Inclusively: A Chinese Solution

Indeed, China has already endorsed a sort of “Inclusive growth strategy”. In the 12th Five Year Plan, you sought to improve the provision of basic public services and to implement more effective institutional reforms in order to reinforce efficiency and equity objectives. Going forwards, it is of the utmost importance that you persist with these efforts in order to build upon the improvement in income distribution we have already seen over the past five years.

In our new OECD report, China: Structural Reforms for Inclusive Growth, we have highlighted a number of areas where policies can be improved to ensure that the proceeds of economic progress are more equitably distributed.

I would like to share a few of these policy recommendations with you here today.

Firstly, one of the central tenants of Inclusive Growth is ensuring equal access to opportunity and a high degree of social mobility. In China, increased mobility will help to spread the gains of increased prosperity and re-orient the labour market away from agriculture towards services and manufacturing. This will require policies that boost geographical mobility and raise skills amongst poorer agricultural workers.

Secondly, China must ensure that barriers to increased mobility are dismantled, because barriers to economic migration are in effect barriers to increased social equity. Social entitlements can no longer be tied to the landMoving from Beijing to Shanghai can mean losing your welfare benefits. A universal social safety-net will encourage risk taking, boost economic performance and spread the benefits of increased opportunity far and wide.

Finally, turning to rapid urbanisation, China must see to it that cities develop in a smart fashion. The proportion of urban residents in China is expected to approach 70% by 2030 , and Inclusive Growth cannot be achieved without inclusive cities.

We believe that China should prioritise the building of affordable housing in cities to ensure that growing demand for living-space does not lead to the economic gains of urbanisation being accrued by already prosperous property owners. Ensuring equitable access to welfare at the local level will also help ensure equity is at the heart of urban expansion.

The OECD also believes it is vital to deal with environmental degradation in China’s cities. Disadvantaged groups are exposed to concentrations of air pollutants such as Sulphur dioxide, which are several times over WHO standards . Recent OECD data shows that the cost of premature deaths linked to air pollution in China rose from around USD 800 billion in 2005 to some USD 1.5 trillion in 2010, roughly the size of Mexico’s GDP that year!

Combatting excessive pollution will require better urban planning and the development of comprehensive public transport infrastructure. Such measures will have to be coupled with policies that reduce traffic congestion and reduce the carbon footprint of heavy industries. Ultimately, this will help to reduce the exposure of Chinese cities to severe climate impacts.

Vice Chairman, ladies and gentlemen,

Reassessing the way in which China grows and placing equity at the centre of the 13th Five Year Plan growth strategy will help to ensure China’s long term growth prospects, giving every citizen the chance to lead a prosperous and fulfilling life.

The OECD stands ready to continue supporting China along its path to rebalance the economy and improve social equity.

Thank you.