The Effect Of Incomplete Factor Market On Residents’ Income In China

This study is to explore how the government intervention exist in the Chinese factor market affect the residents’ income. In our opinion, the traditional view emphasizes the economic efficiency was affected by the mismatch of resources which were caused by incomplete factor market, but it has long been neglected the effect of incomplete factor market on the distribution of national income. We believe that it is this makes limitation for people to aware of national income distribution, also makes it difficult to answer the questions of the economic reform. This paper is to re-examine the connotation of Chinese incomplete factor market, to explore possible ways how incomplete factor market affect income distribution, and provide logically consistent explanation for the reforms phenomenon, thereby expand awareness, and correct some misunderstanding in the reform process.The government intervention exist in the Chinese factor market have been confirmed by a large number of documents, in order to safeguard the interests of urban residents, maintain low financing costs for state-owned enterprises, and to maintain price competitiveness of export enterprises, China carry out a wide variety of government intervention in the labor markets, capital markets and resource markets and even do some direct financial subsidies, which affect the market adjustment mechanism to play a role, but also cause foreign governments refuse to recognize China as a market economy country. This paper is to answer the problem how incomplete factor market affect the national income. To achieve this purpose, based on the fact that we tease out four ways to show how incomplete factor market affect the share of residents income:First, The subsidiary interests of the household registration system is still exist, the floating population does not enjoy public service of education, health care and social security, so peasant workers’ real wages were depressed; the business ownership discrimination exist on capital market which was charactered by financial repression. So state-owned enterprises are facing a lower cost of capital, and private enterprises are relatively facing low labor costs. Factor intensity of different parties make China factor substitution elasticity has a more substantial upgrade. In the neo-classical framework, factor substitution elasticity and capital deepening both reduce the labor income share. The residents’ share decline mainly occurred in the initial distribution phase, the labor reward is the main source of income for the household sector in the initial distribution, the fall in share of labor income is the cause of sustained decline for years.Secondly, financial repression reduces deposit rates, and also reduce residents’ property income. For a long time, there is a "deposit pipe caps, pipe loans lower limit" of interest rate, which controls in Chinese financial sector, and makes price can not reflect its capital scarcity. There is also ownership discrimination for loans object. All of the above elements make state-owned enterprises and local financing platform with overinvestment, show the overweight characteristics of Chinese industrialization, make the government and enterprises gradually accounts much more share of national income, and also affect the property income residents. Although property income accounts lower in the income, but the decline in property income make a further deterioration in the residents share of national income distribution.Thirdly, the land requisition system reduces the farmers’land property income. the government have squeezed the property that should belong to rural residents’. The current land system enabled the government to enjoy the most land premium produced in the process of urbanization, the farmers’property income can not get protection, makes the process of urbanization should be narrowing the income gap between urban and rural areas instead of getting further expend. It is not conducive to the social stability and coordination of urban and rural areas.Fourthly, resources pricing mechanism is not reasonable and the arrangement of exchange rate system jointly exacerbate inflation, causing devaluation of residents’ monetary income. Local governments’"investment competition"makes the industrial land, minerals and energy (do not reflect the external costs) with lower prices, these makes Chinese export enterprises have cost advantages, in conjunction with the "managed floating exchange rate regime", the intervention from central bank in the foreign exchange market makes exports maintain a sustained growth in demand, and the increasing foreign reserves the central bank more passive while putting the base money, but also cause the domestic inflation and make residents monetary income devaluation.Through further analysis, we believe that it is the man-made institutional arrangements and institutional design cause Chinese residents’ income accounts lower proportion of national income. Although the Chinese economy has experienced the longest duration and the fastest average annual growth rate in history, but various man-made institutional arrangements make the household sector only enjoy few of benefits from the economic growth. The share of consumption in GDP is too low, which deviate from the economic growth welfare. The key factor to determine whether Chinese economic could continous grow is the sustained release of reform system. Dependence on investment and exports makes Chinese economic growth very unstable. Sustained release of reform and system bonus are very important to increase residents’ income, stimulate consumption and domestic demand and macroeconomic growth. It is necessary to further promote Chinese economic reforms from the household registration system, the financial angle suppression, land requisition system and exchange rate system. It is also essential to reduce government intervention to the formation of factor prices and establish market allocation of resources. "Actively intervene" policy toward is questionable, "go with the flow" policy could be further depended.