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China’s push for common prosperity to address the widening wealth gap may mark the end of an era in which efficiency is favored over fairness

By NewsChina Updated Nov.1

On August 20, in a high-profile meeting chaired by Chinese President Xi Jinping, the central leadership announced that after becoming a “moderately prosperous society,” the country’s next step is to achieve “common prosperity.” “China now needs to shift its focus to enable more people to share the opportunity of wealth in the next stage of national development,” Xi said at the meeting.  

The term rapidly became a catchphrase, one observers believe will serve as an underlining doctrine that guides China’s macro-economic policies in the coming years.  

The concept of common prosperity is not new. It was a keynote idea used by China’s former leader Deng Xiaoping to promote reform and opening-up four decades ago. “We can allow some people to get rich first, who will then guide and help others to get rich together,” reads one of Deng’s most well-known quotes.  

Deng’s vision, at least part of it, has materialized. After four decades of rapid economic growth, China is now home to some of the world’s richest people.  

But as incomes and wealth gaps between different groups widen, the common prosperity concept re-emerged and gained traction in recent years. At the National Congress of the Communist Party of China (CPC) held in 2017, the leadership set a goal to “make major progress” in common prosperity by 2035, and to achieve overall common prosperity by 2050. 
As the government launched massive poverty alleviation programs, the term was more frequently mentioned. According to a report by the South China Morning Post, Xi referred to “common prosperity” 30 times in speeches and meetings in 2020, and 65 times so far this year. 

By elevating the concept to the center of China’s second centenary goal of “building a modern socialist country” by 2050, the government’s integration and implementation of the doctrine no doubt has long-term implications for China’s economic and social policies.  

Wealth Gap 
For many, given the ever-widening wealth disparity in China, the elevated importance of common prosperity in the leadership policy agenda is unsurprising and overdue. According to a Credit Suisse report, in 2020, the wealthiest 1 percent of the Chinese population held 30.6 percent of the country’s wealth. The past year alone saw 250 new billionaires.  

According to another report released by China Merchants Bank and market research firm Bain & Company, the number of highnet-worth individuals, referring to those with liquid assets of over 10 million yuan (US$1.55m), has seen annual compound growth of 15 percent between 2018 and 2020. Estimates suggest this group will increase from 2.65 million to nearly 3 million by the end of 2021 in the Chinese mainland.  

In contrast, 600 million people, 43 percent of China’s households live on a monthly income of 1,000 yuan (US$155) per person per month, said Premier Li Keqiang in a 2020 speech.  

According to Li Shi, an economist from Zhejiang University, despite the expansion of the middle-class, China’s social structure is “barbell-shaped,” with many rich and poor people at the top and bottom, rather than the desired “olive-shaped” where middle-income households are the mainstay of the economy.  

After mass poverty alleviation programs, China declared it had eradicated absolute poverty in late 2020. But the proportion of people living in relative poverty has been rising in recent years and reached 20 percent in 2018.  

Li said that to boost economic growth China’s overall policy was to prioritize efficiency over fairness in the past, but after achieving “moderate prosperity” with per capita GDP reaching the landmark level of US$10,000 in 2020, “it is time to balance the need for efficiency and fairness,” Li added.  

Policy Implications 
But given China’s history of economic egalitarianism, the push for common-prosperity from the top level has rattled business circles, with many concerned that China may return to its old days of orthodox communist doctrine.  

The highlighting of “third distribution” of wealth at the meeting, referring to high-income groups and businesses giving back to society, adds to existing anxiety that authorities may resort to seizing assets from the rich to achieve the goal of common prosperity.  

In a news briefing held on August 26, Han Wenxiu, an official from the CPC Central Financial and Economic Affairs Commission, said the concept does not mean “robbing the rich to help the poor” and China will not return to economic egalitarianism.  

Noting that common prosperity is a “fundamental characteristic” of a socialist society and “a common aspiration” of the Chinese people, Han said that common prosperity can only be achieved through “working hard together” and that the government will not “fall into the trap of welfarism.”  

Han also said that the government will endeavor to increase the size of the pie and divide it more fairly and seek to promote high-quality development to reduce income disparity and prevent economic polarization.  

Regarding the emphasis on “third distribution,” building upon the first distribution of salaries and the second distribution through taxation, Han said that it will be completely voluntary, though the government will encourage it through relevant reforms.  

Many experts believe that China could in the immediate future introduce inheritance tax, property tax and capital gains tax. The absence of these in China’s tax regime has long been criticized for disproportionately favoring the rich.  

In an article published on people.cn, Li Daokui, chief economist at the New Development Bank and former adviser to China’s central bank, stressed that the common prosperity concept should go beyond income to center on the comprehensive development of the Chinese people.  

“It should not be just about income,” Li said, “What is more important is education, health, employment and a sense of gain.” Authorities have already taken action. In July, authorities issued a guideline ordering online platforms to ensure food delivery drivers earn above the country’s minimum wage and are freed from “unreasonable demands” placed upon them by algorithms.  

On August 26, China’s top court, the Supreme People’s Court, and the country’s Ministry of Human Resources and Social Security issued a memo that outlined 10 legal cases in which Chinese courts ruled against employers for labor rights violation.  

The move is a sign that China is becoming more serious about protecting labor rights, and a warning against the “996” work culture found in many China’s tech giants, which refers to working from 9am-9pm for six days a week, although employees in this sector are generally well-paid.  

In the months leading to the launch of the common prosperity doctrine, China’s leadership warned repetitively about “reckless capital expansion” and moved to strengthen regulations on a range of industries, including crypto miners, internet companies and more lately tutoring firms. 

Although none of these actions have official links to the common-prosperity agenda, many believe that a new era that prioritizes fairness over efficiency has come.  

Pilot Program 
Besides these measures at the national level, China launched a pilot program in June to establish an exemplary zone in Zhejiang Province for common prosperity.  

Located in China’s eastern coastal region, Zhejiang is one of the most prosperous provinces in China. With an average per capita annual disposable income of over 52,400 yuan (US$8,110), Zhejiang ranks third nationally after Shanghai and Beijing.  

Zhejiang is also where the income disparity between urban and rural residents is the smallest. According to survey data released by the National Bureau of Statistics, middle-income households, classified as having an annual disposable income of between 100,000 and 500,000 yuan (US$15,500-US$77,400) account for 60 percent of all households in Zhejiang Province, twice the national average.  

In July, the provincial government of Zhejiang released an implementation plan aiming for “significant progress” in building itself into a pilot zone for common prosperity by 2025. Pinpointing 52 tasks and goals on income, employment, housing, education and public health to achieve by 2025, the plan offers a glimpse of what the Chinese leadership means by common prosperity.  

These goals include increasing the average annual per capita disposable income of residents to 75,000 yuan (US$11,600), have payment for labor account for over 50 percent of GDP, increase the proportion of middle-income households to 80 percent, increase enrollment in higher education to more than 70 percent and expand life expectancy to 80.  

The plan also pledges to build “public service circles” so urban residents do not have to walk over 15 minutes to facilities offering preschool education, health and elder care, and physical exercise.  

But Li Daokui warned against such short-term plans at the national level. “Achieving common prosperity will be a long-term goal, and we must not have the expectation that we can make major progress in a short time, such as within five years,” Li said in an interview with Hong Kong-based Phoenix TV.  

“It must not become a ‘Great Leap Forward’ movement, or it would seriously undermine China’s economic growth,” Li added.