Why fixing inequality is central to China’s common prosperity goal
China must urgently deal with the issue of the country’s wealth inequality as letting it fester could put the goal of achieving common prosperity in danger and undermine faith in the government among the impoverished and young people who lack hope for the future
Last month, Panzhihua, a city in western China’s Sichuan province, announced this would be its “breakthrough” year in establishing itself as a common prosperity pilot zone. It is following the example of Zhejiang province in the east, another such pilot zone which was set up in 2021. The idea is to push for a high-quality development that focuses on closing the economic gap between regions, between urban and rural areas, and in income.
This is encouraging news, but will such efforts work? Will there be more pilot zones like these? Will China really achieve common prosperity, or is it mainly a political slogan? The truth is still emerging.
The concept of common prosperity is not new. It first appeared in 1953 during the Mao era as he pushed China towards socialist collectivisation.
Around 1979, shortly after paramount leader Deng Xiaoping had introduced economic reforms and opening up, he declared that China’s path to common prosperity would be to let some people and regions get rich first to help the rest. The term gained new significance in 2021 when President Xi Jinping vigorously promoted it as a way to guard against economic and political polarisation.
Since 1978, some people and regions have indeed become rich. China has transformed from one of the world’s poorest countries to its second-largest economy, and from a relatively equal society to one of the most unequal in the world.
The structural flaws inherent in China’s political system – from state-controlled capitalism to corruption – have all contributed to the problem. The top 10 per cent income share rose from 27 per cent in 1978 to 41 per cent in 2015, approaching levels seen in the United States, according to research by economist Thomas Piketty and his colleagues.
Xi clearly realises the risk of such income and wealth disparities, which could stifle growth and erode confidence in the leadership. Defining common prosperity is complicated as it has many implications and associated aspirations. In one sense, China’s pursuit of common prosperity seeks to build up the middle class so it can become more of an engine of consumption.
People shop for snowboards at a cultural industrial park in Liangjiang new area, southwest China’s Chongqing municipality, on February 15. Photo: Xinhua
At the same time, China is cracking down on excessive wealth and monopolies while promoting “people-centred development”. “We must not allow the gap between rich and poor to get wider,” Xi has said.
It would be difficult to argue with him there. To achieve “common prosperity”, there must be accompanying policies. In 2021, economist George Magnus penned an article titled “Common Prosperity: More Slogan than Solution”, and he still holds that position today.
Some actions have been taken, with tech giants such as Tencent and Alibaba being pressured to make “voluntary donations” to the state. China has also held trials on property tax, which was seen as a way to help curb speculation and address social inequality.
So far, though, none of the measures taken have proven to be game changers. No fiscal or redistribution policies have taken hold, and China is struggling to achieve its goals in terms of wealth redistribution.
To give the government credit, there have been some efforts to deal with income inequality, primarily aimed at resolving extreme poverty. Official figures indicate some 800 million people have been lifted out of extreme poverty.
People in a village in Liuzhou, in southern Guangxi Zhuang autonomous region, watch a February 2021 live stream of the ceremony to mark China’s accomplishments after President Xi Jinping declared the country had achieved the “human miracle” of eliminating extreme poverty. Photo: AFP
China has also made progress in fighting poverty through its dibao system, which provides a minimum living standard guarantee. Between its nationwide adoption in 2007 and 2016, some 45.8 million rural residents and 14.8 million urban residents benefited from it. Although the dibao system has helped alleviate poverty, it has failed to make a significant impact on income disparity.
China must urgently deal with this issue as the dangers of such glaring wealth disparity are increasingly clear. The country’s Gini coefficient – a measure of income inequality – has grown near 0.47 in recent years after falling from its 2008 peak. The government has not set a target for reducing this number, but Cai Fang, a member of the People’s Bank of China’s monetary policy committee, says it should be kept below 0.4 to achieve common prosperity.
Besides reforming redistribution schemes and a regressive tax system, common prosperity demands a better social safety net for those less fortunate and more equal access to healthcare and education. Education used to be an equaliser, but now it has been made into an industry. Children from poor, rural areas stand little chance at competing with their richer urban cousins.
The privileges of state-owned enterprises should be limited, and the private sector should be allowed equal access to financial services and bank loans so it can also flourish. Carrying out those reforms will require the authorities to embrace greater liberalisation and move away from the “party leads everything” mantra – something they might hesitate to do.
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‘Let it rot’: surviving China's high unemployment and cost of living
‘Let it rot’: surviving China's high unemployment and cost of living
Xi and other officials have criticised the phenomenon of tang ping, or lying flat, as young people reject a culture of overwork. This is hardly surprising. With social mobility in China increasingly coming to a standstill, many people see little hope of climbing the social ladder no matter how hard they try.
These young people and the millions struggling at the bottom of society need hope. The government has an obligation to create a fair, just society that encourages them to strive for a better future. An equitable society is a key feature of a socialist country, so narrowing income disparity is an absolute must.
If not, Magnus has this to say: “The political and social dangers are that people become disillusioned, frustrated, maybe even politically restive one day.” I couldn’t agree with him more.
Lijia Zhang is a rocket-factory worker turned social commentator and the author of a novel, Lotus
