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What is China’s common-prosperity strategy that calls for an even distribution of wealth?

What is common prosperity?

At an economic leadership meeting in August, Chinese leaders agreed that China must pursue a goal of “common prosperity” – where citizens share in the opportunity to be wealthy – as the main objective for the next stage of its development, while stressing the need to maintain an airtight economy that allows for that smoothing out of wealth.

According to the meeting notes, common prosperity was described as a means to “properly deal with the relationship between efficiency and fairness”.

The catchphrase refers to affluence shared by everyone both in material and cultural terms, not the prosperity for just a few nor an absolute equal distribution, and should be advanced step by step, the meeting notes explained.

Common prosperity is central to promoting well-being as China strives to achieve its second centenary goal of fully building a modern socialist country.

When was common prosperity first mentioned?

The idea of common prosperity was first mentioned in the 1950s, when China was a significantly poorer country, by founding father Mao Zedong.

But the phrase was then repeatedly mentioned by former leader Deng Xiaoping in the 1980s when China’s private sector began to emerge in some regions, creating disparity.

Deng said that allowing some people and regions to become rich first would speed up growth and would help achieve the ultimate goal of common prosperity.

In 1985, Deng is quoted as having said that “we will fail if our policies lead to rich-poor polarisation, and we will really be on an evil path if some new bourgeoisie is created [due to the wealth disparity]”.

Why is common prosperity being talked about again?

President Xi Jinping’s rhetoric on common prosperity has surged this year – evidence of the Communist Party’s commitment to closing the country’s yawning wealth gap.

The term appeared sporadically during Xi’s first eight years in power. In 2020, he began to refer to common prosperity more often and has since picked up the pace, with the phrase appearing 65 times in Xi’s speeches and meetings so far this year, up from 30 in all of 2020.

“We can allow some people to get rich first and then guide and help others to get rich together … We can support wealthy entrepreneurs who work hard, operate legally, and have taken risks to start businesses … but we must also do our best to establish a ‘scientific’ public policy system that allows for fairer income distribution,” Xi said, according to a statement released after a meeting of the Communist Party’s Central Committee for Financial and Economic Affairs in mid-August.

What does common prosperity mean in practice?

The speech called for better governance and more balance in the economy, focusing on grass-roots consumption as a key economic multiplier rather than capital-intensive investments, which have been popular in past decades.

During the meeting, various plans – including those involving favourable changes in taxes and social-security payments for middle-income earners; more policies that increase earnings for those in low-income groups; and crackdowns on practices and loopholes that may give rise to “illicit income” – were given as examples of how the plan could succeed.

Xi also called for the protection of intellectual property rights and property rights, reiterating that the country would stick to promoting the common development of both the private and foreign sectors while keeping public ownership as the main body of the Chinese economy.

The meeting also placed an emphasis on supporting the development of small and medium-sized enterprises.

But common prosperity does not just apply to financial markets, it also applies to society’s spiritual and cultural life. It needs to be extended to rural and urban areas – while rural infrastructure and rural living conditions, in particular, need to be improved, Xi said.

The country should “smooth the social mobility to give more people opportunities to get rich and shape a development environment where everyone can take a part in”, the meeting said.

All levels of government, including local governments, must work together to formulate plans that fit the local conditions to achieve the goal of common prosperity, policymakers at the meeting said.

Local governments were called on to fully gauge how long-term, arduous and complex the work could be and act according to their own capability.

The common-prosperity concept also covers access to public services. That means that the privatisation of public services such as education, elderly care and medical care will recede, and the government will emphasise the role of inclusiveness and affordability among these service providers, and be strict in monitoring prices, according to Yue Su, principal economist with The Economist Intelligence Unit.

Leaders have asked for better financial supervision, while also taking steps to punish financial corruption in line with market principles and the rule of law.

The common-prosperity system also encourages “third distribution”, referring to creating opportunities for high-income groups and enterprises to give back to society, including through voluntary gifts and charitable donations.

What is the next step for common prosperity?

Decades of economic liberalisation have delivered tremendous wealth, creating a middle class of 340 million people earning between US$15,000 and US$75,000 per year, according to a report by HSBC. That number is projected to reach 500 million by 2025.

China also had 5.28 million US dollar millionaires – households with wealth in excess of US$1 million – by the end of last year. In 2020, the wealthiest 1 per cent of Chinese people held 30.6 per cent of the country’s wealth, up from 20.9 per cent two decades ago, according to a Credit Suisse report.

That has resulted in a widening income divide in the country. China’s Gini coefficient – a measure of inequality from 0 to 1, with 0 being perfect equality – has hovered between 0.46 and 0.49 over the past two decades. A level of 0.40 is usually regarded as a red line for inequality.

Xi Jinping declares ‘complete victory’ in China’s anti-poverty campaign, but some still left behind

The wealth gap is even starker. The wealth Gini coefficient, which rose from 0.599 in 2000 to 0.711 in 2015, eased to 0.697 in 2019 before rising again to 0.704 last year, according to the report. A country in which every resident has the same wealth would have an income Gini coefficient of 0, meaning in China, the gap has grown over the last two decade.

Just last year, Premier Li Keqiang said the nation had 600 million people living on a monthly income of 1,000 yuan (US$154), which is barely enough to cover monthly rent in a midsized Chinese city.

The party says it recognises the “difficulty and complexity” of the task at hand and has asked local governments to “gradually push forward”.

President Xi pledged last year to make “more substantial progress on common prosperity for all” by 2035, and a pilot programme in Zhejiang province is designed to narrow the income gap there by 2025.

What has been said about China’s common prosperity drive?

Chinese economists were quick to move to ease fears that China’s drive for common prosperity signals aggressive policies are afoot that will seize money from the rich to close the country’s yawning wealth gap.

“Robbing the rich to give to the poor” would only result in “common poverty,” said Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, in an interview with The Paper at the end of August.

“The prerequisite of common prosperity is that the pie must continue to get bigger,” he added.

We must be vigilant against ‘common prosperity’ becoming a Great Leap Forward, a risky endeavour, or something that drags down economic development and affects efficiency

Li Daokui, a former adviser to China’s central bank, also emphasised the campaign to help more people enjoy economic well-being was a long-term goal.

“It cannot be expected that progress on a variety of indicators be made in the short term, for example five years,” Li said in an interview with Phoenix Television.

“We must be vigilant against ‘common prosperity’ becoming a Great Leap Forward, a risky endeavour, or something that drags down economic development and affects efficiency.”

Li, now chief economist at the New Development Bank, said it was “harmful” to equate common prosperity with making everyone’s income equal, and emphasised the campaign should not be equated with the anti-monopoly crackdown.

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