Ever since Xi Jinping’s statement in August this year, “common prosperity” or gongtong fuyu (共同富裕) has become a buzzword in Chinese media and government statements. The words have brought feelings of both hope and fear for the population.
Common prosperity has deep roots in Chinese culture dating back to the Mao Zedong era. However it was brushed aside under Deng Xiaoping who suggested “ allowing some people to get rich first is a practical policy to achieve common prosperity.” Xi Jinping’s government is aiming to achieve a more harmonious and prosperous society by 2050. To achieve its goal, it previously conducted poverty alleviation programmes where China claims to have lifted 100 million people out of poverty. After its subsequent progress, “Common Prosperity” seems to be the next step for China.
Although China is among the world’s largest economies today, the country suffers from a yawning income gap, widespread poverty, and a slower urbanization rate than that of developed countries. China’s richest 20% make ten times more than the poorest 20%. The high-income group’s consumption is gradually slowing as they do not have many things to spend on (savings is greater than consumption), whereas the other half of the society is still struggling to meet their consumption needs, preventing further consumption growth. China’s Gini Coefficient (used to measure the inequality that ranges from 0 to 1) is 0.47 and it ranks at number 71 as of 2021 in a list of different countries around the world with the most inequality suggesting a high income inequality in the country. This is worrisome because eventually this has the potential to harm the country’s economic performance and growth leading to instability.
What does common prosperity mean to the Chinese?
Common prosperity isn’t just limited to economic prosperity to shift the profits from the industries towards the well-being of the society. Instead, it means putting people above the poverty line who have better access to education, health and shelter. Social, educational, and medical resources will be more evenly distributed to different sections of the society. The idea behind this principle is to have a stable and happy society.
How will it be achieved?
Xi Jinping’s government has sought to achieve an economically prosperous society through the redistribution scheme and regulatory crackdown on various industries and private tuitions. The Government will actively participate in regulating and supervising those industries that have monopolistic tendencies by introducing negotiation mechanisms between the employer and the employees and income protection through social security systems.
For excessive high-income groups, measures like “clean up and adjust excessively high income” will be introduced by levying additional and higher tax rates on the financially advantaged. China essentially follows three levels of distribution. The first distribution is the gain from one’s own individual’s work, second is the taxation system where income is re -distributed and the third is by engaging in ‘charity and donations’ by high profiting individuals and enterprises to contribute to the society.
Jinping has issued a wide range of policies ranging from banning academic cram schools, curbing tax evasions, stringent monitoring of illegal income, and even limiting the time up to which a minor can spend time on playing video games. This has been encompassed to achieve Jinping’s commitment towards a more equitable and harmonious society. Minimum wage price will also be regulated by issuing minimum wage guidelines in the future. Banning of the tutoring company targeted a $100 billion for-profit education industry. These tutor companies can only be accessed by rich families who can afford to provide their children with higher education. Higher education is causing excessive economic and mental drain to parents and students alike. On one hand, it is causing excessive financial drain to parents and on the other it is increasing stress and anxiety in the youth who are expected to excel in their school, tuitions and simultaneously prepare for university exams.As a result of this, China for the first time is witnessing a decline in its birth rate. To ensure that students and parents are not overburdened, China seeks to put a total ban on those companies that teach school curriculum. Further, the foreign sectors won’t be allowed to invest in such tutoring companies. Neither can the tutoring companies raise capital via the stock market nor can they acquire any other company. Vacation and weekend tuition classes are also off-limits now. The Chinese government considers such education a result of capitalism, not an avenue of welfare.
What are the steps taken by China?
Nevertheless, to make up for these, China seeks to improve the quality of its education services and make it free and accessible to everyone. Further, health care costs have been revised so as to prevent inflation of prices to ensure better access to health care. The food delivering companies have been asked to improve the conditions of their low-wage workers. Moreover, the overtime work culture “996” which means working from 9 a.m. to 9 p.m. for 6 days has also been addressed and made violative of law. To ensure more affordable housing, there might be a cap added to property tax to avoid price speculation.
Will redistribution of Income result in eliminating inequality?
Redistribution of income is seen as a way to achieve growth and poverty reduction in developing economies. However, redistribution of income can alleviate poverty and ensure economic growth only for a short term.
Though the Chinese government could reduce inequality and poverty through taxation and income transfer, it will only be limited for a short term. It is noted by the International Monetary Fund (IMF) that “on average, taxes on personal income and cash benefits to the poor are almost 10 times lower, as a proportion of GDP, in developing economies than in advanced economies.”
Though income redistribution can dilute the social tensions arising from inequality, it is also essential that more resources in the form of opportunities are devoted to the poor. Merely transferring cash and not the skills to use, invest and manage the income seems absurd. For a long time, China’s poor have been trapped in a vicious cycle of poverty which has necessarily only furthered the interests of the rich. Where the upper class has access to private schools and tuitions to get a rich education; the poor are trapped in the age-old public schools which have nothing to offer to enhance their potential. With the requisite education, capital and skills, the rich are getting richer while the poor are getting poorer. To achieve equality, banning these private schools and tuition is seen as a necessary stop to break the chain and have a uniform schooling system. The uniform schooling system where the affluent and the poor together have access can ensure a more holistic environment and improve the prevalent educational standards. This can be resolved by utilising the cash received through progressive taxation and financing welfare programmes for the poor or fostering employment for unskilled workers. Furthermore, China’s intention to revise its minimum wage guidelines can help to increase labour productivity. A similar experiment in Brazil has shown to accelerate growth which is partly attributed to increasing minimum wage.
If China only resorts to pure income redistribution policies without expanding economic opportunities for poor people, they might be able to reduce poverty in the short-term but not ensure future growth. It might also temporarily relieve the social tensions between the extreme classes of people. On the other hand, focusing on policy centric programmes might not help in reducing inequality immediately but will ensure faster growth, reduced poverty and greater equality in the future.
China could resort to conditional cash transfers which have been proven to motivate families to send their kids to schools and focus on their nutrition and health. China’s curbing of overtime work and increasing minimum wage of employees is surely a step in the right direction. However, there still lies uncertainties as to the economic growth where companies like Tencent are losing a lot of their stock value. Moreover, China has to be very cautious that its banning of tutoring classes does not have a negative impact on the education of its youth as this might have a daunting effect on the future of China. The choice is definitely up to China and CPC to choose the preferred policy combination.
Garima Agarwal is a 4th-year undergraduate student pursuing BBA.LLB (Hons.) from O.P Jindal Global University.
Image credit: https://www.scmp.com/comment/opinion/article/3147183/beijings-common-prosperity-push-shows-how-its-china-model-taking