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Understanding China’s New Common Prosperity
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Liu Yuanchun · Song Yang · Wang Fei ·
Zhou Guangsu
Understanding
China’s New
Common Prosperity
Significance, Connotations, and Goals
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PART I
The Theory: Towards a Systematic
Understanding of Common Prosperity
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CHAPTER 1
The Background and Significance
of Common Prosperity
1
The Background of Common Prosperity
Common prosperity has become a paramount development objective for
both the present and the foreseeable future, shaped by its distinctive
historical backdrop. On the one hand, it naturally emerges as a consequential action plan in line with China’s development; while being firmly
rooted in the socialist system with unique Chinese characteristics, it also
evolves and refines itself in tandem with the continuous progress of
socialism with Chinese characteristics.
On the other hand, the issue of global income inequality looms prominently, manifesting as severe poverty and wealth disparities in certain
nations and offering profound lessons. China faces its own emerging
distribution challenges amid deepening economic and social development. In this context, the timely promotion of common prosperity proves
instrumental in averting polarization and fostering societal harmony and
stability.
1.1
Common Prosperity as an Inevitable Pursuit
in China’s New Era
The unveiling of the action plan for common prosperity, situated at
the convergence of the “Two Centenary Goals”, is no mere theoretical
exercise. Instead, it stands as a compelling imperative in the historical
development of China’s socialist cause. A resolute choice, it paves the path
3
L. Yuanchun et al., Understanding China’s New Common Prosperity,
https://doi.org/10.1007/978-981-99-8787-0_1
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L. YUANCHUN ET AL.
towards a well-off society in an all-around way and sets sail on a voyage
of comprehensive modernization, firmly anchored in rich historical and
pragmatic foundations.
Since the dawn of reform and opening-up, the Communist Party of
China (CPC) has distilled lessons from both triumphs and tribulations,
recognizing that “socialism is not synonymous with poverty”. With such
awareness, it identified the primary challenge facing Chinese society as
bridging the gap between the burgeoning material and cultural needs
of the people and the relatively backward state of social production. In
response, the fundamental principle of “give priority to efficiency with due
consideration to fairness” was embraced as the basic principle of progress.
This entailed allowing some people and regions to prosper first, thus
unleashing and advancing the country’s productive forces, and gradually
dispelling the shadows of poverty.
Since the 18th CPC National Congress, as China’s productive forces
have surged ahead, the CPC Central Committee has accorded paramount
significance to the gradual realization of common prosperity for all. In
pursuit of this vision, the Chinese government has championed harmonious regional development, implemented effective measures to ensure
and uplift people’s standards of living, won arduous battle against poverty,
and brought forth a comprehensive affluence, laying a fertile ground for
the advent of common prosperity.
Notably, the 19th CPC National Congress report avowed that “As
socialism with Chinese characteristics has entered a new era, the principal
contradiction facing Chinese society has evolved. What we now face is
the contradiction between unbalanced and inadequate development and
the people’s ever-growing needs for a better life”. Addressing issues such
as income disparities, urban–rural divides, regional imbalances, uneven
access to public services, and a lack of social welfare coordination has
emerged as an indispensable stepping stone in the march towards modernization. The strategic calibration of placing common prosperity at the core
resonates deeply with the tenets of historical and dialectical materialism
and boasts a solid economic foundation, a well-entrenched institutional
framework, and a wealth of practical wisdom.
After more than seven decades of relentless progress, China has at last
achieved a moderately prosperous society in all respects in 2020, boasting
a GDP exceeding 100 trillion yuan and a per capita GDP of 11,000 US
dollars, surpassing the global average for the first time. Per capita GDP in
some regions have even reached the level comparable to that of developed
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1
THE BACKGROUND AND SIGNIFICANCE OF COMMON …
5
nations. With the number of Chinese entrepreneurs possessing wealth
exceeding 1 billion US dollars reaching 1,058 in 2020, surpassing their
counterparts in the United States, the ambition of common prosperity
for all has crystallized into a tangible reality. This sturdy economic foundation propels the nation to center its endeavors on promoting common
prosperity through elevating people’s well-being, rural revitalization, and
the nurturing of culture.
Over the past four decades of cultivating a socialist market economy,
China’s bedrock economic system and operational mechanisms have
matured gracefully. The trajectory of its productive forces and economic
growth now unfolds with unwavering stability, as the precept of “development first” bolsters its steadfastness. This enviable equilibrium fosters
fertile grounds to elevate “fairness” and the quest for common prosperity
to a preeminent position.
The resounding victory in the battle against poverty since the 18th
CPC National Congress has yielded insights to propel the cause of
common prosperity. This triumph serves as a beacon, illustrating that
poverty alleviation is not solely an act of charity but an engine fueling
domestic demand, igniting the flames of internal circulation development,
and kindling the spirit of mass entrepreneurship and innovation. This
heralds China’s passage into a new epoch characterized by a momentous
drive to enhance efficiency through the promotion of social equity.
The above conditions, combined with a rich cultural heritage that
cherishes ideals like “Great Unity (Datong)” and “Common Prosperity
(Gongfu)” and complemented by a predominance of public ownership
and a people-centered political system, have endowed China with the
material, cultural, social, and institutional foundations to propel this vision
forward.
Currently navigating the primary stage of socialism, China acknowledges the considerable development gap compared to developed nations.
Embracing the call for common prosperity, the nation recognizes the
need for alignment with its social and economic progression. Hence,
China must be prudent in balancing aspirations with capacities, dedicating
ourselves to enhancing the well-being of its citizens on a foundation of
sustainable economic growth and financial resources. Unrealistic promises
must be eschewed, and instead, China should seek to foster common
prosperity through shared responsibility, co-governance, and inclusive
benefits, emphasizing the reinforcement of basic social welfare guarantees. Even with future strides in development and resources, China shall
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L. YUANCHUN ET AL.
remain mindful of avoiding the pitfalls of impractical welfarism. While
the government plays a pivotal role in promoting common prosperity,
achieving this vision necessitates collective efforts from all citizens. An
efficient framework that propels common prosperity emerges therefore
from the harmonious integration of market forces, governmental involvement, and ethical considerations out of the institutional arrangement that
coordinates primary, secondary, and tertiary distribution.
Similar to China’s distinctive socialist development journey, common
prosperity cannot be an overnight achievement nor universally
synchronous. Different groups and regions will progress at diverse
paces, with disparities in prosperity levels. Consequently, our approach
to common prosperity must align with China’s unique developmental
stage, calling for comprehensive research and phased implementation.
In more specific terms, significant strides are expected by the end of
the 14th Five-Year Plan, with the gap between residents’ income and
actual consumption being gradually narrowed. By 2035, there should
be substantial progress towards common prosperity, marked by equitable
access to basic public services. Ultimately, China’s aim is to fundamentally realize common prosperity by the mid-twenty-first century,
narrowing the income and consumption gap among residents to a reasonable extent. Concurrently, it is imperative that the indicator system and
assessment methods for common prosperity action plans be scientifically
grounded and aligned with China’s specific conditions. A holistic view
of common prosperity must prevail, rejecting regional or urban–rural
compartmentalization.
In conclusion, the promotion of common prosperity is both an indispensable endeavor in China’s distinctive socialist development and a
comprehensive, enduring as well as arduous task tailored to its evolutionary journey. With the unwavering commitment of the entire nation,
the pursuit of common prosperity will continue to flourish dynamically,
yielding lasting and meaningful outcomes.
1.2
An Initiative to Alleviate Distributional Disparities
In an ever more pressing global landscape, the specter of income
inequality looms large, plaguing certain nations with acute wealth disparities and the erosion of their once thriving middle classes. The consequent
fallout is deeply troubling, marked by social schisms, political polarization, and the ascent of populist sentiments. Drawing insightful lessons
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
7
from these disconcerting occurrences, it becomes clear that the timely
promotion of common prosperity offers a potential beacon, safeguarding
China from the pitfalls that have befallen others.
1.2.1
Seven Stylized Facts About Global Inequality
Since the 1980s, the specter of global inequality has gained momentum.
In the early twentieth century, the upper echelon of high-income earners
in Western Europe and the United States commanded 20% and 16% of the
overall income, respectively. By the 1970s, this share dwindled to less than
10%. This intriguing shift has captivated scholars, focusing their attention
on the resolution of income inequality in Western Europe and the United
States over those decades, and the underlying factors at play. Noteworthy
among these factors are wars, economic crises, and welfarism, with the last
one proving instrumental in tackling income inequality in the last century.
High progressive tax rates, nationalization, and capital control measures
have influenced the income trajectories of high-income earners, while
the increase in education investment and social transfer payments has
substantially spurred income growth among those with lower earnings.
Yet, when interpreting the changes that transpired over the past
century, scholars have also unearthed the profound influence of political
factors on income inequality—a complex tapestry indeed. For instance, a
significant factor contributing to the sharp decline in income inequality
in Western Europe during the 1940s was the persecution of Jews by
Nazi Germany and the rest of the Western world. Moreover, the spread
of socialist and welfarist ideologies, along with the reverberations of the
Great Depression on large capitalists in the 1930s, further contributed to
this phenomenon.
Since the 1980s, however, income inequality in developed countries
has taken a turn for the worse. The share of income earned by the top 1%
of high-income earners in both the United States and Europe has consistently risen, soaring steadily from 8.5% and 7.5% in the 1970s to 19.8%
and 10.4%, respectively, in 2018. This trajectory of over four decades
has defied a classic principle in development economics—the Kuznets
inverted U-curve theory. According to this theory, income inequality
follows an inverted U-shaped relationship with per capita income levels,
initially being low at lower income levels and then rising rapidly as
incomes grow, along with a soar of the Gini coefficient. Eventually, a stage
of development is reached where income inequality as well as Gini coefficient declines with further economic growth, ideally leading to a state
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8
L. YUANCHUN ET AL.
of prosperity and harmony. However, Kuznets’ theory, which finds specimens primarily from Western countries and posits that these countries
have achieved modernization and successfully addressed income distribution issues, is now in stark conflict with the prevailing facts since the
1980s.
The second notable fact is that income inequality is not only intensifying in developed countries but also worsening in most developing
nations. Amid this synchronized decline, a significant new trend has
emerged—the hollowing out of the middle class and the vanishing
of the middle-income group—a crucial facet of income distribution.
Conventional social safety nets and poverty alleviation policies may prove
insufficient to prevent this erosion of income distribution.
Examining global income distribution from the 1980s onwards reveals
that the top 1% of the world’s population accounted for 16.3% of total
income in 1980, escalating to 20.4% in 2016. Similarly, the income share
of the bottom 50% of the world’s population increased from 8.0% to 9.7%
during the same period. Both high-income and low-income groups saw
their shares rise in tandem, contributing to a concurrent increase in the
overall Gini coefficient. This suggests that the middle class, constituting
51% to 99% of the population, experienced a decline in its share of income
from 75.7% in 1980 to 69.9% in 2016. The middle class faced significant
pressure and part of it even disappeared.
This feature underscores the necessity of adopting effective measures
to address the squeezing of the middle class and the dwindling of the
middle-income group. Merely subsidizing the bottom through conventional welfare policies will be insufficient either to bridge the income gap
between different social strata or to effectively counter the trend of the
middle class being under severe pressure; moreover, it should prove futile
in effectively reducing the Gini coefficient.
The phenomenon of the middle-income group being squeezed has
become a normalized trend worldwide. Over the past four decades, developed countries have mainly experienced this phenomenon, but in the last
two decades, transitional and emerging nations have also grappled with it.
For instance, in Russia, the proportion of income held by the top 1% of
high-income earners was a mere 4% in the early 1980s, but it has surged
to over 20% in the twenty-first century. Simultaneously, the income share
of the lowest 50% of earners declined from 31% in the 1980s to 10% in
the early twenty-first century, but in the last 15 years, it has risen again to
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
9
17%. This clearly indicates the considerable pressure on the middle class
in the twenty-first century.
Thirdly, an intriguing pattern emerges as the velocity of upward
mobility among high-income groups in different nations converges, while
an evident divergence persists within low-income groups. Over the past
four decades, the soaring proportion of income among the privileged
elite has stood out as the most striking characteristic of global income
distribution during the era of new technological advancements, economic
globalization, and worldwide financialization. For instance, from 1980 to
2016, the income of the top 0.1% of high earners in the United States
surged by an impressive 650%, and Europe witnessed a substantial 200%
increase during the same period. In stark contrast, the proportion of
low-income groups has taken divergent paths across various countries.
For instance, the income share of the lowest 50% of earners in Brazil
increased from 10% in 1990 to 12.3% in 2016, from 7% to 9.6% in the
Middle East, and from 11% to 12.1% in South Africa. However, India
experienced a decline from 22% to 14.9%. This divergence hinges not
only on economic development stages but also on disparities in income
distribution and social welfare systems.
Fourthly, the ever-widening gap in wealth distribution has been rapidly
expanding, and the role of wealth in perpetuating income inequality has
been gaining momentum. Since 1980, the Gini coefficient for wealth
has been consistently on the rise worldwide. For instance, in 2016, it
reached 85.9% in the United States, 83.2% in Brazil, and 73.5% in the
United Kingdom. The rapid accumulation of wealth among the world’s
wealthiest billionaires has propelled the global wealth-to-income ratio
from 200–350% in the 1950s to 400–600% at present. The most conspicuous example lies in the United States and Europe, the global centers of
innovation, finance, and culture, where the wealth of top billionaires has
surged at an astonishing pace. As per Fortune 500 List, the wealth of the
world’s top 500 companies increased at an average annual rate of 8.9%
from 1987 to 2017, while the rate of wealth growth of the overall population was merely 2.7%. The Gini coefficient for wealth currently remains
at an alarmingly high level, making the issue of wealth inequality arguably
more pressing than income inequality.
While Marx’s conventional theory asserted that capital ownership is
the central cause of income distribution inequality, contemporary research
suggests that wealth is just one of the factors influencing long-term
changes in income distribution, and its impact has waned since World
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L. YUANCHUN ET AL.
War II. Radical approaches to address income distribution problems, such
as “restraining capital and supporting labor”, warrant careful consideration, but some noteworthy shifts deserve attention today. First, the pivotal
role of wealth in income distribution inequality has undergone transformation. Second, wealth polarization among capitalists far exceeds that
within the lower strata, with significant disparities among the top 0.1%
and 1%, as well as between the top 1% and 10%, leading to a discernible
polarization within the capitalist class. Therefore, contemplating which
form of “capital” to restrain becomes a critical question. Furthermore,
the nature of capital has evolved from traditional production equipment
like machinery to financial and even digital capital. The proposed idea
of “restraining capital and supporting labor”, originating from the late
nineteenth century, has grown increasingly ambiguous within today’s
context.
Fifthly, there has been a striking surge in wage inequality, particularly in forward-thinking nations. The proportion of wages earned by
the top 10% of income earners has seen a consistent rise since the
beginning of the twenty-first century, with affluent earners in the US
witnessing a continuous growth in their share of wages. Consequently,
wage income has emerged as a progressively significant driver of income
inequality, while conventional property-based income disparities have lost
their prominence. Notably, while inequality at the lower end of the wage
spectrum in the US has remained relatively stable, a clear upward trend is
discernible at the upper end, exerting a dominant influence on the overall
inequality in the wage distribution. This underscores that the surge in
wage inequality primarily stems from the rapid increase of wage income
among high-income earners. This is evident in the soaring incomes of
numerous multinational corporate executives, while most equity owners
are not notably affluent, thereby establishing wage income as the primary
factor.
Sixthly, efforts to address inequality through redistributive measures,
such as taxation, have witnessed diminishing efficacy and, in some cases,
have even contributed to exacerbating the problem. Taking a global
perspective, the highest marginal tax rates in major affluent countries
experienced gradual increments from minimal levels in the early twentieth century to their peak during the 1950s to 1970s, after which they
substantially declined. This decline in high marginal tax rates demonstrates a strong correlation with the rise in income inequality. Data analysis
from the Organisation for Economic Co-operation and Development
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
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(OECD) spanning from the early 1970s to the early twenty-first century
reveals that, on average, a 2% reduction in the highest marginal tax rate
corresponds to a 1% increase in the pre-tax income share of the top 1%
of earners. Countries like Germany, Spain, Denmark, and Switzerland,
which have not significantly reduced their highest marginal tax rates, have
not experienced growth in the income shares of their wealthiest individuals. Conversely, countries such as the United States, United Kingdom,
and Canada, which considerably lowered their highest marginal tax rates,
witnessed a noteworthy increase in the income share of their top 1% of
earners.
Seventhly, the taxation of high-income earners is becoming increasingly
arduous. Traditional methods of taxation have resulted in a significant
decline in tax rates for high-income earners over the past four decades. As
illustrated by Warren Buffett, his tax rate is considerably lower than that of
an average white-collar worker, prompting President Obama to propose
the “Buffett Rule”. One key challenge in taxing high-income earners
lies in the fact people with property and wealth and subjects of innovation could shift their assets to tax havens such as platform economies,
multinational corporations, and the Cayman Islands, thereby rendering
conventional “tax the rich to aid the poor” models ineffective. Furthermore, tax competition among countries favors capital and innovators,
leading to a decline in property taxes, inheritance taxes, and income taxes.
Consequently, addressing this issue requires international tax cooperation,
as no single country can resolve it in isolation.
1.2.2
Imbalanced and Insufficient Development persists in China
While drawing from global experiences, it is essential to acknowledge that
China also grapples with an apparently imbalanced and insufficient development. Notably, significant disparities persist between urban and rural
areas in terms of regional development and income distribution. The
current wave of technological revolution and industrial transformation
has driven economic growth, impacting employment and income distribution. However, it has also brought about negative effects that necessitate
effective responses and solutions.
Primarily, akin to global trends, China confronts the issue of income
inequality among its residents. The Gini coefficient, an indicator of
income distribution, was relatively low at 0.38 in 1988, but it surged
to 0.46 in 1995 and exceeded 0.49 in 2008. Although the coefficient has
slightly decreased since 2008, it remains relatively high, stabilizing around
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L. YUANCHUN ET AL.
0.46. Moreover, since 2013, the top 20% of Chinese residents earn over
ten times more than the bottom 20%, with no clear signs of the gap
narrowing. In essence, since the 1980s, China’s income gap has persisted
at a relatively high level, aligning with the global trend of income polarization similar to that observed in the United States, albeit slightly better
than that in countries such as Russia and India.
Secondly, in contrast to many nations, China has experienced continuous growth in its middle-income group, which also maintains a stable
income proportion. Between 2010 and 2018, the percentage of highincome families remained steady at around 10%, while the proportion
of middle-income families substantially increased from 16.2% in 2010
to 46.5% in 2018. In parallel, the proportion of low-income families
significantly decreased from 76.6% in 2010 to 43.9% in 2018. This
transformation has seen many low-income families transitioning into the
middle-income bracket, considerably enlarging China’s middle-income
group, which now exceeds 600 million people.
Regarding income proportion, from 1980 to 2015, the top 1% and
bottom 50% income groups accounted for approximately 30% of the total
income, while the top 10% and bottom 50% income groups accounted for
around 55%. This indicates that the middle-income group’s share of total
income has remained relatively stable over time, with the group between
the top 1% and bottom 50% constituting roughly 70% of the total income,
and that between the top 10% and bottom 50% approximately 45%.
While the world witnesses a global trend of vanishing middle class
and eroding middle-income groups, China’s situation fares comparatively better. Firstly, the size of China’s middle-income group has nearly
doubled in the past decade. Secondly, the middle-income group’s share
in total income has not exhibited a significant decline. While the global
proportion of middle-income group income to total income between the
top 1% and bottom 50% decreased from 75.7% in 1980 to 69.9% in 2016,
China’s corresponding proportion increased slightly from 68.5% in 1980
to 71.6%, surpassing the international average trend.
Thirdly, while the income growth rate of Chinese high-income groups
converges, the lower income segments of society suffer significant declines
in their income shares. A longitudinal study from 1980 to 2015 reveals
a conspicuous shift in income distribution, with the top 1% of earners
witnessing their share of total income ascend from 6.6% to 14.0%, and
the top 10% experiencing a parallel rise from 27.9% to 41.7%. Conversely,
the bottom 50% of earners endured a marked reduction in their income
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
13
share, plummeting from 25.0% to 14.4%. Although the convergence of
the growth rate of the high-income groups in China mirrors the global
pattern, the decrease in the income share of the lower income groups
aligns China more closely with India rather than with nations or regions
like Brazil, South Africa, and the Middle East, where income share is
ascending.
Fourth, China’s wealth gap has expanded at an alarming pace. In
1988, the country’s wealth Gini coefficient, slightly lower than its income
counterpart, stood at 0.34. However, over the years, the wealth Gini
coefficient surged, surpassing 0.5 around 2000, and crossing the 0.6
mark after 2005. After 2010, the coefficient remained around 0.7, but
currently, it has soared to a concerning 0.8. During the period from
1995 to 2015, the top 1% of wealth holders observed their share of
total wealth escalate from 15.8% to 29.6%, while the top 10% experienced a parallel increase from 40.8% to 67.4%. The share held by the
bottom 50% of wealth holders, by contrast, nosedived from 16.0% to
a mere 6.4%. Similar to the trends observed in income share, wealth
distribution favored high-wealth groups while significantly disadvantaging
lower-wealth ones. Moreover, the crucial role of wealth distribution in
perpetuating income inequality is gradually coming to light. Over the past
two decades, China’s labor income share receded from 51.4% to 47.5%,
while capital income share surged from 34.5% to 38.3%.
Worldwide there is a rapid rise in the inequality in wealth distribution.
China’s level of wealth inequality is somewhat comparable to countries such as the United States, Russia, Brazil, and India, with the Gini
coefficients surpassing 0.8. However, other economies like the United
Kingdom, France, Japan, South Korea, and Singapore exhibit lower coefficients than China’s. International comparisons of wealth share further
elucidate the disparities, as the top 1% of wealth holders in the United
States command over 30% of total wealth, whereas economies like the
United Kingdom, France, and Sweden show a more equitable distribution with the top 1% holding around 20%. Despite residing in the middle
among major economies in terms of the equality of wealth distribution, China’s wealth inequality is expanding at a great pace, more rapidly
compared to Western developed counterparts like the United States and
France.
Fifth, another pressing concern in China’s economic landscape is wage
inequality. Over a 25-year span from 1988 to 2013, both high-end and
low-end wage disparities have experienced marked upward trends, and the
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L. YUANCHUN ET AL.
inequality in the lower end is even greater. Interestingly, while China’s
high-end wage inequality mirrors that of the United States, the situation
differs significantly at the low-end. In the US, low-end wage inequality
has remained relatively stable over time, and wage inequality is predominantly driven by the high-end segment. In addition, wage income is an
important factor in causing income distribution gap in the US, while the
importance of traditional property income has diminished; in China, the
situation is quite reversed.
Sixth, apart from wage inequality, China’s tax redistribution and social
security systems have demonstrated limited effectiveness in promoting a
more equitable distribution of resources. The country’s personal income
tax, in comparison with the US, exhibits a weak and diminishing redistributive impact. According to the research, under various assumptions
of tax shifting, the overall tax system in China is not conducive to
reducing income inequality among its residents. Moreover, the income
distribution adjustment function of China’s social security has displayed
a non-monotonic effect. Although existing social security spending has
managed to reduce the national income Gini coefficient by 0.025, the
concentration ratio of social security spending surpasses the total income
Gini coefficient. Consequently, further increasing social security spending
under the current distribution structure and increasing the proportion of
social security in income could potentially exacerbate income disparities
among residents.
Lastly, an essential concern revolves around the intricate nature of
taxing high-income groups in China. The current approach to personal
income tax hinges on classification and collection, resulting in varying
expense deductions, tax rates, and collection levels based on different
income sources. Regrettably, this can lead to disparities, with high-income
individuals benefiting from lower tax rates and reduced tax liabilities.
While itemized taxation is convenient and effective in curbing tax evasion,
it may unintentionally deviate from the original intent of fairness. Merging
all itemized taxes into an overall personal income tax system could
compromise the pursuit of equity for three reasons: different sources
of income bear different tax burdens; individuals with multiple types of
income are entitled to multiple tax reductions; the unit of collection is
based on individuals rather than families. The challenge, therefore, is
particularly pronounced for high-income groups in China due to their
diversified income sources, unequal household income structures, and
higher inclination towards tax evasion. In fact, the paradox of higher taxes
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
15
and lower tax rates for high-income groups has become even more prominent since the personal income tax reform in the September of 2011.
Interestingly, these issues echo those faced by developed economies in
the West. Over the past four decades, tax rates for affluent populations in
Western countries have significantly decreased, posing growing challenges
in addressing income inequality through taxation of the wealthy.
Apart from income tax, developed Western nations regulate income
distribution through property and inheritance taxes. Conversely, China
has been cautious in adopting these, encountering hurdles in the implementation of certain taxes. Property tax, for instance, faces complexities
due to conflicting objectives: curbing property speculation and promoting
income redistribution versus local governments seeking to increase fiscal
revenue; moreover, determining the tax basis and rates is problematic due
to economic disparities between regions, social complexities surrounding
property ownership, and the intricacies of property valuation; besides,
double taxation also poses a concern with various direct and indirect taxes
on real estate; furthermore, property information networking is underdeveloped, and effective tax management remains a challenge. In response,
Xi Jinping advocated for the “active and prudent promotion of property tax legislation and reform with pilot projects” in his article “Solidly
Promote Common Prosperity” published in Qiushi.
Property taxes, if implemented strategically, hold the potential to slow
the rapid rise in property prices and mitigate wealth distribution disparities. Yet, the academic community lacks a consensus on the precise impact
of property taxes on property prices. Some studies suggest that property
tax may reduce property prices, primarily affecting existing properties,
while others propose varied and unpredictable effects. Some research even
indicates that property tax may initially lower property prices but could
lead to long-term increases. Specific studies on property tax pilots in
Chongqing demonstrate that it predominantly affects houses of bigger
size, leading to substantial price increases in small-sized housing units,
potentially disadvantaging low-income groups.
Overall, income and wealth inequality has been persistent global challenges for decades, and China has faced its fair share of distributional
complexities throughout its developmental journey. While China’s distributional issues may not have endured as long as those in developed
nations, certain aspects of its distributional structure, such as the growing
proportion of the middle-income group and their stable earnings, show
promise. In this context, promoting common prosperity emerges as a
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L. YUANCHUN ET AL.
potential solution to address distributional contradictions, prevent polarization, foster social harmony and stability, and avert the long-term,
entrenched inequality that has afflicted other countries.
2
2.1
The Significance of Common Prosperity
Common Prosperity as the Essential Requirement of Socialism,
Which Demonstrates and Consolidates the Advantages
of the Socialism with Chinese Characteristics
As Xi Jinping emphasized in the “Explanation on the CPC Central
Committee’s Proposal for Formulating the ‘Outline of the People’s
Republic of China 14th Five-Year Plan for National Economic and Social
Development and Long-Range Objectives for 2035’” that “common
prosperity is the essence of socialism, cherished fervently by the people.
Our pursuit of economic and social progress ultimately converges on the
shared prosperity of all citizens”. Thus, China’s vision of common prosperity transcends the Western notion of mere redistribution; it boasts a
profound political, economic, and social theoretical foundation.
From a political perspective, common prosperity embodies the core
tenet of the Communist Party of China (CPC), reflecting its solemn
commitment to the well-being of the people. It unfurls as a guiding
beacon, propelling the entire nation forward along the path of socialism
with Chinese characteristics. Rooted in the bedrock of Marxist principles and the CPC’s foundational mandate, the realization of common
prosperity is also deeply embedded in our fundamental institutional
arrangements. To fortify the CPC’s leadership in this new era of socialist
modernization, addressing the global challenge of income polarization becomes paramount. Through resolving income distribution issues
that have stymied Western societies, China’s system attains unparalleled
eminence, fulfilling the people’s aspirations and ushering in a society
brimming with creativity. Indeed, common prosperity emerges as an
intrinsic necessity, empowering the CPC’s governance, bolstering its efficacy, and charting the course towards a prosperous modern society. As Xi
Jinping rightly remarked during the 27th group study session of the CPC
Political Bureau of the Central Committee, “the realization of common
prosperity transcends economics; it stands as a pivotal political imperative
for the CPC’s governance foundation”.
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1
THE BACKGROUND AND SIGNIFICANCE OF COMMON …
17
Throughout history, the development of market economies across
nations has taught us a vital lesson: harmonizing efficiency with equity
is paramount to sustained progress. A lack of equity in economic growth
inexorably leads to stagnation and regression. Guided by the theories of
Marxist economic cycles and reproduction, common prosperity becomes
the bedrock for achieving dynamic equilibrium in our national economic
cycle. When income distribution and wealth accumulation distribution
diverge sharply, the repercussions are felt through inadequate demand,
rampant oversupply, a failure to realize the social value of commodities, and, ultimately, a misallocation of resources culminating in an
all-encompassing economic crisis. Thus, as economies mature, the call
for equity becomes ever more resonant, fostering the prerequisites for
effective growth and a flourishing economic cycle.
Modern societal progress has also made it clear that excessive wealth
disparities sow the seeds of unrest and instability, imperiling social
harmony. In today’s world, several developed capitalist nations wrestle
with the socio-economic challenges arising from widening wealth gaps.
These complexities manifest in three aspects: severe social fragmentation as a result of the division and solidification of social class; the
disintegration of governance structures amid conflicts, which in turn
lead to the decline of traditional culture; the ascendancy of populism
and extremism, corroding the bedrock of established societal norms.
According to modern social theories and development economics, mitigating polarization and cultivating an “olive-shaped” income distribution
system constitute indispensable requisites for fostering social harmony and
stability. Moreover, this endeavor stands as a pivotal step towards overcoming the middle-income trap, resolving the principal contradictions
confronting socialism with Chinese characteristics, and propelling China’s
unique brand of socialism to more advanced levels.
In the dynamic evolution and refinement of socialism with Chinese
characteristics, the core principle of “constancy amid change” finds
expression. On the one hand, it reverently upholds the CPC’s original mission and the lofty aspiration of socialism to embrace prosperity
for all. On the other hand, it propels China’s socialist development
in tandem with the ever-changing times, enabling the nation to adapt
to new circumstances, surmount new challenges, and obtain unprecedented accomplishments. The pursuit of common prosperity aligns with
this unfolding chapter of development and shall be perfected along with
economic and social advancement. Moreover, this practice harmoniously
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L. YUANCHUN ET AL.
weaves together the unchanging essence of socialism with Chinese characteristics and its dynamic evolution, eloquently reaffirming the CPC’s
founding principles and breathing new life into China’s socialist legacy.
This grand vision, undoubtedly, serves as an invaluable beacon guiding
China’s march towards a glorious and prosperous future.
2.2
Common Prosperity as the Fulcrum and Cornerstone
for Propelling High-Quality Development
The Report of 19th National Congress of the CPC emphasized that
“China’s economy has been transitioning from a phase of rapid growth
to a stage of high-quality development. This is a pivotal stage for transforming our growth model, improving our economic structure, and
fostering new drivers of growth. It is imperative that we develop a
modernized economy. This is both an urgent requirement for getting us
smoothly through this critical transition and a strategic goal for China’s
development”.
To achieve high-quality development, China must delve into profound
supply-side structural reforms, accelerate the establishment of an innovative nation, implement strategies for rural revitalization and regional coordination, and expedite the refinement of the socialist market economy, all
while fostering a comprehensive new era of reform and opening-up.
The principles and policy directions driving the pursuit of common
prosperity harmonize perfectly with the ambitions of high-quality development, becoming a pivotal instrument to solidify its foundation,
surmount barriers, and pave a smooth path forward.
First and foremost, deepening supply-side structural reforms necessitates a concentration of Chinese economic efforts on the real economy,
uplifting its structure and enhancing its overall quality. As China advances
the cause of common prosperity, it also emphasizes the vital synergy of
industry development, particularly in the reform of monopolistic sectors
and the regulation of capital development. This synchronization resonates
with China’s commitment to achieve a well-coordinated growth between
finance, real estate, and the real economy. Furthermore, nurturing the
growth of small and medium-sized enterprises (SMEs) and fostering a
mutually beneficial ecosystem among large, medium, and small businesses form the fundamental essence of both common prosperity and the
essential components of China’s profound supply-side structural reforms.
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
19
Secondly, expediting the construction of an innovative nation requires
the cultivation of talent across all spheres. As articulated by Xi Jinping
in his article “Solidly Promoting Common Prosperity”, “high-quality
development hinges on the empowerment of high-caliber laborers. Only
through fostering common prosperity, elevating the incomes of urban and
rural inhabitants, and enhancing human capital can we elevate total factor
productivity and fortify the bedrock of high-quality development”.
Thirdly, the realization of strategies for rural revitalization and regional
coordinated development encompasses a pivotal facet of common prosperity. The imbalances in China’s development are most pronounced in
the disparities between urban and rural areas, as well as regional inequalities. By pursuing rural revitalization, China can strategically curb the
widening chasm between urban and rural communities. In parallel, the
pursuit of regional coordinated development facilitates the integration of
regional resources, propelling convergence in development across diverse
territories. Thus, the journey towards common prosperity also attains a
critical milestone of high-quality development by addressing urban–rural
and regional disparities.
Finally, accelerating the refinement of the socialist market economy
hinges on the perfection of the system of property rights and the marketization of key production elements. This path ensures the effective incentive for property rights, the unhindered movement of factors, responsive
price mechanisms, equitable and orderly competition, and the survival
of the fittest among enterprises. A pivotal prerequisite for common
prosperity is the removal of institutional impediments that undermine
efficiency, unleashing the untapped potential of the market to expand
its horizons. This echoes the essence of the “efficiency” reform vital for
high-quality development. Moreover, common prosperity advocates for
the realization of fairness in market opportunities and processes, harmonizing seamlessly with the “fairness” reform intrinsic to high-quality
development.
2.3
Common Prosperity as a Solution to China’s Distribution
Disparities and a Beacon of Chinese Wisdom to Tackle Global
Inequality
In the wake of China’s rapid economic and social advancement since the
era of reform and opening-up, the issue of distribution has emerged,
accentuating the considerable gap in wealth and income, particularly in
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L. YUANCHUN ET AL.
wage earnings. While the income share of high-income and low-income
groups diverge, conventional measures like taxes and social security have
shown limited efficacy. The persistence of such inequality threatens to
erode the foundations of the Party, hamper market dynamism, and foster
societal unrest. However, by embarking on the path of common prosperity, China can effectively alleviate these pressing concerns and ensure
steadfast progress in its socialist pursuits.
Mindful of the enduring and intricate nature of common prosperity, Xi
Jinping noted: “Common prosperity is a long-term goal, which requires
a process and cannot be achieved overnight. We must fully assess its longterm nature, arduousness and complexity, and we cannot wait or rush to
get it done”. Yet, China’s exceptional approach to advancing common
prosperity positions it uniquely to inspire the world with its vision and
ingenuity in confronting global inequality.
At its core, the essence of common prosperity harmonizes with the
tenets of socialism. As the cause of common prosperity progresses, the
advantages of socialism shall be manifested. Many developed nations,
despite centuries of industrialization and economic growth, still grapple
with insurmountable wealth discrepancies due, in part, to the inherent
limitations of capitalism. Its emphasis on efficiency over equity perpetuates the persistence of distribution challenges, and the only solutions it
could produce to adjust income and wealth distribution are such limited
means as tax. Worse still, it is increasingly difficult for policies like these to
adapt to the new model of social-economic development; in fact, under
the manipulation of capitals, they tend to favor the wealthy and therefore
exacerbate the issue of distribution.
The socialist system, on the other hand, facilitates the progress of
common prosperity. Firstly, CPC remains dedicated to the philosophy of
putting people at the heart of development. As Xi Jinping has pointed out
in the “Speech at a Ceremony Marking the Centenary of the Communist Party of China”, “The Party has always represented the fundamental
interests of all Chinese people; it stands with them through thick and thin
and shares a common fate with them. The Party has no special interests
of its own—it has never represented any individual interest group, power
group, or privileged stratum”. It is precisely for this reason that the CPC
could eliminate all interference from interest groups, especially those that
take advantages of unequal distribution and work whole-heartedly for the
cause of common prosperity.
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THE BACKGROUND AND SIGNIFICANCE OF COMMON …
21
Secondly, policy-makers in the socialist system are capable of formulating long-term strategies through overall planning, systematic arrangement as well as steady implementation. This point is well illustrated by
Xi Jinping in his “Solidly Promoting Common Prosperity”: “We need
to be patient and take solid steps to handle each issue well and achieve
greater results. Efforts should be made to build a demonstration zone
for common prosperity in Zhejiang, and local governments should be
encouraged to explore effective paths in light of local conditions, sum up
experience, and gradually expand it”.
Moreover, China’s current socio-economic landscape offers a fertile
ground for the successful promotion of common prosperity. The comparatively recent emergence of distribution issues, coupled with their relatively short duration and limited severity, distinguishes the Chinese
scenario from those of many developed nations. Notably, the middleincome group, a catalyst for equitable growth, has shown remarkable
resilience and expansion, further underscoring China’s favorable position
to forge ahead with common prosperity, unhindered by the burdens of
historical disparities.
Undoubtedly, China’s foresight in adopting traditional measures and
exploring innovative policy tools signifies a practical approach. Such
measures, including property and inheritance taxes, have the potential to
mitigate wealth inequality and have proven successful in other developed
nations and could be adopted by China in the future as it continues to
address the issue of unequal distribution. Above all, the strong tenacity
of the socialist system enables China to make further exploration into the
measures and policies beyond conventional means and thereby contribute
to the solution of global inequality with Chinese ingenuity and wisdom.
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