Regarding economic development, the aim is to even out imbalances between regions, business sectors, and small and large enterprises. Regional development, for example, could be better balanced by fiscal transfers. In business, solutions would include faster monopoly reforms and closer coordination between the finance and property sectors and the rest of the economy.
Making delivery of public services more equal would be of particular benefit to low-income groups in terms of education, social security and other forms of aid, such as improvements in housing supply.
Income inequality would be addressed in part by tax changes focused on those deemed to earn excessively high incomes. These would include changes to personal income tax (income derived from capital is currently subject to a separate flat tax rate) and to property and consumption taxes.
Measures for expanding the middle-income group include improvements in higher education, better training and higher wages for skilled workers, lower tax and other benefits for small business owners and the self-employed, help for migrant workers, and salary increases for low-level public-sector employees.
Rural land reform, together with increased agricultural productivity and infrastructure investment, would lead to higher rural incomes.
There are several reasons for Beijing to launch this program now.
China’s Inequality Holds Back Growth
Some are political. Celebrating the Chinese Communist Party’s centenary in July 2021, President Xi said the goal of achieving a moderately prosperous society had been achieved, and that the next objective was to build a “modern socialist country.”
This would involve a gradual narrowing of inequality in household income and consumption by 2025 with substantial progress by 2035. Common prosperity would be broadly achieved by mid-century, when household income and consumption inequality had narrowed to a reasonable range.
Other reasons behind the push for common prosperity are economic. China’s potential growth has declined over recent years because of resource misallocation, with the imbalance between investment and consumption among the biggest in the world.
One reason for the low consumption ratio has been widening inequality. The Display below uses a Gini index (a measure of statistical dispersion) to show how income inequality has risen in China and the US.
