What is Xi’s vision of “common prosperity”?
Last week, after the meeting of the Central Committee for Financial and Economic Affairs, Xi Jinping’s vision of “common prosperity” picked up steam with the publishing of the meeting’s report. Although no specific policies were announced the report indicates:
[The] need to improve the lot of the middle class and ordinary people and calls for stronger efforts to co-ordinate primary distribution (of income), redistribution, social welfare, and increased taxation. High income earners would be targeted, illegal and ‘unreasonable’ income would be ‘cleaned up’. It is thought that there may be not only higher income tax rates for the better off, but also new forms of long-promised but never delivered taxation such as property taxation and inheritance tax, and new initiatives to expand the levels and inclusivity of social welfare.
Although taxing the rich will be popular, according to George Magnus, there are some major challenges that Xi Jinping will face in order to implement his redistribution. For example:
- The government would have to ensure that tax receipts raised would go directly to other less well off households, including migrant workers in urban areas without urban registration, and not into government coffers or other projects of little value to the majority of citizens.
- Redistribution policies should address the recent significant increase of the informal sector, from 34 per cent in 2000 to 60 per cent recently, from the workers who are losing jobs in manufacturing and construction.
Going after the private sector: Xi on a mission
By: George Magnus – SOAS
China’s previous efforts to decrease inequality
China has experienced three periods of declining inequality since the 1980s:
- The first decrease in inequality was due to a set of reforms introduced under Deng Xiaoping, notably the Household Responsibility System, which privatized virtually all the agricultural land in a fairly equitable way within communes.
- The second decrease in inequality was in the mid-1990s with another set of reforms implemented by Deng Xiaoping which allowed farmers to sell a fixed quota of foodgrains to the government at market prices. Prior to that farmers were forced to sell their quota at below market prices. Primary sector GDP increased and inequality decreased.
- The third period with a decrease in inequality was in the mid 2000s and was brought about by another set of policies which reduced or eliminated agricultural taxation. The poor benefited the most since the agricultural tax had been regressive.
New policy reforms relevant to the urban-rural component of overall inequality in China will no doubt emerge over the coming years. The gap in living standards between urban and rural areas reflects in part a long-standing inequality in social policies (health, education and social protection). The large urban-rural gap in education attainments is of special concern. Expanding the coverage of social policies to include rural areas will clearly reduce urban-rural inequality and (hence) overall inequality in China. Further progress toward eliminating the hukou registration system would help in reducing overall inequality.
Is that Really a Kuznets Curve? Turning Points for Income Inequality in China
Authors: Martin Ravallion, Shaohua Chen
From: Georgetown University, Xiamen University
