Fleshing Out The Olive

President Xi Jinping of China, in 2016, first spoke of "common prosperity". Today, it has become the driving force for state action that has hit the internet firms and the private tutoring industry, forcing many changes in taxation and donations too.?

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Xi said that common prosperity has been China's theme for centuries, and even Deng Xiaoping who spoke of "Get rich first" spoke of "helping others catch up". Xi referred to both Marx and Confucius and said the primary worry isn't poverty, but inequality.?

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Xi Jinping is repeating this idea frequently now, and state organs dealing with finance and the economy are using it to make policy.?

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It does not mean that everyone will be equally prosperous. Entrepreneurs who take more risk will be more prosperous and must be encouraged. The egalitarian turn won't be overnight either, but gradual. The status quo, however, cannot continue, and the gap between the rich and the poor cannot grow anymore. The top 20% of Chinese households have a disposable income more than 10 times than those in the bottom 20. The top 1% own 30.6% of the wealth (in the United States of America, it is 31.4%). Cities are far more prosperous than villages.

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There will be social safety nets, better pensions, and better public services (education and health). Income distribution will be "olive-shaped", fat in the middle but thin at the top and bottom. China has 40 crore people living on incomes between $15000-$77000 and wants to double that number to 80 crores by 2030. What about the top? Taxation will fight inequality and reasonably adjust high incomes.?

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The source of wealth will matter more than the level. China will crack down on illicit wealth and rule-bending. Excessive expensing (to firms) will be disallowed, as will shirking of social - insurance. Party cadres are being told to do "self-examination" on illegal borrowings.?

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Normally, most nations focus only on taxes and transfers. But China is getting into two more types of redistributions. One is the voluntary donations by the rich (Tencent and Pinduoduo are giving away huge sums now). And the second is, pre-distribution - where labor’s share of income will rise over time (compared to profits' share).?

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In most economies, this has fallen steadily, due to technological changes and globalization. But Chinese gig workers are now being benefitted due to direct interventions. So firms' share prices are tumbling rapidly (e.g.: Meituan).?

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The Communist Party is encouraging local bosses to decide what is the best route, and the successful projects may then be copied by others.?

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Common prosperity is not just an economic issue, but a big, political one too. Xi referred to Confucius when he said, “where there is contentment, there'd be no upheavals".?

- Aindri Abhishek Singh

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