Monday Market Musings >>> China’s Road to Common Prosperity: Is it a Possibility?
Picture Credit: Agoston Fung
Due to China’s rapid economic growth, they have recently surpassed the US to become the wealthiest country in the world. China’s massive economic capacity meant that by 2017, China was producing two billionaires per week! However, even though China is the wealthiest country in the world, they still suffer from an immense gap in wealth between the rich and the poor, and the gap just keeps getting wider.
China has a steady middle class of 340 million people who earn between $15,000 to $75,000 per year, which is more than enough to get by comfortably in China’s modern economy. However, on the opposite side of the spectrum there are over 600 million people who live on less than $160 per month, which is almost 50% of China’s population. This has prompted Xi Jinping and the ruling Chinese Communist Party (CCP) to turn their attention on achieving a “common prosperity” in China.
Reaching a “common prosperity” means that the CCP has to reduce the gap in wealth between the richest and the poorest citizens in China. The gap between the rich and the poor in China has been on the rise and this could spell disaster for China’s strong economy, but the rising inequality in wealth also challenges the legitimacy of the Communist Party and it could potentially hinder their reputation as a true communist state.
Picture Credit: Toby Yang
China’s rapid increase in wealth is due to a collection of reasons. One of the most prominent being the rapid expansion of the private sector. The private sector overtook the state sector in 2013 as the dominant source of income for the ultra-wealthy individuals in China. Additionally, according to research, access to education also served as a catalyst to attaining wealth. Just as of 2013, almost 44% of China’s Urban elite had obtained a university degree, which was an overall staggering 32% increase from 1988. However, there was only a 17% increase in people obtaining a university degree in the urban public, which still only amounts to 24% overall.
The regional divide in China got worse as well. The east (Beijing, Shanghai, Jiangsu etc.) continuously maintained a dominant lead in economic activity and opportunity whilst the landlocked centre and underdeveloped west trailed behind. In 2013, the average income per capita was 40% higher in eastern China in comparison to the centre and western China. This inequality between regions further helped fuel the gap between the rich and the poor in China.
China’s richest 10% of individuals own more than 62% of China’s national wealth, whilst the richest 1% possess more than a third of it. It’s not going to be an easy road for the CCP to achieve their target of common prosperity. However, China was able to raise more than 100 million people out of poverty since 2012, so the task at hand might be hefty, but it isn’t impossible.
December 13th 2021 | 8:30 PM