China’s Common Prosperity Drive

Q Why is it in News ?

A Chinese President Xi Jinping has called for China to achieve “common prosperity”, seeking to narrow a yawning wealth gap that threatens the country’s economic ascent and the legitimacy of Communist Party rule.

Q What is ‘Common Prosperity’?

A 

• “Common prosperity” was first mentioned in the 1950s by Mao Zedong, founding leader of what was then an impoverished country.
• The idea was repeated in the 1980s by Deng Xiaoping, who modernized an economy devastated by the Cultural Revolution.
• Deng said that allowing some people and regions to get rich first would speed up economic growth and help achieve the ultimate goal of common prosperity.
• Common prosperity is not egalitarianism. It does not mean “killing the rich to help the poor”.

Q What are Components of the drive ? 

A 

• The push for common prosperity has encompassed wide range of policies,
• This includes curbing tax evasion and limits on the hours that tech sector employees can work to bans on for-profit tutoring in core school subjects and strict limits on the time minors can spend playing video games.

Q Why in news now? 

A 

• China became an economic powerhouse under a hybrid policy of “socialism with Chinese characteristics”, but it also deepened inequality, especially between urban and rural areas, a divide that threatens social stability.
• This year, Xi has signalled a heightened commitment to delivering common prosperity, emphasizing it is not just an economic objective but core to the party’s governing foundation.
• A pilot programme in Zhejiang province, one of China’s wealthiest, is designed to narrow the income gap there by 2025.

Q How will it be achieved?

A 

• Chinese leaders have pledged to use taxation and other income redistribution levers to expand the proportion of middle-income citizens, boost incomes of the poor, “rationally adjust excessive incomes”, and ban illegal incomes.
• Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called “third distribution”, which refers to charity and donations.
• Several tech industry heavyweights have announced major charitable donations and support for disaster relief efforts.
• Other measures would include improving public services and social safety net.

Q What will be the economic impact?

A 

• Chinese leaders are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth and jobs.
• This goal may speed China’s economic rebalancing towards consumption-driven growth to reduce reliance on exports and investment, but policies could prove damaging to growth driven by private sector.
• Increasing incomes and improved public services, especially in rural areas, would be positive for consumption, and a better social safety net would lower precautionary savings.
• The effort supports Xi’s “dual circulation” strategy for economic development, under which China aims to spur domestic demand, innovation and self-reliance, propelled by tensions with the United States.