Development Paths of the Chinese Common Prosperity Policy

“Common Prosperity” is the guiding principle for economic growth and social mobility in China. Under this policy, China has lifted hundreds of millions of people out of poverty and exclaimed the successful elimination of absolute poverty at the end of 2020. But what are the long-term goals and how can the country achieve them? This is the leading question that motivated FES Shanghai Representative Office and Shanghai Center for International Economic Exchanges to organize a two-day event with German and Chinese experts.

After China’s reform and opening policy in 1978, the Communist Party initiated a growth which transformed China from a poor country with a mainly rural-shaped structure into the world’s second biggest economy and the biggest export country in just a few decades. However, the immense economic growth has distributed wealth very unevenly in the country, making it one of the most unequal economies in the world.

Although China has exclaimed “Common Prosperity” as a long-term goal of creating a broader middle class, it is yet to be defined what policies will be needed to enhance comprehensive growth. As experts from Germany and China pointed out during the conference, both the economic system and the social security system need reforms and new instruments to enable society to grow evenly and just.

According to various Chinese experts, economic distribution shall be done primarily through tertiary distribution, with companies restoring parts of the accumulated wealth to less priviledged population groups through voluntary donations. German experts pointed out that this would just stand as a drop in the bucket, but would not change the wealth structure in the population. An introduction of elementary tax reforms, as for example inheritance tax, wealth tax or gift tax, as well as the further development of a progressively acting income tax system could stand as solutions to tackle the challenges.

Public goods like infrastructure or the access to education have been expanded, which led to further growth in China’s overall life quality over the years. Examples from pioneer cities like Shanghai show how public goods can increase the prosperity of all inhabitants. However, Chinese experts recognized that its social security system urgently needs to be reformed in order to provide its population with equivalent social protection. This includes a comprehensive pension insurance, unemployment insurance and health insurance, which are equivalent and homogeneous in its services across all regions in China.

Overall, the two days have yielded intensive debates on the future of economic and social policy, that have led to China’s big achievements in its development up to this day. At the same time, the challenges of achieving the self-defined targets were discussed, as well as instruments that can be used to achieve the goals.