Xi Jinping Says He Wants to Spread China’s Wealth More Equitably. How Likely Is That to Actually Happen?

The year of 2022 was not kind to common prosperity. An absence of major policy announcements, fewer prominent references in major speeches, and cuts in local social expenditure led to assertions that common prosperity had become an empty slogan. But common prosperity is not going anywhere. Redistributive policies have already gone further than sometimes appreciated; the medium-term economic goals remain essential for future growth; and the Chinese Communist Party (CCP) continues to signal future commitment through unrelenting domestic and international propaganda.

Common prosperity’s economic rationale remains unaltered. State-led redistribution would help address inequality, a major factor behind the middle-income trap, as well as challenges related to population aging and excessive savings. Already, recent consequential redistributive policies include the poverty alleviation campaign and state-owned enterprise share transfers meant to shore up China’s pension system. And although shrinking fiscal space prevented major policy changes in 2022, common prosperity language still features prominently in China’s most recent medium- and long-term sectoral development plans, including those promoting domestic demand and the digital economy.

Along with these policy commitments, the CCP’s rhetorical promotion of common prosperity both domestically and internationally continues to grow unabated. Domestically, this includes a new historiography of the term itself that presents common prosperity as a through-line from Marx to Mao Zedong to Deng Xiaoping, Jiang Zemin, Hu Jintao, and finally Xi Jinping. It also includes unrelenting media coverage: the 374 articles referencing common prosperity in Renmin Ribao in the fourth quarter of 2022 exceeded the previous quarterly high of 299 articles in the fourth quarter of 2021.

Chinese policymakers now even promote global coverage of common prosperity in an attempt to present a “China model” that is more equitable than the West’s capitalist alternative. Since Xi’s 19th Party Congress speech, the CCP has explicitly sought to define and export a socialist “China solution” (中国方案, Zhongguo fang’an) through engagement with international institutions and global propaganda. Chinese global media increasingly stress common prosperity successes, focusing on government effectiveness in narrowing income gaps and equalizing public services and highlighting individual stories of rural poverty reduction. China Daily’s global edition and Global Times English, both aimed at foreign audiences, contained 25 percent and 125 percent more articles about common prosperity in 2022 than in 2021, respectively.

This global image campaign shows signs of efficacy. China’s state media may not have a large, dedicated global audience, but Chinese propaganda touting policy effectiveness has a strong impact on global public opinion. And common prosperity messaging has a receptive audience given increasing global favorability towards redistributive socialism. Global polling data reveal that respondents with greater redistributive preferences are already more likely to see the “China model” as desirable, despite China’s persistently high inequality. In my own survey experiments with respondents from India and the U.S., priming subjects with China’s common prosperity language resulted in increased preferences for economic engagement with China.

In sum, the CCP has committed itself to common prosperity through medium-term policy plans and domestic and global propaganda. Although slow expected economic growth in 2023 may preclude major policy shifts, we should nevertheless expect continued movement towards a common prosperity agenda.

In the U.S. and other OECD countries, by far the most vital policies for taming economic inequality are taxes and government transfers. These countries extract on average more than a third of their GDPs in tax revenue. Both progressive taxation and means-tested transfers lead to substantially lower after-tax inequality than pre-tax inequality. How committed a government is to the welfare of all of its citizens—to the goal, we can say, of “common prosperity”—is judged almost exclusively on the basis of its choices about taxes and transfers.

To a substantial extent, China pursues redistributive policies in the same way. In the late 2000s, after a decade of buoyant tax revenue, the national government proposed major spending policies that would benefit the majority of the Chinese population and contribute to a “harmonious society”: increasing transfer payments to local governments to support public healthcare and education, funding basic universal social insurance in urban and rural areas, and expanding poverty reduction efforts. Any tax reduction would have only been “structural”—inefficient taxes adopted in the 1990s would be cut, but they would be replaced by more efficient ones, and the overall level of taxation would continue to increase.

Many of these redistributive spending policies began to bear fruit and tampered the growth of inequality during the years of Xi Jinping’s leadership. But Xi oversaw major policy reversals. The most important was an astounding series of tax cuts that resulted in stagnant revenue as a share of GDP and growing reliance on regressive taxes (such as social insurance contributions). Meanwhile, there has been no sign of policies that would increase need-based transfers. With neither tax increases on the rich nor spending increases on the poor to announce, the Ministry of Finance had remained tight-lipped about “common prosperity.” Indeed, Xi himself warned against “creating excess expectations,” imagined “welfare traps” that feed “sluggards,” and stressed “hard work” as a first principle in talks about prosperity—echoing Republican Party rhetoric in debates about redistribution in the U.S.

For some of us, therefore, it was seriously disorienting to see the slogan of “common prosperity” catching Western commentators’ imagination. How could Xi get credit for championing a new era of redistributive policy—just by giving a couple of speeches, and as though redistribution had never been a major policy objective for China before? What has Xi done to reduce inequality? Directing some ham-fisted (though long over-due) regulation of big tech? Slowing down subsidies for big real estate developers? If this is the standard we’re using, then we should call Donald Trump a “common prosperity” president: after all, while enacting generous tax cuts for the affluent, Trump declared his intention to negotiate down prescription drug prices with big pharma, and skirmished with big tech.

We should thus question the premise that Xi has set a new redistributive agenda (and that it’s only a matter of when and how he will implement it). Sure, People’s Daily says there is such an agenda. So does the Wall Street Journal, whose readers care more about the prices of Alibaba shares and Evergrande bonds than anything else. But for anyone interested in inequality and redistribution in China, those are not exactly credible sources.

Since the concept of common prosperity was revived in 2021 under Xi Jinping, it has been used mainly to target China’s private sector wealth, in the name of reducing the gaping inequalities of income and opportunity between rich and poor. But another source of wealth accumulation should be considered when it comes to addressing large gaps in China’s social policy benefits: the profits and assets of China’s state-owned enterprises (SOEs).

These firms, which operate globally and often enjoy monopoly protections, raise a crucial question when it comes to financing social policies. What claim does the Chinese public have on shares, dividends, and profits of publicly-owned companies to finance public goods such as healthcare, pensions, education, and social assistance? “None,” would be the reply of SOE managers and corporate boards, on the grounds that their firms, just like private companies, must pay into employee-based social insurance funds through payroll taxes, in addition to owing regular taxes on their operations and profits. But there is a “common prosperity” argument for using some of, as of 2021, the 76 trillion renminbi in market value of SOE shares (and 270 trillion renminbi in SOE assets) toward protecting China’s elderly population. SOE support would also address the massive inequality in benefits between urban retirees from the formal sector and the larger number of elderly who are retired as migrant or self-employed workers.

At the annual “Two Sessions,” look for China’s leading authority on pension financing, Zheng Bingwen of the Chinese Academy of Social Sciences and a member of the National People’s Political Consultative Conference, to revive an argument he made forcefully at last year’s sessions to transfer SOE shares (and even assets of unlisted SOEs) to China’s social security funds at national and local levels. The policy has been in place since a 2017 State Council policy statement, but asset transfers have been slow. By early 2021, the 93 central SOEs had transferred 1.7 trillion renminbi in stock shares to the National Social Security Fund (NSSF). But the transfers were apparently a one-off agreement. Moreover, SOE shares, like university endowments, are not liquid assets, and only their dividend payouts are used for shoring up social security funds. In 2021, Zheng said that this amounted to 20 billion renminbi, a drop in the bucket relative to the 5 trillion renminbi China spends on pensions for urban enterprise retirees alone. The NSSF can support local funds that run deficits, but a much more realistic solution would be to compel central SOEs to commit to a regular stock transfer plan and for provincial and city SOEs to turn over a portion of their shares to social security coffers. Provincial and municipal SOEs have not been asked to transfer assets to date. While SOEs are not paragons of efficient capital allocation and rates of return on investment, they do possess sizeable assets and equity portfolios on which Chinese citizens have a legitimate claim.

Social policy institutions in any country get locked into the conditions under which they were created and become very difficult to change. The same is true of China’s social insurance system. As SOEs were downsized and eliminated in the 1990s, the ones that survived were permitted to shed their retirees’ pension and healthcare costs, which were offloaded to local governments. Three decades later, SOEs fiercely resist the idea that China’s aging population has a claim on their corporate assets. But as China’s policymakers search for solutions to a looming pension-financing crisis, they could argue that a truly “common” form of “common prosperity” applies to both private and public sector firms.

There is an argument to be made that Xi Jinping’s “common prosperity” is far more than an umbrella policy to frame economic reform. The rapid erosion of double-digit growth over the past decade has presented the Chinese Communist Party (CCP) with an almost existential crisis of legitimacy, highlighting the fragility of the opening and reform era’s quid pro quo exchanging political acquiescence for economic opportunity.

Common prosperity initially appears to be a straightforward fiscal intervention: redistributing wealth, moving towards “olive-shaped” income distribution away from the elongated teardrop-shaped structure currently characteristic of China’s economy. Yet, common prosperity has been consistently positioned as a new innovation of Xi Jinping’s Thought on Socialism with Chinese Characteristics and, more importantly, in direct opposition to the creation of a Western-style welfare state.

So how can this apparent contradiction be reconciled? If fiscal policy is not intended to confiscate wealth for redistribution, to create a welfare state, or to impose progressive taxation policies, then what is it intended to do? The answer, perhaps, lies in the realms of Marxist ideology and Xi Jinping’s astute pragmatism.

There has long been a school of thought in Marxist debates that the welfare state is anathema to socialism, a capitalist mechanism which reproduces conditions for the exploitation of the working class. Marx and Engels themselves argued that wealth distribution becomes irrelevant if the means of production become the “co-operative property” of the workers. Soviets defined socialism as “a special transitional period which occupies a whole historical epoch.” Socialism, then, socializes the means of production, but gradually, over an extended period of time, and in consideration of the specific conditions faced by the dictatorship of the proletariat—in this case, the CCP. At the 20th Party Congress, this historical epoch appeared in the form of Xi’s New Era, New Journey, divided into two staging points for the realization of socialism: 2035, the deadline for realizing “basic socialist modernization,” and 2049, the PRC’s centenary, when national “core socialist values” of prosperity, democracy, civility, and harmony would be firmly established.

What common prosperity will look like is open to debate, but I expect it will focus on innovative cooperative ownership structures and reform of ownership of capital as opposed to philanthropy, welfare, progressive taxation, or other fiscal redistribution strategies. For example, the Pinghu-Qingtian model in Zhejiang province saw low-income families assisted by a range of public and private organizations to acquire shares in collaborative projects, with 10,600 families earning a total income of 17.2 million renminbi ($2.69 million) in the first year of operations. Zhejiang, which was announced as a pilot zone for common prosperity in 2021, will be the most important province to monitor for evidence of any such innovations, which we should expect to be mythologized in ways similar to Town and Village Enterprises and Dual Track Pricing systems in the early reform era.

Common prosperity, then, is less hypocritical than we may conclude if scrutinizing PRC fiscal policy alone. Had Xi determined to forcibly redistribute wealth through more conventional fiscal interventions, he might have opened himself to direct challenges from within the Party. Yet through careful ideological framing, we can view common prosperity as another excellent example of Xi Jinping’s political acumen: addressing the very real problem of waning legitimacy while also fortifying himself through his use of Marxism as a form of ideological Kevlar. Xi not only protects himself but also discourages any challenges to his policy by preemptively tarring any prospective detractors of common prosperity as opponents of Marxism and of the CCP itself.

If the Xi administration implements common prosperity policy, hukou reform may serve as a key instrument to alleviate chronic inequality problems in China. The hukou is an internal passport that ties one’s entitlement to welfare benefits (such as education, healthcare, pension, and housing) to one’s birthplace. This restriction creates welfare inequality between locals and migrants by banning migrants from accessing the welfare system that locals enjoy exclusively. Additionally, the hukou system widens regional inequality between wealthy labor-importing localities and underdeveloped labor-exporting localities. Migrants (from underdeveloped localities) are ineligible to receive benefits in the wealthier localities they have been working. The welfare burden falls disproportionately on underdeveloped areas and on the migrant workers themselves, while wealthier labor-importing localities are often exempt from this responsibility.

The degree to which Xi will pursue hukou reform as a means to achieve common prosperity is difficult to gauge, but there are three possible scenarios (and challenges accompanying each). The first scenario is to start some reform from the periphery while continuing to enforce hukou restrictions in megacities. China has been pursuing this incremental hukou reform for the last two decades. The new administration may designate more pilot cities to undertake policy experiments aimed at identifying practices to lift hukou restrictions while minimizing social turbulence. In the meantime, it would also refrain from loosening restrictions in megacities to prevent them from being inundated with new migrants. The challenge is that these incremental changes on the periphery are less likely to produce the kind of visible outcomes that Xi could use to boost his legitimacy and boast about his accomplishments in bringing common prosperity into fruition.

The second, but riskier, scenario is to embark on a more radical course of reform that loosens hukou restrictions nationally, including in megacities. Megacities are magnets for migrant workers but the hukou restrictions prevent them from accessing social welfare and services while they live there. Lifting hukou restrictions in megacities would significantly improve the severe welfare gap between locals and migrants in megacities. The 2022 hukou reform in Zhengzhou, a megacity in eastern China, may have been a sign that the Chinese Communist Party is finally ready to start a more radical reform of the system that extends beyond small and medium-sized cities. For the first time, Zhengzhou allowed anyone to obtain full residency. By allowing more migrants to settle in the city, Zhengzhou is attempting to stabilize the struggling real estate market and resolve labor shortage problems. The challenge is that not all megacities have the same incentives as Zhengzhou. Many Chinese urban residents in megacities have shown reluctance to share limited public resources with migrant workers, whom they often describe as “low quality,” a catch-all term for poverty, lack of education, and low social status. Xi may be able to effectively secure consent (or silence the opposition) from local governments and local residents, but it may put him in a difficult position.

The last scenario is for the hukou system to remain untouched. Common prosperity may not be an entirely hollow phrase, but Xi may not be willing to risk social instability just to pursue it. The slowing economy and the looming international challenges seem to make Xi prioritize social stability over any other political agenda, including achieving common prosperity through effective hukou reform.

Xi Jinping’s common prosperity program seems to be challenged by a series of intrinsic contradictions, primarily by dilemmas regarding where the money is, who will implement this program, and how to decide who gets what.

First of all, the common prosperity program faces a fundamental dilemma in terms of providing incentives for economic growth versus income redistribution. China’s economic growth has already slowed significantly in recent years. Now, under the slogan of common prosperity, the suppression of private sector business threatens to further contribute to the diminishing of economic momentum. Xi has consistently emphasized making state-owned capital and state-owned enterprises bigger, better, and stronger, causing anxiety among China’s richer and middle-income classes that the vision of common prosperity could inadvertently sabotage economic growth to the extent that the practical result would be a return to the common poverty of Mao’s China.

With the slowdown in overall economic growth, the Chinese government, particularly on the local level, has been experiencing fiscal pressure. The implementation of many policy measures of common prosperity requires large fiscal input, particularly from local governments. In order to carry out common prosperity policies, provincial authorities have vowed to increase their expenditures on residents’ well-being, but they are not able to answer the question of how these expenditures will be funded. The national government has promised to improve intergovernmental fiscal transfers to give provincial governments more budget flexibility; in reality, however, such budget transfers are always a bitter battle between central and local bureaucrats. With further power concentration at the top, there is no reason to believe that local bureaucrats will have an upper hand in this contest.

As an ambitious governmental program, common prosperity needs to be implemented by local bureaucrats. At least since mid-2021, however, many provinces have reduced salaries of middle- and lower-ranking bureaucrats and other employees of state organizations. This might free up money for funding common prosperity programs, but it is hard to imagine that with their own salaries and incomes cut local bureaucrats will enthusiastically take on new duties.

Opportunities for corruption may provide incentives to local cadres, and will almost certainly lead to mismanagement of common prosperity policy funds. Common sense can predict that some of those cadres whose income is reduced but whose power regarding resource allocation is increased will find both legitimate and illegitimate ways to benefit their own and their families’ interests while managing common prosperity projects. Such corrupt behavior, of course, will victimize those people who are intended to benefit from the common prosperity program.

The common prosperity program is highly political in the classical sense: It is about who gets what. There is a notable contrast between the state’s emphasis on improving the socioeconomic interests of low- and middle-income groups and its firm desire to limit those same groups’ participation in public decisions about who gets what. In fact, the problems the common prosperity program aims to tackle are deeply rooted in China’s political and economic institutions, which supported the country’s fast economic growth in past decades. Institutional reforms, therefore, are necessary for overcoming those problems now leading to slower growth. Xi has mentioned the possibility of such reform—such as fiscal transfer and hukou system reforms—but so far corresponding measures have yet to be proposed. In a similar vein, without fiscal and budgetary politics reforms, it appears difficult to achieve funding levels, even equivalent to those available during past decades of robust growth, sufficient to support a significant expansion of public services and social protection for underprivileged groups.

While Xi Jinping’s drive for common prosperity in 2021 might appear novel, Bo Xilai waged a similar campaign during his tenure as Party Secretary of Chongqing in 2011. Comparing the two, as I did in this recent article for the China Leadership Monitor, suggests that Xi Jinping has used common prosperity to crack down on elites and the private economy, but not to significantly expand redistribution. In his speeches, Xi puts forth an image of “bootstrapped” common prosperity, with hard work and entrepreneurship standing in for social welfare, which he fears will lead China toward welfarism and “lying flat.”

While the goals of common prosperity, such as reducing inequality and equalizing services for rural and urban citizens, are similar across the two campaigns, the 2011 campaign was more ambitious in policymaking and implementation. It also reflected an important moment in Chinese politics, just before a major political transition with the first leadership succession of a leader not chosen by Deng Xiaoping, with open conflict and debate about the direction of China’s development model.

Bo Xilai’s articulation of the Chongqing model and its goal of common prosperity was part of a roiling debate during the last years of the Hu-Wen administration about the future direction of China’s economy. Guangdong Party Chief Wang Yang represented the alternative—the “Guangdong model”—which doubled down on “reform and opening” by advocating greater liberalization of the private sector, tech upgrades, and openness to the outside world. The conflict emerged as two competing models for China’s future, framed around the question of a cake: Should China focus on making the cake bigger? Or should China focus on dividing the cake more equitably?

Bo advocated policies of redistribution and amplification of state power to drive development built on the enhanced income and security of the lower and middle classes. His policies included the expansion of low-income housing, land transfer policies for rural citizens in Chongqing in exchange for urban household registration and employment, and the use of state assets to fund social programs. Wang and his supporters argued redistribution would kill growth and it would be better to focus on growth at all costs. Redistribution could wait.

The 2011 campaign frames and contextualizes the 2021 campaign launched by Xi under different political and economic circumstances. Xi is now China’s unopposed center, with an unprecedented third term and a Politburo Standing Committee that is entirely stacked with “his men.” The 2011 openness to debate and even media and academic critique of the different development models has given way to much greater performative loyalty to Xi.

Despite greater power consolidation by Xi, actual achievements toward common prosperity seem no closer to realization. In 2021, Xi Jinping used common prosperity as a populist banner to crack down on private companies and economic elites, but policies to address redistribution and inequality were surprisingly sparse. In adopting Bo Xilai’s slogans but not his policies, Xi is attempting to capitalize on a populist message without adopting redistributive policies that require increased taxation and a larger role for the central government to fund welfare gaps.