China Is Getting Worried About Income Inequality

A common refrain among Americans when faced with China’s export machine—which pumps out 5G telecoms gear, plastic Christmas trees, and just about everything in between—is the complaint that the United States “doesn’t make anything anymore.” Yet the U.S. retains a commanding advantage in one, especially critical export: ideas. From inalienable rights to Iron Man, Americans churn out the concepts and culture that make the modern world tick, more and better than anyone else. China has long strived to close the deficit, tossing out notions like “community of shared destiny” or “win-win cooperation,” but so far, nothing has caught on.

Now China’s leader, Xi Jinping, might be onto something. His latest catchphrase, “common prosperity,” has been adopted by journalists, scholars, and corporate executives in China with a fervor only a dictator can ignite. State newspapers are routinely plastered with commentary on the topic. On November 11, a shopping holiday known as “Singles Day,” the usual conspicuous excess took a back seat to the common-prosperity spirit. The e-commerce company Alibaba, the holiday’s primary purveyor, focused its marketing on eco-friendly initiatives and charitable programs instead of sales figures. Its management, eager to get into Xi’s good graces, had already pledged billions of dollars in charitable donations to support the leader’s cause, rather than its own shareholders.

Until now, common prosperity has mostly been a concept for domestic consumption in China, but it might soon be heading overseas. The idea could become a central node in the ever-expanding lexicon of language Xi is trying to use to increase Beijing’s influence in international affairs and reshape the world order to favor China’s authoritarian interests.

One of the great achievements of the American world order, crafted in the wake of World War II, was to anoint democracy as the ultimate form of political organization, the standard by which every country is judged. Xi is challenging that primacy of liberal ideals, which automatically casts a dark shadow of illegitimacy over his oppressive regime. The war of words he is engaging in is part of a broader battle over ideals and ideas which could be as important for America’s future global power as other aspects of the U.S.-China confrontation—whether economic, technological, or even military. The outcome will influence how the world thinks about democracy, human rights, and open societies, and will determine if liberal political principles can maintain their stature against the growing authoritarian onslaught.

Common prosperity might be just the sort of hook Xi is seeking. After all, who doesn’t like the thought of a just economic policy that spreads riches to the little guy? It allows Xi to more sharply distinguish China’s “socialism with Chinese characteristics” from American-style freewheeling capitalism, helping him to promote China’s development model as a superior form of economic management for the rest of the world. Neil Thomas and Michael Hirson, analysts at the consulting firm Eurasia Group, commented in a recent report that “common prosperity could occupy a key position in Beijing’s public diplomacy and in its competition with the West for ideological influence in global governance and international affairs.”

[Read: Xi Jinping’s terrifying new China]

In that sense, Xi’s “common prosperity” is somewhat the opposite of President Joe Biden’s “foreign policy for the middle class.” While Biden’s plan is to reorient American foreign-policy priorities to better protect workers and families at home, Xi might instead intend to alter his foreign policy to project new and supposedly fairer economic principles at home to the outside world.

The term itself is not new. Chinese Communists have been using it since the 1950s. Yet the new focus on common prosperity in state propaganda and official discourse marks a significant policy shift. Deng Xiaoping, the Chinese leader who launched free-market reforms in the late 1970s, famously broke with Communist egalitarianism and acknowledged that some individuals and sections of the country would have to get rich ahead of others if the nation was to prosper overall. In the decades since, though the Chinese government has promoted programs to alleviate poverty and develop poorer provinces, it has largely let the billions fall where they may.

Now, Xi, as he is in many aspects of his rule, is returning to more socialist principles. He began to emphasize common prosperity in August at a meeting of top cadres, and it has since risen to the top of his government’s economic agenda. In a sign of how important the concept is, Xi took the unusual step of publishing an essay on the subject under his own name in Qiushi, the Chinese Communist Party’s main theoretical journal. In it, he described common prosperity as “an essential requirement of socialism and an important feature of Chinese-style modernization.”

For Xi, this new approach might be a political winner. The Communist Party always has its antennae finely tuned to catch potential sources of social unrest, and widening income disparity could be an especially destabilizing one. In his Qiushi essay, Xi noted that the division between rich and poor in other countries “has led to social disintegration, political polarization, and rampant populism” and that “our country must resolutely guard against polarization, drive common prosperity, and maintain social harmony and stability.” For Xi personally, the concept allows him to act like a man of the people (rather than the privileged princeling—or son of a Communist dignitary—that he actually is) to bolster his chances of extending his reign into a third, five-year term next year, still a contentious issue in Chinese politics.

The idea makes sense for the economy, too. As is true in many countries, China is suffering from damaging income inequality. How severe it looks depends on how you slice and dice the data. The economist Thomas Piketty, in a 2019 study, figured that the share of national income earned by the richest 10th of the Chinese population surged from 27 percent in 1978 to 41 percent in 2015, while that earned by the bottom half plunged from 27 percent to 15 percent. An examination of World Bank data shows that the income gap in China is not as wide as in the U.S., but inequality is worse than in many other major economies, including France, Japan, India, and the United Kingdom. Spreading the benefits of China’s economic success more broadly would help fix the economy’s sputtering growth engines by reducing its reliance on debt-driven and often wasteful investment and replacing it with a healthy dose of consumer spending, which remains low relative to other economies.

Of course, whether that happens depends on how common prosperity is implemented. What exactly common prosperity is, and how it will be achieved, isn’t entirely clear. Xi, in his essay, told us what it’s not: It is neither “neat and tidy egalitarianism,” which likely means an attempt to equalize incomes, nor “welfarism,” which he described as “falling into the trap of nurturing lazy people.” Xi also didn’t define what common prosperity will look like when reached, writing only that it will be “basically achieved” by midcentury when the gap in incomes is “narrowed to a reasonable range.” Xi ultimately leaves us with mostly vague and broad ideas about reducing disparities in livelihood between different segments of society and country.

“It’s the new social economic goal,” Bert Hofman, the director of the East Asian Institute at the National University of Singapore and a former World Bank official, told me. “What exactly it is has yet to be determined.” As is often the case with Chinese policy, he added, “these concepts are floated and then they gradually gain meaning.” Generally speaking, he explained, the idea is to “do something to narrow the gaps between the regions, between urban and rural regions and between the rich and the poor.”

Whatever the specifics, common prosperity dovetails nicely with China’s foreign policy. Beijing already likes to portray itself as a fellow traveler with developing nations—the poor kid who made it big and now wants to give back. Xi characterizes his infrastructure-building Belt and Road Initiative as a model of spreading wealth. The program, Xi said in 2019, “has helped improve people’s lives in countries involved and created more opportunities for common prosperity.” Now, more and more, Xi is marketing China’s economic system of authoritarian capitalism as superior for developing countries than the usual, Western menu of free markets and open societies. Elizabeth Economy, a senior adviser to the U.S. Commerce Department for China, noted that Belt and Road was just one method Beijing is employing to push its economic ideas. “China has become increasingly comfortable in its efforts to export its state-centered political and economic model globally,” she told a government committee last year, with the aim “to ensure that international norms and values align with and serve Chinese values and policy priorities.”

Common prosperity could become a part of this campaign. In an October essay in People’s Daily, the chief Communist Party newspaper, Xie Fuzhan, president of the state-run Chinese Academy of Social Sciences, asserted (according to a translation by Eurasia Group) that the concept will “provide a completely new choice for other developing countries to promote common prosperity and achieve modernization,” and “provide Chinese inspiration for human society to achieve freedom and all-round human development.” In other words, common prosperity will turn China into a beacon of hope for needy nations, much as the United States has always sought to be.

[Read: Mapping China’s income inequality]

However, common prosperity can only catch on abroad if it succeeds at home. Xi’s essay offered a sweeping range of worthy suggestions: enhancing access to education and social services; supporting small business; improving the tax system; investing more in underdeveloped and rural regions; and raising pension payments. Yet when, or even if, these ideas become active policy is unknown. There are some worrying signs, though. While acknowledging the importance of private enterprise, Xi stressed “giving full play to the important role of the public sector economy in driving common prosperity,” which could mean that the least productive and innovative state agencies and companies will take the lead. Xi’s program also has a slightly anti-capitalist hue. He recommended that policy makers “must resolutely oppose the disorderly expansion of capital” and “reasonably adjust high income,” however that’s defined. In a November press conference, Han Wenxiu, an official at the party’s Central Committee for Financial and Economic Affairs, insisted that common prosperity will not “kill the rich,” but added that charitable donations would be encouraged, on a purely voluntary basis, of course—which, in China’s authoritarian system, leaves open the prospect of effective confiscations.

As a result, common prosperity, if implemented with the usual Communist zeal, runs the risk of becoming a process of “leveling down” instead of “leveling up,” where the wealthy, entrepreneurial, and successful are harassed and hamstrung by an intrusive state, potentially draining the economy of its growth and innovative energies. Yet if managed successfully—and that’s a big if—China could proffer inventive policies to aid other countries in their quest for greater equality. Then there’s a third option, that “common prosperity” is just another Xi Jinping slogan, designed to enhance his political credentials, not the welfare of the country’s poor. Devising new products to sell to the world is hard enough; devising new ideas is that much harder.