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  • MAP Asia Pacific Ltd

In depth: What's standing in way of China's 'common prosperity'?

The meeting of the ruling Communist Party's Central Financial and Economic Affairs Commission on Aug. 17 was not the first appearance of the phrase "common prosperity" in a report from China's top leadership.

But the way the phrase was used by at the meeting chaired last month by President Xi Jinping meant that it, and the associated idea of "third distribution," quickly jumped up the policy agenda nationwide.

State media reported that the commission emphasized the need to "reasonably regulate excessively high incomes," and that while the party allowed some people to "get rich first," it is now prioritizing "common prosperity."

The issue of wealth redistribution came into the spotlight last year when Premier Li Keqiang noted in his annual news conference that around 600 million Chinese people earn an average of 1,000 yuan ($141) a month. China's official Gini coefficient, a measure of wealth inequality, sunk to 0.462 in 2015, but went up in the following three years. The COVID-19 pandemic has further exacerbated inequality.

Wang Dehua, a research fellow at the National Academy of Economic Strategy, told Caixin that "common prosperity" has now been officially established as a strategic goal, and that wealth redistribution will be a key measure. "Third distribution" is now part of a "fundamental mechanism" to ensure better social equality, he said.

Wang Xiaolu, a deputy director of think tank the National Economic Research Institute, explained that "third distribution" refers to enterprises or individuals giving away some of their wealth voluntarily to charities. This is contrasted with "primary distribution," which is based on market principles, and "redistribution," which is largely done through fiscal measures such as taxation and transfer payments.

The concept immediately began to concern some, who worried that "third redistribution" could be made obligatory. To calm these nerves, Han Wenxiu, an executive deputy director at the commission's general office, reassured the public on Aug. 26 that it does not mean "robbing the rich to give to the poor."

Building efficient markets

Many academics hold the view that the government should continue to rely on primary market distribution and redistribution to reduce the income gap. "Third distribution" should only be a supplement.



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