Growth and Common Prosperity in China

• Published date: 01 January 2022
• Author: Nanak Kakwani,Xiaobing Wang,Ning Xue,Peng Zhan
• Date: 01 January 2022
• DOI: http://doi.org/10.1111/cwe.12401

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 28–57, Vol. 30, No. 1, 2022

28

Growth and Common Prosperity in China

Nanak Kakwani, Xiaobing Wang, Ning Xue, Peng Zhan*

Abstract

This paper introduces a decomposition method that quantifies the contributions to

common prosperity of labor market performance and social policies and extends the

idea of shared prosperity to a new measure of inequity in opportunities. The resulting

common prosperity indices and opportunity equality indices are then applied to five

waves of the Chinese Household Income Project data from 1988 to 2018. This paper

shows that the labor market performance and social policies have been improving

over the last 30 years and have helped China move towards common prosperity for

everyone. The indices developed in this paper allow us to quantify the extent of shared

prosperity that a country has achieved and to carry out empirical studies on which

policy is working and which is not. It can also help us identify the fundamental causes of

inequality and aid us in achieving equality in opportunity among all members of society.

Keywords: common prosperity, income growth, inequity in opportunity, labor market,

social policies

JEL codes: J21, O12, O15

I. Introduction

The philosophy of people-centered development aims to create common prosperity. This

paper develops a theoretical framework for quantifying common prosperity, providing

several common prosperity indices. As equality and equity in opportunity form the

foundation of common prosperity, this paper also develops a set of opportunity equality

indices. These indices are applied to five waves of the Chinese Household Income

*Nanak Kakwani, Professor, School of Economics, Renmin University of China, China; School of Economics,

University of New South Wales, Australia. Email: n.kakwani@unsw.edu.au; Xiaobing Wang, Associate

Professor, School of Economics, Renmin University of China, China; Department of Economics, University

of Manchester, UK. Email: xiaobing.wang@manchester.ac.uk; Ning Xue, Assistant Professor, Department

of Economics and Related Studies, University of York, UK. Email: ning.xue@york.ac.uk; Peng Zhan

(corresponding author), Associate Research Fellow, Institute for Common Prosperity and Development,

Zhejiang University, China. Email: zhanpeng@zju.edu.cn. This research was supported financially by the

National Social Science Foundation of China (No. 18ZDA080), the Nature Science Foundation of Jiangsu

Province (No. BK20190788), and the Fundamental Research Funds for the Central Universities of China.

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Growth and Common Prosperity in China 29

Project (CHIP) data from 1988 to 2018 to address policy questions relating to the labor

market and social policies.

In 1997, the Chinese government set up two centenary goals, namely to finish

building a moderately prosperous society in all respects by the centenary of the

Communist Party of China (CPC) in 2021 and to turn China into a modern socialist

country that is prosperous, strong, democratic, culturally advanced, and harmonious by

the centenary of the People’s Republic of China in 2049.

China became the second largest economy in the world after the US in 2010. It is

on track to achieve around US$12,000 GDP per capita and will enter the World Bank’s

high-income country list in the next couple of years. However, China is still poor. Its

GDP per capita is still below the average world GDP per capita, and by this measure,

China is ranked around 70th among all countries in the world. It also has entrenched

multidimensional inequality, including rural–urban and regional divides regarding

income, education, employment, and health care (Wang et al., 2013; Rangazas and

Wang, 2019; Zhan et al., 2019). Although China eradicated extreme poverty by the end

of 2020, a large fraction of the population continues to have a very low income. Our

estimation, based on CHIP 2018, shows that the proportions of the population with an

annual income of up to RMB6,000 (about US$850), RMB12,000, and RMB24,000 are

7.5 percent, 23.5 percent, and 50.5 percent, respectively.1 Half of the population still

has an income that is only one-third of the GDP per capita.2

China’s economic development has entered a new era, which requires the

development of a new mindset to deal with its new problems (Wang and Peach, 2019;

Wang et al., 2019). At the beginning of the reform period, the slogan advocated by

Deng Xiaoping was “let some people get rich first”; now, as the country has grown

relatively richer and the institutions have been improved (Wang, 2019), it is not right

to allow some people to fall too far behind, and that is why the Chinese government is

advocating for “common prosperity.”

China introduced the concept of “the harmonious society” during the 2005 National

People’s Congress, and the governing philosophy began to shift from economic growth to

“societal balance and harmony.” The Central Committee of the CPC (CCCPC) and State

Council of China (SCC) (2017) recognized that the “principal contradiction” facing Chinese

society is now “between unbalanced and inadequate development and the people’s ever-

growing needs for a better life.” The government believes that this is a historic juncture in

China’s development. People must work together to create better lives for themselves and

1The average market exchange rate in 2018 was about US$1 to RMB7.

2This can be understood as an inequality measure of median to mean.