[The Editors' Verdict] The Background of China's 'Common Prosperity' Policy Shift

Since the end of last year, the Chinese government under Xi Jinping has been promoting the policy of ‘Common Prosperity (共同富裕)’. It has been putting pressure on leading global IT companies like Alibaba and Tencent Group, dealing with the default of Evergrande Group, the second largest real estate company in China, converting private academies into non-profit organizations, and requiring large corporations to donate substantial amounts for wealth redistribution. By the end of last year, 384 real estate development companies had gone bankrupt due to tightened loan regulations, and 180,000 private academies had converted to non-profit entities.

Why has such a policy emerged at a time when economic recovery is crucial due to COVID-19? One analysis suggests it is because the psychological tolerance of the Chinese people toward income inequality has declined. This is based on the results of the ‘World Values Survey (WVS) Project’, which investigates the social, cultural, and political values of people in various countries.

For example, regarding income inequality, respondents are given questions where ‘Income should be more equal’ is scored as 1 point, and ‘Income is an incentive for individual effort’ is scored as 10 points, and individuals select their preference. The average score is then calculated. A higher average indicates greater acceptance of income inequality, while a lower average indicates less tolerance.

This tolerance level was around 7.5 to 8.0 in the 1990s but has significantly dropped to 5.53 over the past three years. During the same period, South Korea scored 6.66 and Japan 5.36, making this a serious issue for China, a communist-socialist country aiming for a Xiaokang society where all citizens live well.

Social experts in China point to four factors. First, frustration over the persistent income and asset gaps has increased. As of 2020, the average per capita income in Chinese cities was approximately 7.47 million KRW, while in rural areas it was only 2.91 million KRW, just 39% of the urban income. When urban income is divided into five tiers, the highest income is 16% higher than the lowest. The asset gap is even larger. The per household asset income in Beijing, the political and economic center, is 1.52 billion KRW, whereas in the most underdeveloped city in Xinjiang, it is 220 million KRW, only 14% of Beijing’s level.

Second, the younger generation facing employment difficulties is expressing fatigue with overcompetition and their living environment. As of June last year, the unemployment rate for 16-24-year-olds in Chinese cities was 15.4%, and for 20-24-year-olds, around 20%. The ‘996’ work culture?working from 9 a.m. to 9 p.m., six days a week?is also a problem, accumulating psychological resistance among young people.

Third, there is frustration over home ownership. The PIR (Price-to-Income Ratio) in Beijing and Shenzhen is around 28 to 30 times, which is exceptionally high compared to New York’s 7 times and Seoul’s 15 times. The rapid rise in housing prices is also accelerating the rates of singlehood and low birth rates.

An important factor to note is the impact of the development of social networks (SNS) and messengers. Before the widespread use of SNS, surveys of migrant workers compared them mainly with other migrant workers in the same city, registered urban residents, or relatives in their rural hometowns. However, with the generalization of SNS use, their comparison group has expanded, increasing feelings of anxiety, loneliness, and inferiority. The ‘Common Prosperity’ policy shift aims to alleviate these psychological pressures caused by various disparities.

Jung Yoo-shin, Dean of the Graduate School of Technology Management, Sogang University

This content was produced with the assistance of AI translation services.