China President Xi Jinping
Aris Messinis | Swimming pool | Reuters
BEIJING – Chinese President Xi Jinping at a financial and economic meeting on Tuesday emphasized the need to support moderate prosperity for all – or the idea of ”shared prosperity” that analysts say is behind recent regulatory crackdown on tech companies.
Significantly, the meeting was Xi’s first public meeting since a two-week rest period. Chinese leaders typically spend early August engaging in secret political debates at a resort in Beidaihe, about a three-hour drive east of Beijing.
The meeting called for “appropriate adjustment to excessive incomes and encouraging high-income groups and businesses to return more to society,” state media said, according to a CNBC translation in Chinese.
Heads of state and government also stated that shared prosperity does not mean prosperity for a few and is not a form of equal distribution, state media said. Rather, progress towards the goal will be made in stages, the report says.
Achieving “common prosperity” has become a fundamental topic of Chinese political discussion in recent months. The term is generally understood to mean moderate wealth for everyone, not just a few. But it remains a vague, widely used slogan.
Yue Su, chief economist at The Economist Intelligence Unit, said in a statement that she expects the authorities to act pragmatically.
“Given that increasing taxes on high-income groups and capital gains can curb investment and potentially lead to capital outflows, the Chinese government will not completely ignore the economic impact of redistributive policies,” she said.
She added that privatization of public services like education, elderly care or medical care is likely to slow down, with authorities tightening at least on monitoring prices and affordability.
The income inequality of the 1.4 billion people in China has increased over the past few decades. According to estimates published in 2019 by Professor Thomas Piketty at the Paris School of Economics and a team, the top 10% of the population earned 41% of national income in 2015, up from 27% in 1978.
But the lower-income population’s share of national income has fallen to around 15%, down from 27% in 1978.
That year, urban dwellers in the coastal city of Shanghai had an average per capita disposable income of 7,058 yuan (US $ 1,091) per month, far more than 4,021 yuan for urban dwellers across the country and well over 1,541 yuan for rural dwellers , officially shown dates.
The Chinese government has claimed it eliminated extreme poverty in the country late last year. This was a first step in fulfilling the longer-term commitments made by the ruling Chinese Communist Party, which celebrated its 100th anniversary in July.
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“China has worked towards the goal of ‘shared prosperity’ and reiterated its efforts to rebalance the economy towards work and address social inequality through redistribution, welfare, taxation and inclusive education,” Morgan Stanley analysts said in an am Wednesday distributed report and named one goal – “to increase the share of the middle income group in the economy.”
Based on the key economic policy meeting, the analysts expected additional measures to support economic growth, such as lowering the reserve requirement ratio.
July data showed that China’s economic growth slowed more than analysts expected, including figures on individual Chinese consumer spending.
However, economists have found that growth is not as important to Beijing this year as tackling long-term issues like debt build-up and risks in the huge real estate market.
“Finances are at the core of the modern economy with links to development and security,” said the CNBC state media translation, citing Xi’s remarks at the Tuesday meeting. “It must follow the principles of marketization and the rule of law and coordinate the prevention and resolution of major financial risks.”