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Explained: Xi Jinping’s economic revamp amid China's widening wealth gap

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After a decade of rule, Xi Jinping’s China is on its way to becoming the world’s biggest economy, eliminating extreme poverty. But incomes have stagnated and a huge education gap has opened up, leading to a call for 'common prosperity' by the canny supremo.

Explained: Xi Jinping’s economic revamp amid China's widening wealth gap
After taking over as the President of China, Xi Jinping promised to lead the country into a “great rejuvenation.” Almost a decade later, China is on its way to becoming the world’s biggest economy, eliminating extreme poverty. However, incomes have stagnated, especially at the lower end.
Social inequality
While China focused on economic growth, social equality took a backseat. The benefits of the economic boom have not been distributed evenly in China. According to a Bloomberg report, China’s richest 20 percent earn 10 times more than the poorest 20 percent. This gap, much wider than that seen in US, Germany and France, has remained stagnant since 2015. The report added that more than 600 million people in China earned 12,000 yuan ($1,858) or less annually.
Meanwhile, the number of billionaires in China grew to 81 on Bloomberg’s ranking of the world’s 500 richest people, a number that is significantly more than many countries.
Similarly, a Credit Suisse Group AG report showed that in 2020, the top 1 percent in China owned nearly 30 percent of the nation’s wealth. This is similar to Western economies such as the US where the share of wealth with the top 1 percent was 35 percent during the same period.
A Wall Street Journal report says the COVID-19 pandemic widened the economic gap in China, with the more than 600 million Chinese people earning an average monthly income of less than $140.
Xi’s call for common prosperity
In 2012, Xi said: “Common prosperity is the fundamental principle of socialism with Chinese characteristics.” Xi’s call for common prosperity promoted a sweeping overhaul through regulation and distribution of wealth, including a crackdown on technology giants and aggressive property market interventions.
Despite the move, declining relative social mobility, which contradicts the communist ideal of breaking down class distinctions, continued to grow in China, threatening social and political stability.
Xi’s rationale
There is a growing disenchantment and intolerance of inequality among the youth in China.
“It wasn’t easy for my parents to send me to college. However, it now feels nearly impossible for me to climb up the social ladder further,” 23-year-old Long Lin, who earns $1,080 a month, told WSJ.
One of the reasons behind the discontent is the rising property prices. Those who bought realty early have generated an enormous pool of wealth, while those who are starting now feel priced out.
According to real estate brokerage firm Colliers International, the average price of a house in China in June is nearly 25 times more than the average annual household disposable income in Beijing and 20 times in Shanghai.
Another reason behind the growing discontent is disparity in education. A study by AXA Investment Managers revealed that families in top-tier cities of China spent a quarter of their income on tutoring their wards and those living in rural areas had scant opportunities.
Statistics reveal that while 22 percent students at Tsinghua University in 1990 were from rural China, only 10.2 percent enrolled from those areas in 2016.
“Xi has a low tolerance for outcomes that directly cause a lot of ordinary Chinese to suffer, because that would create serious risks to political stability and party legitimacy,” Neil Thomas, Eurasia Group’s analyst, told Bloomberg, adding that above all Xi was determined to protect the Communist Party itself.
What are the challenges?
Apart from inequality, Xi is shaking up policies to ensure China is less dependent on debt, monopolies and fossil fuels so that the ordinary citizens are not burdened with higher power bills, lost savings and fewer jobs.
The economic policy reforms emphasise on "gradual and orderly progress" in achieving common prosperity.
According to Xi, the goal was to usher in social harmony through the growth of the middle class. This requires a stronger public sector and improved social safety net, he said.
However, China is yet to figure out how it will work. “We have a complete solution to the problem of poverty, but we still have to explore and accumulate experience in the issue of how to get rich,” Xi said.
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