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China’s common prosperity goals, aimed at reducing income disparity and promoting people-centered development, are encountering substantial challenges in 2023. Against the backdrop of a sluggish economic resurgence, China’s income inequality is at its highest level since the inception of official records in 1985.
According to government data, the average household income of the top 20% in urban areas is now 6.3 times that of the lowest 20%. This disparity is further exacerbated by divergent income growth rates.
In 2022, the top 20% in the country’s urban areas experienced a substantial 4.5% increase in income, while the bottom 20% saw meagre growth at just 1.3%. These disparities extend beyond urban centres, with rural areas witnessing a four-year high in income inequality at 9.2 times last year.
The notion of common prosperity gained prominence following a pivotal meeting chaired by President Xi Jinping in August 2021. At this gathering, bold commitments were made to address China’s income inequality.
“Common prosperity is an essential requirement of socialism and a key feature of Chinese-style modernisation. The common prosperity we are pursuing is for all, affluence both in material and spiritual life, but not for a small portion nor for uniform egalitarianism,” Xi had said at the meeting two years ago.
However, recent government data paints a starkly different picture, indicating that these objectives have remained elusive. In China, the wealthiest 1% currently exerts control over more than 31% of the nation’s household assets, as per a survey by UBS and Credit Suisse.
Additionally, what sets China apart is the extent of income inequality when compared to other countries and regions. Among the 14 economies surveyed by UBS, China witnessed the most substantial rise in wealth concentration.
Youth unemployment, debt crisis adding to China’s income inequality
With common prosperity goals being far from realised, high unemployment rates are adding to China’s widening income inequality. China has recently witnessed an alarming surge in its youth unemployment rates, reaching an all-time high of 21.3% in June 2023. So concerning was this spike that the government decided to suspend the release of further youth unemployment figures.
Subsequently, July 2023 witnessed a slight uptick in unemployment across all age groups in urban areas, with the rate increasing from 5.2% in the previous month to 5.3%. This elevated urban unemployment rate contributed to an overall national unemployment rate of 5.6% for the quarter ending in June 2023.
Delving further into the data, it becomes apparent that urban unemployment has been a growing concern over the past year. In 2022, 31 major cities in China, including provincial capitals, reported an urban unemployment rate of 6.0%, surpassing the national average of 5.6%.
Simultaneously, experts argue that alongside the mounting unemployment challenge, the rapid expansion of local government debt is amplifying China’s income inequality. They contend that affluent individuals and major corporations holding substantial financial assets are taking advantage of interest payments originating from financially troubled entities, such as China’s local government financial vehicles or LGFVs.
In turn, LGFVs, backed by government assurances, continue to refinance their debts and meet their interest obligations to creditors, underscoring the concerning disparities in wealth distribution.
“Market concerns have resurfaced over local governments’ off-balance-sheet debt, which amounts to 55-60 tn yuan ($7.5-8.2 tn) by our estimates…In the worst-case scenario, which we see as unlikely, a collapse of the LGFV bond market could drag down China’s GDP growth by about 1 percentage point over one year,” said PIMCO.
