China calls for curbs on 'excessive' income and for the wealthy to give back more to society

China calls for curbs on 'excessive' income and for the wealthy to give back more to society

Chinese President Xi Jinping

Aris Messinis | Pool | Reuters

BEIJING — Chinese President Xi Jinping emphasized at a finance and economic meeting Tuesday the need to support moderate wealth for all — or the idea of “common prosperity,” which analysts have said is behind the latest regulatory crackdown on tech companies.

Significantly, the meeting was the first Xi led publicly since a two-week quiet period. Chinese leaders typically spend early August in secret political discussions at a resort in Beidaihe, about a three hours’ drive east of Beijing.

The meeting called for the “reasonable adjustment of excessive incomes and encouraging high income groups and businesses to return more to society,” state media said in Chinese, according to a CNBC translation.

Leaders also specified common prosperity does not mean prosperity for just a few and is not a form of equal distribution, state media said. Rather, progress toward the goal would occur in stages, the report said.

Delivering “common prosperity” has emerged in recent months as an underlying theme of Chinese political discussion. The term is generally understood as moderate wealth for all, rather than just a few. But it remains a vague, frequently used slogan.

Yue Su, principal economist at The Economist Intelligence Unit, said in a statement she expects authorities to be pragmatic in implementation.

“Considering that raising taxes on high-income groups and capital returns may curb investment and potentially lead to capital outflows, the Chinese government will not completely ignore the impact of redistribution policies on the economy,” she said.

She added that privatization will likely slow in public services such as education, care for the elderly or medical care, with authorities at the very least becoming more strict in monitoring prices and affordability.

Income inequality among China’s 1.4 billion people has increased over the last few decades. The top 10% of the population earned 41% of national income in 2015, up from 27% in 1978, according to estimates published in 2019 by Paris School of Economics professor Thomas Piketty and a team.

But the lower-earning half of the population has seen its share of national income fall to about 15%, down from about 27% in 1978.

This year, urban residents in the coastal city of Shanghai had an average per capita disposable income of 7,058 yuan ($1,091) a month, far higher than the 4,021 yuan for those in cities nationwide, and well above the 1,541 yuan for rural residents, official data showed.

The Chinese government has claimed it eliminated extreme poverty in the country as of the end of last year. That marked a first step to fulfilling the longer-term pledges of the ruling Chinese Communist Party, which celebrated its 100th anniversary in July.

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“Elaborating on the ‘common prosperity’ objective, China has affirmed its effort to rebalance the economy toward labor, tackling social inequality with redistribution, social welfare, taxes and inclusive education,” Morgan Stanley analysts said in a report distributed Wednesday, noting a target — “to increase the middle-income group’s share of the economy.”

Based on the top economic policy meeting, the analysts said they expect additional measures to support economic growth, such as a cut to the reserve requirement ratio.

Data for July showed China’s economic growth slowed more than analysts’ expected, including figures on spending by individual Chinese consumers.

However, economists have noted that growth is not as important for Beijing this year as tackling long-term problems such as a buildup of debt and risks in the vast real estate market.

“Finance is the core of the modern economy, with ties to development and security,” CNBC’s translation of state media said, citing Xi’s remarks at Tuesday’s meeting. “It must follow the principles of marketization and the rule of law, and coordinate the prevention and resolution of major financial risks.”