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Moderately Prosperous Society in All Respects: An Economic Study of Chinese People’s Quality of Life Labor market, Chinese social structure

Author Wonho Yeon, Sang Baek Hyun, Kyong Hyun Koo, Yoon Jae Ro, Jeonghwan Yun, and Hyojin Lee Series 21-14 Language Korean Date 2021.12.30

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China’s per capita GDP surpassed $10,000 in 2020 as a result of its rapidly conducted 40 years of opening and reform (gaige kaifang). The Chinese government emphasized that Chinese people all moved above the “absolute poverty level” in 2021 and announced that it has achieved a Moderately Prosperous Society in All Respects (quanmian xiaokang shehui). In contrast to Deng Xiaoping’s original proposal, which sought to escape absolute poverty. the proposal to build a Moderately Prosperous Society in All Respects, set forth in 2002, aims to resolve both absolute poverty and relative poverty for social cohesion. This is also evident from the Chinese government’s official checklist.

In light of this, Chapter 2 examines the definition, indicators, conceptual change, and development of the Chinese government’s “moderately prosperous society,” and evaluates China’s moderately prosperous society in all respects by comparing the quality of life in various nations. In particular, from the perspective of China, this research investigated the change in the quality of life of Chinese people using the white paper “China’s Epic Journey from Poverty to Prosperity.” Also, from a global perspective, we compared the quality of life in China and major countries with the UNDP’s Human Development Index (HDI) and the UN’s Happiness Index (HI). In terms of eradicating poverty, the quality of life for Chinese citizens appears to have been improved in general. However, China is still yet to reach its target in some areas, including the average number of years of education and productivity per capita. In addition, in terms of social integration, the gap in Chinese society has widened further. Based on the analysis framework presented by the OECD’s Better Living Index (BLI), in terms of income inequality, wealth inequality, and fertility rate, it is hard to conclude that China has achieved its own set of goals.

Within the general framework laid out in Chapter 2, Chapter 3 investigates the quality of life of Chinese people by analyzing the Chinese Family Panel Survey (CFPS) data from 2012 and 2018. Our study discovered that the rapid income growth of the Chinese people has raised life satisfaction, solved fundamental concerns of livelihood, and lowered the Engel’s coefficient in China. However, this has also made Chinese people become more interested in social problems. Today, Chinese people worry about China’s difficulties with education, environment, healthcare, and social security far more seriously than they did in 2012. In fact, during this time, the gap in personal income between urban and rural areas, the eastern coast and the western interior, males and women, and those with high and low levels of education expanded. Our research also revealed that the income disparity below the median income level has been getting worse in terms of household-level income and consumption. Additionally, the cost of housing more than quadrupled between 2012 and 2018, which makes the problem highly likely to aggravate in the future. Assortative matching between people whose incomes are homogeneous has been proven to occur in cities, where the level of inequality is further exacerbated. The situation in which increasing inequality and assortative matching among households occur simultaneously is a serious social problem in that the gap between the rich and the poor can be transferred to the next generations.

The intergenerational study we conduct in Chapter 4 reaffirmed the likelihood that China’s inequality problem will be passed down from generation to generation. In particular, not only the inheritance of tangible assets like wealth but also the inheritance of intangible investments like education are expected to worsen China’s inequality issue. In addition, in Chapter 4, we developed a new economic model to analyze and explain the conflicting phenomenon of improving income inequality in cites at individual level and the expansion of income inequality at household level. Household level inequality appears to be growing as a result of the assortative matching, which refers to the marriage among similar income and educational attainment levels. This suggests that, from a dynamic perspective, the passing down of wealth and education between generations may cause China’s inequality problem to worsen and eventually develop into a permanent problem.

The final chapter, along with the overall summary of this report, provides key implications. In particular, based on our findings presented in previous chapters, we tried to explain why the Chinese government took “common prosperity (gongtong fuyu)” as ​​a new task after the declaration of achieving a moderately prosperous society in all respects, what “common prosperity” actually means, and predict the major tasks for the Chinese government. The Chinese government aims to address the problem of relative poverty by resolving the economic and social inequality that has accumulated since reform and opening up (gaige kaifang), and furthermore, to improve the quality of life at a higher and multidimensional manner. In August 2021, the Chinese government announced the six major directions for common prosperity: improving balanced, harmonized, and inclusive development; expanding the middle and upper-middle-income class; strengthening basic public services; tightening regulations for overly high incomes; promoting spiritual prosperity; and promoting the common prosperity particularly in rural areas. From now on the Chinese government’s policies can be expected to focus on the areas of: ① forming a middle class by resolving inequality, and ② improving the quality of life by solving social problems such as medical care, education, marriage, and childbirth. 

When considering the difficulties associated with resolving inequality in China, the Chinese government is likely to tighten regulations to protect the relatively weak. For example, in 2021, the Chinese government implemented a series of regulations on internet platform, real estate, private education, and entertainment businesses.These regulations seem to be highly related to keywords such as “relative inequality” and “common prosperity.” As the recovery trajectory from the COVID-19 pandemic appears to be K-shaped, it is believed that aforementioned industries are taking unfair profits by putting pressure on households and became the subject of government regulations. While various regulations are expected to be implemented when “common prosperity” policies are fully promoted in the future, we will be able to predict the areas of interest and regulation of the Chinese government based on an objective understanding of the current Chinese society. This is why we have conducted this research, which can help us to understand changes in the Chinese government’s policy stance, to analyze opportunity and threat factors, and to establish a new strategy for China.

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