What are the stumbling blocks to shared prosperity in China

Abstract

Abstract Wealth inequality, which has caused repeated economic crises and led to regime change throughout history, continues to harm people around the world. The solution is to share prosperity, and this has become a political goal pursued by many governments. To find an effective way to achieve shared prosperity, we must recognize the causes of inequality between the rich and the poor so we can apply the right corrective measures. In the present study, we used the most recent available data for China to examine income inequality from three perspectives (the urban-rural gap, industrial gap, and regional disparities) to identify the underlying structural factors influencing economic inequality in China. We found that urbanization was a decisive factor in reducing the urban–rural income gap, but that it widened the industrial and regional income gaps. Transfer payments, social security, and agricultural mechanization all reduced income inequality, whereas basic and higher education had different effects for the three income gaps, and fiscal decentralization reduced the regional gap but widened the urban-rural and industrial gaps. In our study of regional differences, we found that structural factors in western China were the most responsive to income inequality. Thus, achieving urban-rural integration, improving agricultural mechanization, enhancing social security coverage, providing financial transfers to low-income enterprises, promoting regional equity in education, and improving local government assessment indicators will be the key to achieving shared prosperity. China's decision-making on the road to achieving shared prosperity will provide lessons for other developing countries.