Toward Common Prosperity: Measuring decrease in inequality in China prefecture-level cities

Abstract

To resolve the ongoing debate on the trajectory of inequality in China and to quantitatively measure China’s progress toward the goal of common prosperity, this study proposes a novel approach based on Revealed Comparative Wealth (RCW). Tailoring RCW to national levels to study China prefecture-level cities, a salient pattern of widespread convergence to the national mean since 2003 is observed, signifying an extensive reduction in economic inequality across China prefecture-level cities. Building on this observation, a modified Gini coefficient, ${\mathrm{Gini}}_{\mathrm{city}}$, is proposed, which shows that China’s inter-city economic inequality reached its zenith in 2003 and has since been declining. A new Theil’s T formulae is also derived based on RCW to corroborate this finding. The declining inequality trend can be largely attributed to two key mechanisms: (1) the implementation of the “Common Prosperity” policy framework, which includes numerous targeted assistance policies from both central and local governments aimed at fostering a more balanced and equitable economic landscape, and (2) the process of urbanization, which exacerbated inequality in 1980s and 1990s during China’s first stage of economic reform, has facilitated the sharing of added wealth with an influx of population into economically thriving cities since 2000. The developmental strategies of China may offer valuable insights for other developing countries pursuing economic equality and growth simultaneously.