In March, a Chinese migrant worker, identified by the pseudonym Afen, arrived in Shanghai with hopes of landing a job. Her journey was not unusual; millions of rural Chinese travel to the country’s large cities every year, looking for work. Migrant labor has been a key engine for the economy for decades.
But Afen arrived just as Shanghai was shutting down amid a covid outbreak, and instead of a job, she landed in a shelter and soon after tested positive for the coronavirus. That positive test — in a nation famously pursuing a “zero-covid” policy — became a black mark on her record. She tried to find a job after she left quarantine, but time and again she encountered job listings that disqualified people with a history of covid. Within a few weeks, Afen was out of money. She ended up living out of a public restroom in Shanghai’s main train station.
Afen’s story went viral on social media after a Shanghai writer shared it, but many others living at the margins of China’s economy have suffered profoundly during the pandemic. At the same time, the rich have only gotten richer. There are more billionaires in China today than anywhere except the U.S.; the total wealth of China’s billionaires nearly doubled from 2020 to 2021.
China’s rich-poor divide is all the more stark given repeated pledges by its leaders to make reducing income inequality a core goal.
Last summer, President Xi Jinping launched a campaign under the banner of “common prosperity,” a national strategy to lift the poor and crack down on powerful industries — the country’s booming high-tech sector in particular. “Common prosperity” was more than a slogan; it informed the direction of the Communist Party’s plans for 2022 and beyond, and for a time, Xi repeated those two words in nearly every major address.
“Currently, the world is facing a prominent issue of income inequality,” Xi said in a speech to party cadres last August. “In some countries, the wealth gap and middle-class collapse have aggravated social divisions, political polarization and populism, giving a profound lesson to the world. China must make resolute efforts to prevent polarization, advance common prosperity and realize social harmony and stability.”
One year later, the lofty rhetoric of “common prosperity” has faded into the background, and the data and facts on the ground suggest that income inequality in China is only growing.
“‘Common prosperity’ has now been moved aside as the economy has faltered, as covid swirled up, and you don’t hear very much about it,” Scott Rozelle, an economist at Stanford University who studies rural development in China, told Grid. “It’s like climate policy in the U.S. once gas prices rose.”
Now, with the common prosperity agenda sidelined and the economy struggling amid unending covid lockdowns, China’s rich-poor divide may deepen. And in the years ahead, inequality could pose a major challenge to China’s development and a key test for Xi and the party.
Inequality in China — what the data shows
Even before the pandemic, China was hardly an ideal of communist equality; still, the extent of the wealth and income gaps in China in recent years is striking.
Economic inequality can be measured in different ways. A common approach is what’s known as the Gini coefficient, which assesses the distribution of income in a country — with 0 representing equality and 1 being the worst possible grade.
China’s latest official data is from 2020, when the country had a Gini level of 0.47, which is considered a highly unequal economy. However, experts say China’s official data understates the problem. Using additional survey data, economists at Cornell University and Peking University published another Gini estimate for 2018 that had China at a slightly higher level of inequality — 0.52. (By comparison, in the U.S. — where inequality is a huge political issue — the figure is slightly better than China’s: 0.41.)
The World Inequality Lab takes a different approach, which may be easier to visualize. The lab looks at the ratio between the average income of the top 10 percent of earners and the bottom 50 percent. In its 2022 report, the lab found that China’s income inequality in 2021 was worse than Europe’s but slightly better than in the U.S.
The rich-poor gap in China is even greater when looking at overall wealth — which includes not just income but all assets such as stocks, bonds and property. When these are factored in, the World Inequality Lab found that the richest 10 percent of China’s population owns nearly 70 percent of total household wealth.
How the lockdowns have deepened inequality
Based on preliminary data, and stories like Afen’s, it appears that the recent slew of lockdowns have made China’s inequality problem worse.
Research conducted at the beginning of the pandemic showed that covid restrictions were eating into rural paychecks. According to surveys conducted by Stanford researchers across rural villages in 2020, nearly three-quarters of respondents said that people who typically worked outside the village were unable to do so because of pandemic controls. More than 90 percent said covid controls had decreased their income. And over the past six months, such restrictions on movement have been reinstated.
Another survey with data extending into the first quarter of this year, from China’s Southwestern University of Finance and Economics and Ant Group Research, shows that the rich have seen their incomes continue to rise while the poor have seen incomes fall consistently since the start of the pandemic.
The national unemployment rate has also climbed — to 6.1 percent as of this spring — but the employment problem runs deeper than that. The official figure is calculated based on surveys conducted in cities, and so it doesn’t fully reflect the status of rural migrants. Bloomberg reported that 6 million fewer migrants are working in cities compared with before the pandemic, according to a Peking University economist — and that was before this spring’s covid lockdowns.
Will inequality become an “active volcano”?
High levels of inequality aren’t a new phenomenon in China. The rich-poor gap traces back to Deng Xiaoping’s economic reforms in 1978. Deng’s push to open China’s economy and encourage growth saw the economic boom arrive first in coastal cities, while inland and rural areas lagged. That created a sharp divide in wealth.
For decades, though China’s inequality was increasingly apparent to all, the country’s surging economy blunted the feeling.
“This was a situation where almost everybody was getting richer, but some people were getting richer faster than others,” said Terry Sicular, an economist at the University of Western Ontario who focuses on China. That “all boats are rising” feeling made the inequality more acceptable and less politically problematic, she said.
Martin Whyte, a Harvard University sociologist emeritus, conducted a nationwide survey in 2004 and found that people in China — surprisingly, the more disadvantaged in particular — weren’t angry about the level of inequality because they felt hopeful that their fortunes would improve. In Whyte’s survey, 61 percent of people agreed with the statement “hard work is always rewarded,” indicating their belief in social mobility — a higher rate than in any other countries where similar surveys were conducted. Inequality, rather than being a worrisome source of political disruption, was a “dormant volcano,” Whyte concluded.
Inequality had appeared to plateau in the years after 2008 as China’s working-age population started to decline, leading to a tighter labor market and a rise in lower-class wages. But with factories shifting overseas in recent years and the pandemic’s economic blows, the inequality problem has been on a steady rise and may increasingly be on people’s radar.
Rozelle said he has seen a shift in how people think about their future: “I see it totally when we go to villages. The young rural people say, ‘What am I going to be doing 10 years from now?’ They’re worried about it for the first time.”
That poses major questions for the government. “Growth is slowing, and the regime can’t continue to provide the benefits of growth — or promise the benefits of growth, and there will be more trade-offs among different groups in society,” said Sicular. “So what’s the basis of its legitimacy now?”
The future of “common prosperity”
The party has long been aware that with growth slowing, policies would need to more explicitly focus on the country’s poor. Back in the early 2000s, for instance, the country expanded its social welfare system to include rural medical insurance. And even before Xi’s “common prosperity” campaign, the party had spent years focusing on anti-corruption and poverty alleviation. In 2020, the government declared that extreme poverty had been eradicated in China.
But several experts now say that last year’s “common prosperity” reforms missed the mark in addressing inequality. The government encouraged China’s wealthiest entrepreneurs to give large chunks of money to charity, but these wealth transfers were one-offs. And the crackdowns on the tech and property sectors have contributed to the larger economic slowdown, which has in turn hurt the poor. Meanwhile, Sicular said that comprehensive measures to address inequality haven’t been rolled out.
Scholars point to the need for larger structural reforms to make inroads on inequality in the coming decades. “The biggest inequality in China isn’t income inequality, it’s human capital inequality,” Rozelle said. About three-quarters of Chinese infants and toddlers are raised in rural areas, and Rozelle found in a 2020 study that nearly half of rural children are cognitively delayed — a much higher rate than in urban areas. And that is linked to a big gap in academic outcomes, which means that rural students are far less prepared to enter China’s increasingly advanced economy.
He said that further investment in rural education and health are needed to propel China’s development in the coming decades and tackle inequality. Scholars have also long argued that the country’s hukou household registration system, which restricts the benefits people receive if they are born in a rural area and move to a city, is also ripe for reform.
For now, however, with the economy crawling at a 0.4 percent rate in the last quarter, the appetite for big government investments in social welfare isn’t strong. In the coming months, the immediate question is whether officials will loosen covid restrictions to reboot the economy. Then, assuming Xi secures a third term this fall, experts will be watching to see whether he doubles down on “common prosperity” — and expands its focus beyond cracking down on pockets of wealth. For now, prosperity feels increasingly out of reach for millions of people in China.
Cleo Li-Schwartz contributed reporting. Thanks to Lillian Barkley for copy editing this article.