Is ‘Common Prosperity’ Badly Needed in Mainland China? Evidence on the Variance Convergence of Per-Capita GDP among 31 Cities and Provinces

Abstract

ABSTRACT This research paper examines the necessity of implementing “common prosperity” in mainland China, as emphasized by Xi Jinping during the 20th Congress of CCP on October 16, 2022. The issue of provincial income divergence remains a challenge to China’s sustainable growth. The new concept of “common prosperity” stresses the requirement of reducing income inequality for the balance of growth and stability in the next development phase of China. This study analyzes regional income inequality and convergence using the club convergence approach. This method offers more precise indications of economic symmetry than traditional unit root tests, enabling clearer policy implications. The empirical analysis reveals that while full cross-provincial variance convergence is unsustainable, the 31 cities and provinces can be grouped based on club variance convergence of the per capita GDP. The past and current public policies could have an impact on the imbalanced convergence, such as “the richer got more” from the fiscal transfers, the hukou system, and the educational and tax justice among cities and provinces.