The announcement of a new political slogan — Common Prosperity — is the big news out of China in recent weeks, coming in the wake of crackdowns on tech companies and the private education sector
On Tuesday, 17 August, Chinese state media reported that, in a meeting of the Chinese Communist Party’s Central Financial and Economic Affairs Commission, President Xi Jinping – who was chairing the meeting – announced that the government needed to “regulate excessively high incomes and encourage high-income groups and enterprises to return more to society.”
This appears to be a big about-turn from the idea that the Party had promoted for decades: That some people and regions would “get rich first.” Deng Xiaoping is well-known for promoting the idea that “to get rich is glorious” during his leadership in the 1980s. Nevertheless, this new policy is not a complete refutation of that idea. Instead, the Party has added the idea that it wants to create an environment where more people have the opportunity to be wealthy.
“Common Prosperity for all” is now the name of the game, and it’s a lofty ambition – China is home to one of the world’s more unequal societies, with a Gini coefficient of 0.385, which is equal to that of the likes of Burundi, El Salvador, and Israel. For context, China’s Gini coefficient has fallen by five points over the last decade, but it started from a low base, and tangible evidence of progress is limited: the richest 20% earn more than 10 times that of the poorest 20%, and that figure hasn’t moved since 2015.
Analysts have been quick to suggest that this might be another example of ‘Partycraft’ taking precedence over ‘Statecraft,’ with the latter being the rigorous and thought-out policy plans that the civil service rolls out and the former being the ambitions of the Party elements interwoven into the state organs. For example, at the time of writing, there is no clear indication of how this policy will be carried out.
Economists anticipate that the move suggests that Beijing may be moving closer to introducing taxes on property and inheritance to facilitate this redistribution of wealth or targeting capital gains. The only problem is that one can anticipate that any move to do so would prove very unpopular with the country’s vocal middle class. Homeowners in China’s major cities are already complaining that the price of newly-built homes is outstripping the value of existing properties to such an extent that homeowners who had viewed their initial purchase as an investment would only be able to afford to downsize if they sold.
Of course, this policy isn’t actually aimed at China’s middle class, it’s (probably) aimed at addressing the growing disparity in wealth between China’s rural and urban areas, and the excesses of celebrity and corporate culture at the upper end of the spectrum. As a result, one can expect the policy to align closely with the Party’s ambition to build a ‘moderately prosperous society’ and end poverty in rural areas.
It seems likely that any regulatory action will be aimed at three key sectors: property, healthcare and education. However, there is also a strong chance of direct regulatory action against the financial sector, including, potentially, wealth management products and overseas IPOs (which have already started to come under increased scrutiny in recent months — see the example of Didi).
Subscribers to the CBBC’s podcast, the China Business Brief will remember that more than 800 million of China’s population of 1.4 billion live in rural areas, with many facing restricted access to education, health care or a route into the labour force, leading Scott Rozelle of Stanford University to label them an “invisible China,” in his research. China has long needed to take a magnifying glass to its social welfare structures; analysts will wait to see if Common Prosperity is its first path down such a road.