Seeking ‘common prosperity’, economic regulation and inequality are in Xi Jinping’s sights – China, Middle Land

It’s almost a ritual. Between late July and early August, Chinese leaders disappear from the media and are not seen in public. Big events, routine inspections of factories and enterprises, and even circulars published in party newspapers, all cease.

From bustling Beijing, the communist political elite moves to Beidaihe, a resort town some 300 miles east of the capital. These meetings have already resulted in decisions of historic importance, which makes sinologists and journalists on the alert, waiting for what is to come.

This year, the Chinese leader, Xi Jinping, was quick to point out signs of what had been the priority: the emphasis on the search for the so-called “common prosperity”. As limousines with tinted windows, plainclothes police and sniffer dogs circled the seaside town, the manager left the resort with his speech ready.

The tradition of these domes dates back to the last century. It was in Beidaihe that Mao Zedong decided to attack the nationalist-controlled Kinmen Island in the episode that triggered the Second Taiwan Strait Crisis in 1958. The place was also the scene of discussions of the Great Leap Forward — a disastrous developmental plan of the end the 1950s, responsible for the deaths of tens of millions of Chinese—and Deng Xiaoping’s 1983 repression campaigns, designed to contain countless episodes of post-Cultural Revolution violence.

In 2021, what came out of there were these two words — even though they had already been mentioned before; according to Bloomberg, the concept has appeared at least 65 times in speeches this year. On the 17th, Xi used a meeting of the Central Commission on Financial and Economic Affairs to focus on them.

“Common prosperity is an essential requirement of socialism and a key feature of Chinese-style modernization,” he said. “Common prosperity is the wealth shared by all, both in material and cultural terms, and must be advanced step by step.”

Although it does not mean a renunciation of the rules of capitalism, the policy is a step back from what the country has been doing since it began to open up in 1978. At the time, faced with a shattered economy and general misery, Deng announced his intention to let “some get rich first”, assuming a tolerance of inequality criticized by communism in favor of national enrichment. It worked, but generated a major distortion: the disparity between the top and the bottom of the income pyramid.

References to common prosperity go back to the Mao government, still at the founding of the communist republic, and they became the center of the Chinese political agenda from 2006, in the Hu Jintao era.

In March of that year, the National Congress approved the 11th Five-Year Plan –designed to forecast the priorities of the Chinese state–, introducing unprecedented policies into the Chinese lexicon by emphasizing that “economic growth is not equivalent to economic development”. After the advance observed at the beginning of the millennium, the document called for “stability instead of speed” and laid the foundations for measures that would put “people first”.

A researcher on the concept for nearly two decades, the director of the Department of Asian American Studies at the University of California, Cindy Fan, says that in letting a few people get rich first, Deng was pragmatic. “In the context of the late 1970s and early 1980s, China was still poor, and the economy was so restricted that his approach opened the door for market mechanisms to start operating,” he says. However, as the country grew, inequality also advanced.

“It is widely recognized that access to education, health and other basic services in China is highly unequal. Social safety net, retirement plans and social security are not well established. In Xi’s government, the issue became urgent.”

The problem can be seen in numbers. On the Gini index, which measures inequality on a scale of 0 to 1, where 0 means equal earnings, China scored 0.46 in 2020, according to the World Bank. The result puts it worse off than nations like Ethiopia and Sudan. Bureaucrats and party leaders have argued for several years that if the number approaches 0.40, there is a risk of social upheaval.

For Fan, there is room to bridge the gap between rich and poor, and China has already proven itself capable of lifting millions of people out of extreme poverty. She says she believes, however, that although she does not want to kill entrepreneurship or redesign the so-called “market socialism” (a hybrid Chinese system that combines the socialist political structure with the economic dynamics of capitalism), Xi will encourage greater regulation in sectors of the economy.

“Official communications have frequently mentioned the need to increase the size of the middle-income group. These movements do not seem to be anti-entrepreneurship or anti-foreign investment, but it is clear that the Chinese government wants to impose more regulations and use tools to improve income distribution,” he says.

Under the banner of common prosperity, she adds, “the government is likely to make services such as health care more accessible and cheaper for rural people, rural migrants and poor people in urban centers.”

The expert says that, as mentioned by Xi, the term encompasses many sectors and can be used both to contain inequality and to achieve strategic objectives essential to the State.

“Stronger regulations by big tech companies can reduce their market monopoly and help solve cybersecurity problems. Demanding that the private education sector be non-profit helps to reduce inequality and can boost public schools and reduce the pressure on children”, he compares.

To fend off rifts with state policies, these same companies that can be targeted by regulation have already gone ahead. Some of the largest national private companies, such as Tencent and Pinduoduo, announced investments of R$80.5 billion and R$8 billion, respectively, in a common prosperity fund and in agricultural development.

“In the medium term, Chinese entrepreneurs would likely be more cautious in terms of capturing a very large share of the market and would likely more actively adopt corporate social responsibility as part of their business plan and strategy. It gained traction in China in the late 2000s, but a focus on common prosperity would further accelerate its integration with entrepreneurship, especially in large corporations.”

Regular updates

In an effort to bring Brazilian readers analysis and information about the latest happenings on the other side of the world, the blog “China, Terra do Meio” is regularly updated. In addition to the texts here, you can also subscribe to our newsletter, sent every Friday.