Editor’s Note: For most of the past four decades, the priority of China’s economic planners was boosting economic growth. At the 19th Party Congress in 2017, however, Chinese leader Xi Jinping announced that a new phase of economic development had begun, one that sought a better quality of growth. The logic behind this was obvious: China’s existing economic model had created a staggering number of social, political, and environmental problems. Last summer, events took a dramatic turn when Xi began speaking of “common prosperity” at the same time that he ushered in a severe regulatory intervention into China’s technology sector. This left many observers wondering if China was making a U-turn away from its cut-throat capitalist system and back towards its socialist roots. To help better understand the drivers and possible future pathways of Xi’s “common prosperity” campaign, we’ve asked several leading economic analysts to weigh in on a selection of newly-translated documents.
What Implications Will Xi’s ‘Common Prosperity’ Framework Have for Beijing’s Policy Agenda?
Director of China research, Gavekal Research
The political importance of General Secretary Xi Jinping’s new slogan of “common prosperity” is clear: it has been written into the 14th Five-Year Plan, highlighted in major speeches, and constantly promoted in state media. But despite the wave of publicity, it is less clear how that political priority will translate into specific policies. Fundamentally, this is because the slogan articulates a political objective rather than a concrete agenda.
In Xi’s January speech on his “new development philosophy,” he states that common prosperity “is a major political issue that bears on our Party’s governance foundation.” In other words, he believes the Communist Party needs to deal with inequality in order to maintain popular support for its rule. In his August speech, he cites the “profound” lessons from countries who failed to deal with inequality: they had major political problems, such as “social disintegration, political polarization, and rampant populism.” Ultimately, the success of the campaign for common prosperity will not be judged by whether China’s Gini coefficient falls by some amount, but by whether it can “maintain social harmony and stability.”
As Fudan University’s Han Zhu points out, the common prosperity campaign is coming at a time when measured income inequality in China has been stable for years. The problem that Xi is responding to is rather an increase in public concern and debate about economic opportunity and the gap between the rich and poor. In these speeches, Xi seems just as concerned with changing attitudes as he is with economic realities: he calls out the recent social phenomena of “involution” (intense but pointless economic competition) and “lying flat” (the passivity of people who feel they cannot get ahead in life). The goal of the common prosperity campaign is really to reduce social concern over inequality and ensure Chinese people “have a stronger sense of fulfillment, happiness, and security.”
Common prosperity is fundamentally conservative because it aims to preserve, not transform, the existing social and political order. It is remarkable how much of the official discussion of common prosperity consists of listing the things that cannot and should not change. Xi states that the common prosperity campaign cannot be allowed to hurt incentives for entrepreneurship, innovation, and hard work, nor can it be the occasion for the government to make “promises that cannot be fulfilled.” In other words, Xi is going out of his way not to promise a “new deal” for Chinese citizens, even though he has pledged to increase transfers to lower-income regions, adjust taxation, and boost the level of public benefits. There is thus something of a mismatch between common prosperity’s very broad political goals and the constrained policy instruments available to achieve them.
That mismatch could drive officials to use political pressure and gestures to achieve change. Big Chinese companies already seem to feel a need to make large and highly public charitable donations. That spending is unlikely to have any material effect on overall inequality, but their example helps show the public that Chinese society is changing.
Brief View on Common Prosperity
One of the key outcomes of the August 2021 meeting of the Central Committee for Financial and Economic Affairs was that it provided a framework to contextualize the nearly year-long regulatory frenzy in China. The meeting outlined the goal of Common Prosperity as “an essential requirement of socialism and a key feature of Chinese-style modernization.” It called for integrating this goal into policies that pursue high-quality development.
Drawing from official documents, commentaries and Xi Jinping’s essay in Qiushi, one can distil Common Prosperity into:
- Neither uniform egalitarianism, nor the prosperity of a few, but rather the affluence of all people;
- Pertaining to the material and spiritual lives of the people;
- An effort to rebalance the relationship between efficiency and equity;
- A long-term and complicated task that is linked to national rejuvenation and socialist modernisation; and
- A major political issue that bears on the Party’s governance foundation.
Some of the broad principles for related policies that General Secretary Xi Jinping outlined were encouraging hard work and innovation; creating pathways for upward mobility; maintaining the basic economic system while incentivizing entrepreneurs; regulating high, excessive, and unreasonable incomes; encouraging tertiary distribution; eschewing quantitative targets and welfarism; and pursuing rural development.
Based on this, it is evident that the drive toward Common Prosperity, while embodying many new characteristics, is not a fundamental break from the direction of China’s economic and social policies. Hu Jintao’s emphasis on harmonious development and the subsequent shift in China’s principal contradiction under Xi were indicative of the growing political salience of inequality and developmental imbalances. Under the Common Prosperity banner, calls to provide greater opportunities for upward social mobility, to enhance access to public services, and to increase investment in human capital are also in line with the desire to build a high-quality workforce.
Likewise, while in power, Xi has built on the edifice of the core socialist values that Hu had articulated. These are intrinsic to the spiritual and cultural dimensions of Common Prosperity. This is because, at its heart, cultivating and practicing socialist core values is as much about governance as it is about shaping the human mind and soul. The aim of this effort is to nurture a new generation of “socialist builders and successors with all-around moral, intellectual, physical, and aesthetic grounding with a hardworking spirit.” This presages deeper Party intervention in domains like education, art, literature, entertainment, fashion, etc.
Different factors appear to be animating the Common Prosperity agenda.
First, there is evidently a belief that pro-growth policies over the past four decades have laid a “solid material foundation” on which the Party must build toward achieving socialist modernization and national rejuvenation. These goals go beyond measurable targets and relate to an abstract end state of a more ideal society.
Second, skilled human capital is seen as critical for scientific and technological innovation to power China’s future growth.
Third, there has long been a desire to boost domestic consumption as the driver of growth, with the export and investment-led model becoming increasingly unsustainable. The expectation appears to be that growing the pie and distributing it better will aid this transition.
Fourth, Xi’s comments about inequality causing “social disintegration, political polarization, and rampant populism” in other countries underscore the Party’s risk mitigation motivation.
Fifth and finally, there appears to be a sense that China’s developmental and social problems require opening a “new realm of Marxism” and pursuing modernity that has “distinctive Chinese features.”
In essence, there appears to be an underlying belief in the strength of the model of socialism with Chinese characteristics and that imported solutions or preexisting templates are inadequate for addressing the peculiar challenges that China faces. In part, this is driven by a sense of exceptionalism, which draws upon China’s civilizational past and the Party’s Marxist worldview. In part, it is a product of assessments of China’s economic development, scientific, and technological capability; composite national strength; complexities of the domestic political economy; and the challenges brewing in the external environment.
In sum, it appears that in the quest for Common Prosperity, the Party is not jettisoning growth for redistribution. Addressing inequality and developmental imbalances, in fact, are viewed as a means to growth. Yet there is a deeper sense that the prevailing model is no longer viable or useful in achieving this end. In addition, technological advancement has created new factors of production, such as data, that are crucial for future growth. Consequently, the Party must adopt a much more interventionist role in guiding capital and labor to serve what it views as ideological, political, and national objectives. This will entail experimentation to reshape the political economy, which will imply greater financial costs for large enterprises and for the autonomy of businesses and society.
What Is Not New and What Is New about Xi’s ‘Common Prosperity’ Drive?
Associate Professor of Political Science · University of Michigan
Worries about inequality are not new in Beijing. Prior to Xi Jinping, Premier Wen Jiabao repeatedly warned about the problem of “unbalanced development,” which he defined specifically as regional and urban-rural inequality. Making regional balance a priority, the Hu-Wen administration introduced national policies such as “the rise of the central regions,” which channeled central funds toward neglected regions in the interior, and encouraged industries from coastal provinces to transfer inland.
But Xi goes much further than his predecessors. First, Xi goes beyond Hu-Wen’s policy emphasis on regional and urban-rural inequality. In his speech, published in Qiushi on October 15, Xi addressed regional, urban-rural, and income inequality. He also discussed the need to tackle income inequality on three levels: reducing poverty, expanding the middle class, and curtailing extreme wealth. This scope surpasses that of his signature poverty eradication campaign, which was only targeted at rural people living in absolute poverty.
Second, Xi aims to tackle not only inequality, but also all the negative side effects of capitalism: corruption, financial risks, moral decadence, wasteful consumption, the rat race in society, and more. Put simply, Xi wants to end China’s Gilded Age and summon a Progressive era with Chinese characteristics. And, in the past years, he has relied on commands and campaigns.
Interestingly, in his speech in Qiushi, Xi explicitly called on the officialdom to adapt and experiment. As I wrote in Foreign Affairs, this is probably because the backlash against the “regulatory storm” in the summer of 2021 made Xi realize that he cannot square the circle of capping entrepreneurial wealth and maintaining their incentives at the same time. Precisely because he does not know how best to achieve common prosperity, he urged local officials to experiment with solutions and anointed Zhejiang province as the pilot.
Xi also alluded to the backlash of his poverty eradication campaign, noting that officials should not impose uniform targets and must avoid en masse reversals to poverty. Top-down campaigns can rapidly achieve results, but overzealous implementation produces unintended problems. In the context of poverty eradication, local officials were forced to take extreme measures to meet targets, e.g., by relocating farmers en masse from remote areas to suburban towns, regardless of whether they were willing to move and could secure livelihoods in new environments. As a result, some have fallen back into poverty.
Translated into English, Xi’s language in Qiushi is completely bland by Western standards, but it is unusual for the paramount leader to admit that criticisms of his signature campaign hold some truth, especially given the Party’s declaration of “complete victory” in poverty eradication at the Fifth Plenum in October 2020.
In sum, it is important not to narrowly interpret “common prosperity” as merely a campaign against inequality. As we can see from both Xi’s speeches and actions, he is undertaking a larger, long-term mission to end China’s Gilded Age. It also appears that Xi is beginning to realize that the problems of capitalism cannot simply be ordered away and that his administration’s edicts has shaken business confidence more than anticipated. This may explain the flexible tone in his speech to Chinese bureaucrats in Qiushi.
‘Common Prosperity’ as Revealed in the Documents
So Kwanlok Chair of Chinese International Affairs at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego
From the moment “common prosperity” jumped to the top of the Chinese media in August 2021, outsiders have noted the lack of specific policy content and speculated about the reasons. To be fair, one does not really expect a policy framework as broad as “common prosperity” to provide much concrete detail. However, from the beginning it was unclear whether the absence of detail indicated the policy was rushed or controversial, or simply that the policy announcement was the beginning of a process of policy definition and gradualist implementation.
What the translated documents reveal is that the lack of policy specificity in “common prosperity” is in fact a fundamental feature of the new policy. Rather than a commitment to a new push for equality in China, “common prosperity” is an acknowledgement that China is not going to engage in costly and difficult policies to improve income distribution. Instead, the medium-term prospect is for slogans and half-measures that will substitute for effective policies. This simple observation draws directly from General Secretary Xi Jinping’s discussion in his August speech to the Central Financial and Economic Affairs Commission. Xi specifically warns against “falling into the trap of welfare dependency” and making excessive promises that the government cannot fulfill. Overall, the speech is full of caution. This shows that the focus on cracking down on illegal high incomes, fostering tertiary distribution, and anti-monopoly measures is intentional, because they do not have a direct resource cost to the state.
It is well known, from international experience, that the most effective way to improve income distribution and support common prosperity is through utilizing the redistributive impact of the tax system, and especially the progressive income tax. China has an income tax, but its coverage is exceptionally narrow, so it becomes essentially an additional wage tax. The two-part article by Han Zhu in this selection of documents provides an outstanding review of the types of tax changes China needs if it really is to tackle income inequality: a much broader and more progressive income tax, a capital gains tax, an inheritance tax, and a property tax. Of these, only the property tax has featured much in recent Chinese discussions, and even then there has been only a conditional commitment to increased regional experimentation.
The experience of Zhejiang province as a pilot region for common prosperity policies shows how the policy is developing in practice. In the first place, since provinces in the Chinese system do not have authority to make major changes in the tax system, relying on regional experimentation pretty much rules out this most effective lever for improving income distribution. The Zhejiang document here shows that instead Zhejiang provincial officials have thrown in pretty much every policy preference they have, spooling off a remarkable 52-point wish list. Indeed, Zhejiang officials have even managed to include the idea of a “15-minute city” (pioneered in Paris over the past several years) in their vision of common prosperity. It may be good city planning, but it is not a policy that will in any way improve China’s income distribution.
The article by Chen Siqing, head of China’s biggest bank, also displays the enormous malleability of the “common prosperity” slogan. The most urgent task for the finance system in carrying out “common prosperity,” according to Chen, is to “pro-actively provide financing for major projects in the 14th Five-Year Plan and . . . [finance to] improve the core competitiveness of the high-tech sector.”
China achieved some substantial successes in combatting poverty up through 2020, and in some sense a new “common prosperity” drive would be logical as a follow up to expand social policies to the hundreds of millions in China who are near-poor but not destitute. The documents on display here show that Xi has decided that such a push is not something that China can afford right now. It is a populist initiative, saying, in essence, ‘we still can’t afford adequate welfare provisions, so instead we’re going to crack down on some rich people instead.’ Rather than being a left turn, “common prosperity” is a substitute for genuinely redistributive policies.
Director of the East Asian Institute at NUS and Professor of Practice at the Lee Kuan Yew School
On August 17, 2021, the Central Committee on Economy and Finance (CCEF), chaired by General Secretary Xi Jinping, announced that “common prosperity” was to be the new goal, an integral part of the “New Development Philosophy for the New Era,” which in turn is a cornerstone of the “China Dream” of the rejuvenation of the Chinese nation.
Common Prosperity is hardly a new term. The China Media Project traces the use of the term back to the 1950s, and it first appeared in the People’s Daily, the Communist Party’s official newspaper, on September 25, 1953, and was used by Mao Zedong in the 1950s collectivization campaign. The term was de-emphasized in the three decades after Mao’s death and replaced by Deng Xiaoping’s “some may get rich first,” which fuelled Chinas extraordinary growth but, by the 2000s, resulted in rising income, and wealth inequality becoming a major issue.
The Hu-Wen program of Harmonious Society, which expanded social spending on health, education, and welfare, sought to address some of this inequality with some success: over the past decade, income inequality has actually come down slightly, and people at the bottom part of the income distribution have seen their incomes rise by more than average. For an upper-middle-income country, China’s income inequality is not exceptional, and wealth inequality, though harder to measure, is unremarkable, and hardly rising according to data from Credit Suisse.
With the “moderately prosperous society” achieved, the goalposts are shifting. The Decisions of the Third Plenum of the 18th Central Committee in 2013, Xi’s first program to focused on economic reforms, had already stated:
“We will improve the regulatory mechanism of income redistribution mainly by the means of taxation, social security and transfer payment and enhance the regulatory role of taxation . . . We will regulate excessively high incomes, redefine and clear away hidden incomes, outlaw illegal incomes, increase the incomes of low-income groups, and increase the proportion of the middle-income group in society as a whole.”
These words were not dissimilar to those spoken at the August 2021 CCEF meeting. The 19th Party Congress in 2017 made clear that a major shift in economic model was underway, by announcing the new “principal contradiction” to be “between unbalanced and inadequate development and the people’s ever-growing needs for a better life.” Common Prosperity is a step towards tackling this new principal contraction.
Xi’s CCEF speech made it clear that Common Prosperity is not a return to Maoism, as some had hoped or feared. To realize it, he said, hard work and innovation remain necessary, making the cake bigger is as important as distributing it fairly, and “welfarism” should be avoided. The readout of the December 2021 Central Economic Work Conference readout repeated the emphasis on growing the pie before dividing it, thus further alleviating the fear of undue redistributive measures.
The speech contains six areas of objectives and instruments to achieve common prosperity: (1) identifying a more balanced, coordinated, and inclusive development path; (2) endeavoring to expand the middle-income group; (3) facilitating equal access to basic public services; (4) intensifying the regulation and adjustment of excessive income; (5) promoting common prosperity of the people’s spiritual life; and (6) promoting common prosperity in rural areas.
Of the measures, “regulating and adjusting excessive incomes” drew the most attention, and some see the regulatory clampdown on internet companies as part of the Common Prosperity campaign. Also noteworthy is the emphasis on philanthropy as a means to the end. Though desirable in itself, in no country in the world is philanthropy large enough to make a dent in income inequality.
Where China stands out is the limited redistribution though the government budget. Strikingly, most of the egalitarian European countries and the United States all have a distribution of market incomes (i.e., before taxes and transfers) that are less equal than that of China. After redistribution through taxes and transfers, though, most have more equal distribution than China. China’s heavy reliance on the value-added tax and low-income tax means the tax system needs reforms for it to contribute to the Common Prosperity agenda. This is technically hard, and politically even harder, as more direct, visible taxation through income taxes is likely to be highly unpopular.
If China wants to avoid “welfarism,” it needs to ensure that market outcomes become more equal. This is by and large the approach that South Korea and Taiwan have chosen, and, to some extent Japan. Redistribution is far more modest than in the European model, but market outcomes are more equal.
China still has numerous opportunities to achieve more equal market outcomes. Investing in education, especially rural education; abolition of the household registration system to allow all workers to go to the place where they are most productive; and further strengthening farmers’ rights on land would all contribute to more equal division of the pie—but are also hard to do. Some of the reasons are that urban citizens do not like more competition for public services from their rural counterparts, while local governments rely on the gains they make from converting rural land into urban.
Xi has said that Common Prosperity is a goal like that of the Moderately Prosperous (Xiaokang) society—one that cannot be achieved overnight. Undoubtedly, the concept itself will evolve and policy measures will change over time. But Common Prosperity is here to stay.