China’s economic growth rates have swung wildly in recent quarters — but there is far more to the story than pandemic disruptions and supply chain catch-up. China’s leaders also have been clamping down on companies, entire economic sectors and even celebrities out of concern that growing disparities are an obstacle to stability and “common prosperity” (共同富裕).
President Xi Jinping formally launched this slogan in a major speech in August, but a lack of details left many China watchers with multiple questions. The recent release of Xi’s speech (see the original text here) now offers a closer look at the political ideas remaking China’s political economy.
What is “common prosperity,” and what does this goal mean for China?
To be clear, Xi’s speech appears aimed at bringing some coherence to a set of disparate actions, rather than offering a fully detailed policy agenda. Leaving aside the discussions of promoting morality and a sense of common purpose within the Chinese population, here’s what the speech tells us about economic policies.
Major crackdowns have taken place
Last November, the Chinese government canceled the initial public offering for Jack Ma’s Ant Group — an IPO that was expected to raise $37 billion. Other Chinese companies operating in the technology and finance realms have remained under government scrutiny, but tighter regulations also affected e-commerce firms, video games and for-profit tutoring.
SupChina’s Red New Deal tracker lists 19 distinct crackdowns across a wide range of sectors. By some estimates, these moves caused Chinese shares to lose over a trillion dollars of value over the past year. A recent government ban decimated China’s entire $100 billion for-profit tutoring sector, for instance, although some parents are hiring black-market tutors.
These crackdowns have a common goal
On Aug. 17, Xi gave a speech to the Central Financial and Economic Affairs Commission exhorting his audience “To Firmly Drive Common Prosperity.” The transcript details how Xi connected high inequality in other countries to the collapse of the middle class, social disintegration and political polarization before acknowledging that China faces similar threats because of significant income gaps, especially between rural and urban areas.
Deviating from the regime’s normal growth focus, Xi called for “dividing the cake well” instead of relying on growth to trickle down to the poor. He wants to build a large middle class where workers have opportunities to move forward and avoid the burnout of “endless, meaningless competition” of involution — and not opt out of contributing to society by simply “lying flat.”
Xi described efforts to equalize basic social services as critical to such endeavors, and he pushed for strengthening pensions, basic poverty-alleviation assistance and the education system. Access to education remains highly unequal as migrant workers face roadblocks to schooling for their children in cities.
He criticized the “unreasonable wealth” of the rich and suggested a property tax might finally be in the offing, although there is serious resistance to this idea. But most analysts would be likely to agree that inflicting damage on big businesses and billionaires alone will not remake the country’s wealth distribution.
Although Xi took potshots at capitalism’s excesses, there’s little in the speech to suggest anti-capitalism or anti-consumerism. Far from the government’s seizing the means of production, Xi emphasized the vital role of China’s entrepreneurs and called for lower taxes on small businesses. Even if China became richer, Xi cautioned, “excessive guarantees” could become a problem — as the country could “fall into the trap of supporting lazy people through welfarism.”
‘Common Prosperity’ is not a single number
Xi recognized that reaching this complex goal will be difficulty, but he emphasized “it can neither wait nor be rushed.” He did not reveal any details about how he planned to “correctly handle the relationship between efficiency and fairness.”
One interesting section at the end of his speech included an admission of deficiencies in the anti-poverty campaign, one of Xi’s signature victories. As political scientist Yuen Yuen Ang noted, Xi states that pursuing common prosperity is “unlike the poverty eradication campaign” in that “we should not adopt a uniform quantitative target.” Xi expressed real concern that despite the campaign’s hitting its numerical goal, the Chinese government still needed to make sure to “prevent those lifted from poverty from returning to poverty en masse.”
Much of China’s economic success over the past 40 years has come from this kind of limited quantified vision. Xi’s tacit admission that statistical success might differ from the poverty campaign’s real effect on people’s lives shows that China continues to govern in quantitative terms despite intimate knowledge of the limitations of this approach.
The diagnosis is far simpler than the solution
China’s leaders for decades have understood the need to shift their economic model. In 2007, Premier Wen Jiabao famously described the country’s economy as “unstable, uncoordinated, unbalanced, and unsustainable.” In 2021, Xi’s common prosperity offers a stronger treatment for a similar diagnosis: China’s government seems prepared to accept real short-term economic harm in the hopes of improving economic stability and sustainability moving forward.
The big test will come in the real estate sector, where the heavily indebted property developer Evergrande appears almost certain to go into default unless the government intercedes. China’s fiscal and financial systems have long relied on land sales and property development to prop up economic growth, even if there’s little demand actually to live in the buildings being constructed.
In his August speech, Xi admonished the country that housing is for living, not speculation — but the true challenge isn’t speculators. The difficult fact is that real estate is exorbitantly expensive, which makes buying a home challenging. At the same time, however, the wealth of the Chinese middle class that Xi seeks to support is bound up in real estate, which makes deflating the housing bubble perilous.
Xi’s common-prosperity rhetoric is wide-ranging and ambitious. Major government policies have targeted economically significant sectors and pushed, albeit in limited fashion, against inequality. However, the extent to which the Communist Party and the Chinese people share this vision remains a big question. Will the elite and the broader population get on board, or will they push back when their own prerogatives are pinched?
Jeremy Wallace (@jerometenk) is an associate professor of government at Cornell University, where his research focuses on Chinese politics, authoritarianism and ideology. He is the author of Cities and Stability: Urbanization, Redistribution, and Regime Survival in China (Oxford University Press, 2014).