Chinese President Xi Jinping has claimed victory in establishing a “moderately prosperous society” (小康社会) on the 100th anniversary of the Chinese Communist Party (CCP hereafter) this year. Subsequently, he set timelines for another goal of establishing “Common Prosperity” (共同富裕) by 2035. It is a strategic initiative towards correcting income inequality and providing equal access to essential public services. It plans to resolve socio-economic issues related to education, employment, income distribution, social security, housing, healthcare, elderly care, childcare, food safety, public security, and so on.
Contextualising Common Prosperity: Mao to Xi Era
In Mao Era (1949-76), the term common prosperity was mentioned on 12th December 1953 in people’s daily article titled “the path to socialism is the path to common prosperity…” which said that common ownership of means of production could help in achieving the goal of common prosperity.[i] The common ownership of means of production referred to the collectivisation of agriculture, widespread land reforms, and the simultaneous development of rural-agricultural urban-industrial base, defence sector, and so on. In this political backdrop, Mao’s great leap forward (1958-61) attempted to catch up with the United Kingdom's steel production to build the industrial and agricultural bases together.
Deng Xiaoping advocated the concept of common prosperity, the pioneer of “reform and opening-up (改革开放)” in 1978, which had been a priority for the successive Jiang Zemin (1993-2003) and Hu Jintao administration (2003-13). Although the concept of common prosperity has the same political language, it has always been employing new means towards different socio-politico-economic ends. In December 1979, the People’s Daily published an article titled “socialism is not egalitarianism, and common prosperity does not mean equal wealth,” which intensified the debate in the Chinese political arena.[ii]
In Deng Era (1978-96), there was a substantive debate between the “get rich first” and “common prosperity” initiative. Deng Xiaoping was quite innovative policy-wise that allowed some people to get rich first on the precondition that those who have become rich will help others get rich. To realise the long-term goal of common prosperity, he made a tactical adjustment in the form of the “get rich first” initiative. In the last seven decades, all five-generation party-leadership has set up short-term, mid-term, and long-term goals to build political legitimacy through political narratives.
At present, the geo-economic competition between the United States-China, the COVID-19 pandemic, and the downward trajectory of Chinese GDP created additional tensions in the investment-driven Chinese economy. Xi Era (2013 onwards) intends to maintain growth with reasonable redistribution of wealth and resources simultaneously. Even if his signature project - Belt and Road Initiative (一带一路) - is a geostrategic initiative to shift “invest-driven growth” towards “infrastructure-driven growth,” nonetheless it has been not quite successful economically.
In March-2021, Xi incorporated the dual-circulation (双循环) strategy in the 14th Five Year Plan (2021-25) to simultaneous build a strong domestic consumer base of middle-income groups (internally) while circumventing the overdependence on the export-driven growth (externally). Furthermore, the dual circulation strategy emphasises improving income distribution and wealth redistribution systems (primary, secondary, and now tertiary) to resolve the unbalanced security and development aspects.[iii] To develop a comprehensive understanding of the paradigm shift in Chinese policymaking, one needs to analyse tertiary distribution of wealth within the framework of Common Prosperity 2035.
Common Prosperity and Tertiary Distribution:
Xi’s Common Prosperity 2035 plans to mitigate income inequality by simultaneously redistributing wealth and creating efficient & fairer conditions for sustainable development. It aims to regulate and adjust unfair business practices, strengthen anti-monopoly practices, crack illegal means of profit, and encourage reasonable charities & donations.[iv] It intends to improve the unsustainable development, expand the size of the middle-income group, equalise basic public services, strengthen the regulation and adjustment of high income, and improve the betterment of farmer’s income and people’s spiritual live comprehensively.[v] In addition, it seeks to narrow down the gap between western regions & coastal regions, rural & urban areas, and the income-inequality for taking care of people’s well-being and their basic needs for protecting property rights, intellectual property rights, and capital creation for the advancement of farmers.[vi]
The tertiary distribution of wealth became an integral part of Xi’s Common Prosperity 2035 initiative in the fourth plenum of the 19th National Congress of the CCP (October-2019), highlighting the significance of social distribution, relevance of charity & donations, and other social welfare undertakings. The tertiary distribution “promotes the equilibrium of resources and wealth among different social groups,” which consists of policy actions ranging from property taxes, gift & luxury taxes, and even an exemption in taxable incomes where necessary, and so on.[vii] Within the Chinese financial system, “…the primary distribution refers to wages and direct income as a source of disposable household income; secondary distribution refers to fiscal transfers to households; the tertiary distribution aims to reasonable donations by business houses and high-income elites.”[viii]
In the Chinese policy circle, tertiary distribution was discussed much before the arrival of Xi into power. The third distribution of wealth was first proposed in 1991 when Peking University Professor Li Yining argued that moral standards could be an index for income distribution, market, and the government.[ix] Tsinghua University Professor Yang Bin further developed this concept of third distribution of wealth to argue that moral social values under the existing law and regulations of the land should act as the “hand of society.”[x]
At present, the Xi administration seems committed to the tertiary distribution of wealth in rural & urban areas and inner & coastal regions. But it appears that there will be a further policy shift towards greater re-centralisation of power; nonetheless, the keys to effective implementation lies in the centre-province balanced coordination on a range of socio-politico-economic issues.
Although the Chinese system believes in a trial and error method with the top-down approach for effective policy implementation, there are broadly two sets of opinions emerging vis-à-vis the tertiary distribution of wealth. The first set of opinion holders want to strategically manage the existing resources and wealth through reasonable voluntary donations, charities and welfare undertakings of business elites, and better centre-state coordination. Senior Researcher Shang Ming (CITIC Foundation for Reform and Development Studies) substantiated this policy direction by increasing the existing size of the middle-income group from 400 million to 700 million and 1 billion by 2035 and 2049 consecutively.[xi]
While the second set of opinion holders believe that there should be an emphasis on stabilising declining growth on an urgent basis to supplement the tertiary distribution of wealth; hence, a decent growth rate is the basic precondition for tertiary distribution of wealth. Chinese Economist Yu Yongding substantiated this argument by suggesting that China’s financial vulnerabilities and short-term structural problems are difficult to resolve without maintaining decent growth. The current policy priorities are misplaced to check and balance the corporate sector and non-banking financial institutions’ high leverage ratio. A bold fiscal and monetary expansion alongside structural reform & adjustment is the need of the hour to restore the declining growth of the Chinese economy.[xii]
Moreover, there have been apprehensions regarding Xi’s Common Prosperity 2035 and its future policy trajectories, which have various facets under the Chinese political economy's state-centric regulatory architecture and distribution system. The recent opening of a third stock exchange in Beijing and the protection of legitimate private property under the Chinese constitution indicate a mixed signal to foreign investors and Chinese entrepreneurs.[xiii] It is still unclear how far Xi would successfully transition from investment-driven growth to consumption-driven growth.
Xi’s over-arching policy framework seems to shift towards balancing security & development. The recent regulatory and legal clampdowns, imposition of property tax, creation of common prosperity fund, defaults of some fin-tech and real-estate giants, and its spillover financial risks are still controllable given the large size of the $14 trillion economy. It remains to be seen how these development and redistribution-oriented fiscal policies unfold towards the shared development of all Chinese people by 2035. Nevertheless, Xi’s resolve to address the unbalanced security and development would be thoroughly tested in the 20th National Congress (2022) of the CCP and beyond.
*Dr. Sudeep Kumar, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views are personal
[i] David Bandurski, A History of Common Prosperity, China Media Project, 27 August 2021, https://chinamediaproject.org/2021/08/27/a-history-of-common-prosperity/accessed on 25 October 2021
[ii] 中华人民共和国国民经济和社会发展第十四个五年规划和2035年远景目标纲要, 23 March 2021, https://www.ndrc.gov.cn/xxgk/zcfb/ghwb/202103/t20210323_1270124.html?code=&state=123 accessed on 25 October 2021
[iv] Manoj Joshi, Will China’s ‘Common Prosperity’ project turns out to be a case of ‘cure worse than the disease’?, 14 September 2021, https://www.orfonline.org/research/will-chinas-common-prosperity-project/ accessed on 25 October 2021
[v] Michael Pettis, Will China’s Common Prosperity Upgrade Dual Circulation?, 15 October 2021, https://carnegieendowment.org/chinafinancialmarkets/85571 accessed on 25 October 2021
[vi] Yu Hairong, Cheng Siwei, and Thomas Zhang, What’s Standing in the Way of ‘Common Prosperity’?, 9 September 2021, https://www.caixinglobal.com/2021-09-09/in-depth-whats-standing-in-the-way-of-common-prosperity-101771234.html accessed on 25 October 2021
[viii] A right view on China’s pursuit of common prosperity, People’s Daily Online, 27 August 2021,http://en.people.cn/n3/2021/0827/c90000-9888776.html accessed on 25 October 2021
[ix] 扎实推动共同富裕, Qiushi Theory, 15 Oct 2021, http://www.qstheory.cn/dukan/qs/2021-10/15/c_1127959365.htm accessed on 25 October 2021
[x] Why China stresses common prosperity, Xinhua, 7 Oct 2021, http://www.news.cn/english/2021-10/07/c_1310230677.htm accessed on 25 October 2021
[xi] Shang Ming, Keys to common prosperity, 21 October 2021, https://www.chinadaily.com.cn/a/202110/21/WS6170b4dba310cdd39bc70383.html accessed on 25 October 2021
[xii] Yu Yongding, China must restore growth or face economic uncertainty, 25 October 2021, https://www.japantimes.co.jp/opinion/2021/10/25/commentary/world-commentary/china-growth/ accessed on 29 Oct 2021
[xiii] Robert Lawrence Kuhn, Xi’s “Common Message”: The deep message, 16 October 2021, https://news.cgtn.com/news/2021-10-15/Xi-s-Common-Prosperity-The-deep-message-14nx5Q0jn8c/index.html accessed on 25 October 2021