Will China's 'Common Prosperity' Project Turn Out to Be a Case of 'Cure Worse Than Disease'?

China has recently rolled out several measures that cracked down on businesses with an aim to redistribute wealth and reduce inequality. Many are likening this to the Cultural Revolution of the 1960s.

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Even as the attention of the world is riveted on the goings-on in Afghanistan, things have been happening in China. They may not have the scale of what has happened in Afghanistan, but they could be no less transformative. Indeed, many are comparing it to the Great Proletarian Cultural Revolution that convulsed China in the late 1960s.

Two weeks ago, an ‘American Idol’ type programme was banned because the men participating were deemed to be too effeminate by the Chinese authorities. The National Radio and TV Administration asked broadcasters to “resolutely put an end to sissy men and other abnormal aesthetics”. There are worries that the Chinese pop stars are being unduly influenced by their South Korean and Japanese counterparts and were not masculine enough.

Just before that a popular actress Zhao Wei became a non-person – her movies, TV series and even mention of her name were wiped out from the Chinese internet. There is no explanation yet for the move.

Separately, the government rolled out new regulations decreeing the amount of time children could spend in playing video games. Last week, officials of Tencent and Netease and other gaming companies were summoned and ordered to improve their “political positions” and ensure that their games protect the “physical and mental health of minors”, and prevent addiction.

Draft rules have been issued to control recommendation algorithms to redirect people’s attention to online content which is healthy and does not encourage indulgence and excessive spending. A law has also been passed to restrict data collection by companies working in the commercial sphere.

Also read: Xi Jinping Warns against Foreign Bullying as China Marks Party Centenary

But this merely seems to be the froth of a much more intense sea change that is currently underway in the country. This has manifested itself in the gutting of the entire private tuition and crypto-mining industries in the country, the targeting of the ride-hailing services, and new rules to strengthen supervision and audit of companies dealing with data security and cross-border data flow. The new regulations have led to the wiping out of over $ 1 trillion from the value of their stocks.

It began last October with a crackdown on Jack Ma’s company Alibaba and the cancellation of an IPO by its affiliate Ant Group, followed by a $ 2.8 billion fine. Earlier this year companies like Tencent and food delivery giant Meituan and ride delivery company Didi were targeted for regulatory attention. The government has acquired small stakes in ByteDance, the company that owns TikTok, as well as Weibo, China’s equivalent of Twitter.

Alibaba is among the businesses against which the Chinese government cracked a whip. Photo: Reuters/Aly Song.

Not only has China clipped the wings of its private sector giants like Alibaba, Tencent, Bytedance and Meituan – all founded by venture capital and many global leaders in their field – but it has mounted pressure on them to take measures to narrow the wealth gap through policy measures and charitable work.

‘Common prosperity’ 

Xi Jinping seems to be killing three birds with a single stone. First, he is bringing the ultra-rich to the heel of the Communist Party of China (CPC); second, he is carrying out needed regulatory reforms of the high tech sector; and third, he is seeking to enhance China’s somewhat sickly consumption economy by getting the rich to pay for it.

Xi has been referring to the theme of “common prosperity” ever since he came to power in  2012. But there has been a growing emphasis in recent years. Speaking in January at a seminar on the study and implementation of the spirit of the Fifth Plenum of the 19th Party Congress, Xi had bluntly said that it was not an economic issue, “but also a major political issue related to the ruling party’s foundation”.

In August, speaking before the Central Commission for Financial and Economic Affairs which he chairs, Xi said that “common prosperity” was an essential part of socialism and “a key feature of Chinese style modernisation”. This meant policies that would expand the middle class, increase the earnings for the low-income groups and promote social justice. The emphasis of the meeting was on averting financial risks, even while ensuring stable economic growth.

In recent weeks, a corrective of sorts is being put forward, such as one that was offered by vice premier Liu He, a politburo member and who is also the principal economic adviser to Xi. He made it clear that the policy of developing the private sector remains unchanged and will not change in the future. Indeed, the idea of the regulatory efforts, he said was to help the private sector to play a bigger role in stabilising growth and employment and encouraging innovation.

As Xinhua put it “common prosperity” is aimed at ensuring that instead of only a few getting rich, affluence is shared by everyone. CPC was therefore undertaking policies that would be more inclusive and fair for people to get a better education and create an environment “for more people to become wealthy.”

That prosperity in China has led to an unequal distribution of wealth is not a secret. As the Wall Street Journal notes, the Gini-coefficient, the measure of inequality, widened to 70.4 in 2020 from 59.9 in 2000 (100% indicates full inequality). After a phase when people were encouraged to get rich, the CPC now believes that the time has come to apply a corrective to ensure that the CPC does not stray from its declared path, one that has kept it in power since 1950.

A new catchword has been the notion of “tertiary distribution of wealth” which emerged as a decision of the fourth plenum of the 19th Party Congress in November 2019 which emphasised the importance of social distribution, the development of charity and other social welfare undertakings. This tertiary distribution “promotes the equilibrium of resources and wealth among different social groups”, said a commentary in the Study Times. This required a slew of policy measures ranging from tax-related incentives for donations as well as higher inheritance, gift and luxury taxes.

Positive spin 

The positive spin being given is that all this activity is aimed at achieving the goal of  “common prosperity”. At the heart of this new slogan is politics. The CPC has periodically talked of this notion and, perhaps, with the economy slowing down, demographic pressures growing and the 20th Party Congress looming ahead next year, the CPC has decided that it needs to do more to deliver on its socialistic promise. So the campaign is being renewed to underscore the  CPC’s political bargain with the Chinese people — be loyal to the CPC, which, in turn will ensure “common prosperity” for all.

But the bottom line probably is that the CPC essentially distrusts the private sector and is determined to keep it under control. The private sector in China contributes 50% of taxes, 60% of the GDP, 70% of tech innovation, 80% urban employment and 90% of new jobs.

Inherent dangers

Despite the crackdown on companies, the policy is being rolled out carefully. In June Xi picked eastern Zhejiang province, one of the richest in China, for a “common prosperity” pilot project. Under this scheme, the province will lift per capita incomes and also narrow income gaps by taxation and promoting philanthropy.

Also read: In an Attempt to Stop Birth Rate Decline, China Endorses Three-Child Policy

At first sight, many of the moves — providing social security for workers in ride hailing companies, regulating their working hours, banning private tuition, promoting philanthropy,  regulating internet giants — appear to promote social and economic equality. Data security rules that make the data of big companies accessible to smaller ones could help them compete and innovate.

But, to take just one example, given the unequal schooling systems, private tutoring was also an opportunity for the educational and economic advancement of poorer, but bright young people.

Representative image of a Chinese flag in front of the Great Hall of the People in Beijing, China. Photo: Reuters/Jason Lee.

The danger is that the cure could be worse than the disease. China is not just seeking to regulate the tech sector, but even buy stakes in the companies to appoint government directors. Government efforts and vast amounts of money have not been particularly successful in making China a semi-conductor power.  Most of the top tech companies, many of them world class, were set up by venture capitalists and altering their character could well kill the golden goose.

As the astute China watcher Kevin Rudd has noted that the developments are part of a larger left-ward push in Chinese domestic politics since the arrival of Xi Jinping. Coincidentally, this comes along with a rightward nationalistic thrust in China’s foreign policies. The goal is to ensure the emergence of China as a great power, second to none, through a process in which the CPC remains in complete command.

Unsaid in all this is that while on one hand the CPC’s domestic policies are aimed at maintaining and even enhancing its control, its external dimensions are being shaped by the rapidly intensifying contest with the United States. Indeed, there could be an argument that the sense of urgency we are now getting from China are shaped by the increased tensions between the US and China.

At the end of the day, like all other such campaigns in China, there is a need to take it with a slight pinch of salt. We are not on the verge of any new Cultural Revolution. The fact is that were the authorities serious about “common prosperity” there are many other steps that can be taken.

First, the massive state-owned enterprises (SOE) sector could have been roped in. Second, the government could ease off on hukou regulations that deny equal treatment to migrants to major cities in the country and depress their wages. Third, the government could institute wealth and property taxes to systematically transfer resources from the rich to the needier sectors of the economy.

So, besides cracking the whip, the CPC is not likely to do anything drastic. Inequality is not likely to go away in China, notwithstanding the rhetoric.

Manoj Joshi is a Distinguished Fellow, Observer Research Foundation, New Delhi.