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font-style: italic; color: grey; line-height: 23px; } .tt-post { border: 0px solid #489bd4 !important; -webkit-box-shadow: 0 0px 0 0 #eaeaea !important; -moz-box-shadow: 0 0px 0 0 #eaeaea !important; box-shadow: 0 0px 0 0 #eaeaea !important; } @media only screen and (min-width: 769px) { .relatedsingle{ height: 396px; } .h1, .h2, .h3, h1, h2, h3, .tt-title-text{ margin-top: 0px !important; margin-bottom: 0px !important; } } #fkgUBk { display: none; } </style> <meta name="twitter:card" content="summary_large_image" /> <meta name="twitter:description" content="China's drive for “common prosperity" is called a ''profound revolution'' by state media. It has unnerved investors, who are growing increasingly concerned about the country's spiralling economic problems." /> <meta name="twitter:title" content="Explainer: How ‘Common Prosperity’ is Changing China" /> <meta name="twitter:site" content="@ATFinancial_" /> <meta name="twitter:image" content="https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter.jpg" /><script type="application/ld+json">{ "@context": "http:\/\/schema.org", "@type": "newsarticle", "inLanguage": "en", "url": "https:\/\/www.asiafinancial.com", "articleBody": " \r\n<p class="p1">Chinese President Xi Jinping\u2019s drive for \u201ccommon prosperity" is set to have a defining impact on life in the world\u2019s most populous country over the next few decades in a policy shift described as a "<a href="https:\/\/www.asiafinancial.com\/china-media-call-xis-regulatory-storm-a-profound-revolution">profound revolution<\/a>" by state media.<\/p>\r\nAt its core is a campaign to redress income inequality in China that is collateral damage from more than four decades of breakneck economic growth. It's unleashed a swingeing regulatory crackdown on everything from big tech and gaming companies to private tutoring firms and housing prices.\r\n\r\nThe aim is to return the nation to the original purpose of its ruling Communist Party as it shifts policy to prioritise socialism over capitalism, said the commentary.\r\n\r\n"This is a political change, and the people are becoming the main body of this change again,\u2019\u2019 it said.\u00a0 "All those who block this people-centred change will be discarded.\u2019\u2019\r\n\r\nIt went on to warn that China ''will no longer be a paradise for capitalists\u2019\u2019 but reiterated earlier official comments that the regulatory crackdown doesn't mean China will kill the rich to help the poor.\r\n\r\n \r\n<div style="padding: 56.25% 0 0 0; position: relative;"><iframe style="position: absolute; top: 0; left: 0; width: 100%; height: 100%;" title="Explained: What is China&rsquo;s Common Prosperity drive?" src="https:\/\/player.vimeo.com\/video\/647309387?h=2fec25cfd9&badge=0&autopause=0&player_id=0&app_id=58479" frameborder="0" allowfullscreen="allowfullscreen"><\/iframe><\/div>\r\n<script src="https:\/\/player.vimeo.com\/api\/player.js"><\/script>\r\n\r\n \r\n\r\nSome investors view the change as part of the most significant philosophical shift since former leader Deng Xiaoping set development as the ultimate priority more than 40 years ago. It's unnerved many investors and wiped more than $1 trillion off the value of China's tech stocks.\r\n\r\nIt will boost households and consumption at the expense of owners, and lead to increased risks for equity investors, <a href="https:\/\/www.morganstanley.com\/about-us"><strong>Morgan Stanley Asia's<\/strong><\/a> chief Asia economist Chetan Ahya, wrote in a research note.\r\n\r\n\u201dRebalancing towards consumption comes at a price,\u201d said Ahya. \u201dA higher wage share helps households but affects the owners of capital. A declining share of corporate profits in GDP means that even with relatively high rates of GDP growth, corporate profitability in aggregate will face headwinds.\u201d\r\n\r\nThe following is AF's guide to the key things you need to know to understand China's drive for ''common prosperity:''\r\n\r\n \r\n<h3><b>Wealth Inequality In Xi's China<\/b><\/h3>\r\n<p class="p1">One key element of common prosperity is the expansion of the middle class in China, which currently accounts for around 300\u00a0million\u00a0of its 1.4 billion population. Xi has said he envisions an \u201colive-shaped\u201d income distribution where the middle class makes up the bulk of society.<\/p>\r\n<p class="p1">Today 1.1 billion people in China are still considered low income, with an estimated 600 million living on less than 1000 RMB ($156) per month.<\/p>\r\n<img class="alignleft size-full wp-image-24956" src="https:\/\/www.asiafinancial.com\/wp-content\/uploads\/2021\/11\/China_income_inequality1-scaled.jpg" alt="The chronic wealth inequality in China is the collateral damage from more than four decades of breakneck economic growth. Asia Financial Graphic \/ Richa Gandhi" \/>\r\n<p class="p1">One barrier to creating a larger middle class may prove to be the lack of investment in human capital in the country. Between 500-600 million people are low-skill sector employees in China.<\/p>\r\n<p class="p1">With the number of construction and manufacturing jobs decreasing, in part due to greater automation, John L Holden, senior associate (non-resident), trustee chair in Chinese business and economics at <a href="https:\/\/www.csis.org\/">CSIS<\/a>, has suggested\u00a0the future of this group could be one of the issues triggering the renewed interest in common prosperity.<\/p>\r\n<p class="p1">He argues that if China does become the \u201chigh income, high tech, high skill economy\u201d that it aims to be, the low-skill service sector will only require 100 million people working in it. The government will then be faced with having to \u201ckeep transferring bags of cash to low-skilled people\u201d or make a significant investment in education.<\/p>\r\n<p class="p1">\u201cYou have to educate this sector," said Holden. "If you start educating people right now at [the age of] zero to three, four to six, six to 15, they're going to be ready to enter this sector in 2035-2040.<span class="Apple-converted-space">\u00a0<\/span><\/p>\r\n<p class="p1">\u201cIf you compare China, a middle-income country, to all the other middle-income countries in the world, China has the lowest level of human capital in the entire middle income [bracket]. This isn't a problem that can be solved in ten years... I don't think that the current government understands what common prosperity in a high-income high-tech economy really depends on.\u201d<\/p>\r\n<img class="alignleft wp-image-24354" src="https:\/\/www.asiafinancial.com\/wp-content\/uploads\/2021\/11\/common-prosperity-alibaba.jpg" alt="Tech giants like Alibaba have pledged funds for China's Common Prosperity drive. Asia Financial" width="836" height="418" \/>\r\n<h3 class="p1"><b>Beijing's Regulatory Crackdowns<\/b><\/h3>\r\n<p class="p1">The sudden buzz around common prosperity follows a year of market upheaval and new regulations in China. From the banning of cryptocurrency and the crackdown on for-profit education to the launch of carbon trading and the ongoing Evergrande drama, analysts suggest that a shift is taking place with a move away from a reliance on market outcomes to achieve goals.<\/p>\r\n<p class="p1">The new economy has become a particular target for new regulation, a pattern consistent with actions under previous administrations that acted to bring sectors such as banking, telecoms and shipping under control after periods of fast, largely unregulated growth.<\/p>\r\n<p class="p1">With Xi having stated that high-income earners and enterprises will be encouraged to give back more to society, the country\u2019s beleaguered tech giants have quickly taken the hint and publicly pledged funds to support common prosperity.<span class="Apple-converted-space">\u00a0<\/span><\/p>\r\n<p class="p1">Among them, Tencent will invest 50 billion RMB with a focus on health and education services, as well as rural revitalisation, while Alibaba has pledged 100 billion RMB.<\/p>\r\n<p class="p1">\u201cAnother area that may be of concern is the informal economy like delivery drivers, couriers, those kinds of platform jobs,\u201d said Dr\u00a0Lefeng Lin,\u00a0of <strong><a href="https:\/\/www.xjtlu.edu.cn\/en\/about\/" rel="noopener">Xi\u2019an\u00a0Jiaotong-Liverpool University<\/a><\/strong> in Suzhou. \u201cWe have seen since last year that the government is trying to make policy to protect those kinds of workers and regulate the platforms. But we haven\u2019t seen yet where these policy directives will go.\u201d<\/p>\r\n \r\n\r\n<strong>Also on AF: <a href="https:\/\/www.asiafinancial.com\/chinas-common-prosperity-to-hit-tech-harder-than-property">China\u2019s \u2018Common Prosperity\u2019 to Hit Tech Harder Than Property<\/a><\/strong>\r\n\r\n \r\n<h3 class="p1">Zhejiang Demonstration Zone<\/h3>\r\n<p class="p1">Earlier this year, Zhejiang was established as a demonstration zone for common prosperity by the CPC Central Committee and the State Council.<\/p>\r\n<p class="p1">The province is one of China\u2019s most affluent, with a comparatively small urban-rural divide.<\/p>\r\n<p class="p1">The plan for Zhejiang lists 52 goals across income, employment, housing, education and health, with the priority of wealth sharing and high-quality growth that will equalise access to basic services and narrow the urban-rural divide.<img class="alignright wp-image-11818" src="https:\/\/www.asiafinancial.com\/wp-content\/uploads\/2021\/07\/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins.jpg" alt="About 1.1 billion people in China are considered low income" width="333" height="222" \/><\/p>\r\n<p class="p1">Among them is having the annual per capita wealth of all residents reaching 75,000 RMB by 2025, urbanisation rate reaching 75% and the income gap remaining at a \u201creasonable\u201d level.<\/p>\r\n<p class="p1">In education, the province will also push for a 70%\u00a0enrolment\u00a0rate in higher education.<\/p>\r\n<p class="p1">Life expectancy for urban residents is expected to pass 80, while Lin also suggests other avenues may be explored for medical reform, particularly around various social insurance and welfare policies that are geographically restrictive.<\/p>\r\n<p class="p1">\u201c[For example], right now it\u2019s difficult for migrants to use their local insurance in their hometown if they retire,\u201d said Lin.<\/p>\r\n \r\n<h3 class="p1"><b>Taxation's Role In Reducing China's Wealth Gap<\/b><\/h3>\r\n<p class="p1">One of the biggest questions surrounding common prosperity is what role, if any, reform of the taxation system will play. It is perhaps the issue that has attracted the most speculation since Xi\u2019s August speech.<\/p>\r\n<p class="p1">Within China, taxation has traditionally played only a limited role in income redistribution, with the lion\u2019s share of fiscal revenue accounted for by indirect tax over direct \u2013 a situation reversed in most developed countries.<\/p>\r\n<p class="p1">Nevertheless, the government announced the rollout of five-year property tax trials in several cities.<span class="Apple-converted-space">\u00a0<\/span><\/p>\r\n<p class="p1">Property tax, which has been on the table for around two decades, is however controversial for two reasons \u2013 firstly, it is widely believed that wealthy property owners have until now been successful in preventing the introduction of new measures, and secondly due to fears around the effect it could have on the housing market.<\/p>\r\n<p class="p1">\u201c[Housing is] a key pillar of the Chinese economy. It contributes about 15% of GDP,\u201d said Joyce Chang, managing director and chair of global research at JPMorgan, during a recent <strong><a href="https:\/\/www.csis.org\/programs\/about-us" target="_blank" rel="noopener">Center for Strategic and International Studies<\/a><\/strong> webinar.<\/p>\r\n<p class="p1">\u201cReal estate investment alone accounts for about 25% of fixed investment.\u00a0So\u00a0if you think about a five-percentage-point slow-down in real estate investment then actually it takes about 0.4% off GDP growth in China.\u201d<\/p>\r\n \r\n<h3>The Background To Common Prosperity<\/h3>\r\n<p class="p1">\u201cCommon prosperity is not new," adds Chang. "It is an essential part of socialism, and it has been around since 1949, taking different iterations under different leaders."<\/p>\r\n<p class="p1">She said it began with Mao who was focused on eliminating the private and individual economy \u2013 he was followed by Deng Xiaoping who began opening up China globally in the 1980s looking to eliminate poverty.<\/p>\r\n<img class="alignleft wp-image-24355" src="https:\/\/www.asiafinancial.com\/wp-content\/uploads\/2021\/11\/common-prosperity-impact.jpg" alt="China's Common Prosperity drive is likely to impact its growth prospects. Asia Financial " width="840" height="420" \/>\r\n<p class="p1">\u201cAnd now you have the current iteration that really started under President Hu Jintao," she added. "That was about developing a more people-oriented, scientific approach. You see that in the common prosperity language today that talks about the green economy, innovation and the new economy.<\/p>\r\n<p class="p1">\u201cThis was then strengthened under President Xi, who has focused on the whole issue of inequality and the ways in which we can redistribute.\u201d<\/p>\r\n \r\n<h3 class="p1">International Impact Of Xi's Drive<\/h3>\r\n<p class="p1">In September, ARK Invest admitted it would be reducing its China exposure, with founder Cathie Wood telling Reuters she believed \u201cpolicy makers in China are beginning to play with fire\u201d and that a major slowdown in China is \u201cobvious.\u201d<\/p>\r\n<p class="p1">As such, investors are divided on future China strategies. Like <strong><a href="https:\/\/ark-invest.com\/" target="_blank" rel="noopener">ARK Invest<\/a><\/strong>, some have chosen to dump their stocks, including Australia-based Munro Partners, who cited \u201coverreach\u201d by the government as one of the factors influencing their decision. Previously, Chinese equities accounted for 15% of their portfolio.<\/p>\r\n<p class="p1">Others are more upbeat and advising a shift away from investment in tech and education companies towards smart manufacturing and consumer services.<\/p>\r\n<p class="p1">\u201cWe see growth coming down in China to about 5.5% next year,\u201d added Chang, who said. \u201cThe demographics also point to growth coming down even lower than that in the years that lie ahead. And that has global ramifications. We estimate that every one-percentage-point decline in China takes about half a percent off of global growth.<\/p>\r\n<p class="p1">\u201cWe should expect to see more financial tightening to come given the nature of these [common prosperity] goals and what they have announced. Many of these goals are ones that they have in place until 2035 or 2049. This is not going away anytime soon.\u201d<\/p>\r\n \r\n<ul>\r\n \t<li class="p1">By Callan Quinn<\/li>\r\n<\/ul>\r\n \r\n\r\n<strong>Read more:<\/strong>\r\n\r\n<strong><a href="https:\/\/www.asiafinancial.com\/common-prosperity-sees-china-stock-investors-going-green" target="_blank" rel="noopener">\u2018Common Prosperity\u2019 Sees China Stock Investors Going Green<\/a><\/strong>\r\n\r\n<strong><a href="https:\/\/www.asiafinancial.com\/alibaba-tech-titans-to-invest-billions-in-common-prosperity-plans" target="_blank" rel="noopener">Alibaba, Tech Titans To Invest Billions In China\u2019s \u2018Common Prosperity\u2019 Plans<\/a><\/strong>\r\n\r\n ", "articleSection": "China", "mainEntityOfPage": { "@type": "WebPage", "url": "https:\/\/www.asiafinancial.com\/explainer-how-common-prosperity-is-changing-china" }, "headline": "Explainer: How \u2018Common Prosperity\u2019 is Changing China", "description": "China's drive for \u201ccommon prosperity" is called a ''profound revolution'' by state media. It has unnerved investors, who are growing increasingly concerned about the country's spiralling economic problems.", "datePublished": "2021-11-22T12:24:36+00:00", "dateModified": "2022-07-14T13:42:04+00:00", "publisher": { "@type": "Organization", "name": "Asia Financial", "logo": { "@type": "ImageObject", "url": "https:\/\/www.asiafinancial.com\/wp-content\/themes\/atf\/images\/AF-logo-small.png", "width": "640", "height": "97" } }, "author": { "@type": "Person", "name": "Asia Financial" }, "image": { "@type": "ImageObject", "url": "https:\/\/www.asiafinancial.com\/wp-content\/uploads\/2021\/09\/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter.jpg" } }</script> <script async src="https://www.googletagmanager.com/gtag/js?id=G-CNH68EHNDT"></script> <script> window.dataLayer = window.dataLayer || []; function gtag(){dataLayer.push(arguments);} gtag('js', new Date()); gtag('config', 'G-CNH68EHNDT'); 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text-align: right; vertical-align: middle; } @media screen and (max-width: 767px){ .related-articles-sec .tt-post-inner{ overflow: hidden; border-bottom: 1px dotted rgba(0, 0, 0, 0.2); } .related-articles-sec .tt-post-inner .tt-post-img{ float: right; margin-left: 10px;} .related-articles-sec .simple-text a{font-size: 18px;color: #111;font-weight: 500;line-height: 26px;} .related-articles-sec .tt-post.type-3 .tt-post-info{padding: 0; } .related-articles-sec .tt-post-info .simple-text{ margin-top: 0;} .related-articles-sec .tt-post.type-3{ text-align: left; } } .new-category-design, .tt-post-label-new { margin-bottom: -8px; margin-top: 13px; } </style> <div id="page-wrapper" class="content top-bottom"> <div class="container"> <div class="row story-div"> <div class="marg-lg-b20"></div> <div class="col-md-8"> <div class="story-top"> <div class="reports-big-head"> <div class="tt-post-label tt-post-label-new"> <span class="tt-post-label-new tt-post-cat"> <a href="https://www.asiafinancial.com/regions/china">China</a> </span></div> <h1 class="reports-big-head">Explainer: How ‘Common Prosperity’ is Changing China</h1> </div> <div class="tt-post type-3"> <div class="tt-post-label" style="font-size:14px;">  <span class="tt-post-date" style="margin-left:5px;">November 22, 2021</span></div> <div class="col post-excerpt" style="margin-top:10px;"> <h4> <p>China’s drive for “common prosperity” is called a ”profound revolution” by state media. It has unnerved investors, who are growing increasingly concerned about the country’s spiralling economic problems.</p> </h4> </div> <br> <div class="sharethisbx"> <ul class="custom-share"> <li class="facebook"> <a target="_blank" rel="nofollow" href="https://www.facebook.com/sharer/sharer.php?u=https://www.asiafinancial.com/explainer-how-common-prosperity-is-changing-china"> <i class="fb"><img alt="facebook" src="https://www.asiafinancial.com/wp-content/themes/atf/images/facebook.svg"></i> </a> </li> <li class="twit"> <a rel="nofollow" target="_blank" href="https://twitter.com/share?text=Explainer%3A%20How%20%E2%80%98Common%20Prosperity%E2%80%99%20is%20Changing%20China&url=https://www.asiafinancial.com/explainer-how-common-prosperity-is-changing-china"> <i class="twit"><img src="https://www.asiafinancial.com/wp-content/themes/atf/images/twitter.svg?v=1" alt="twitter"></i> </a> </li> <li class="whatsapp"> <a rel="nofollow" href="whatsapp://send?text=https://www.asiafinancial.com/explainer-how-common-prosperity-is-changing-china"> <i class="wapp"><img src="https://www.asiafinancial.com/wp-content/themes/atf/images/whatsapp.svg" alt="whatsapp"></i> </a> </li> </ul> </div> </div> </div> <div class="story-big-img"> <figure>  <img src="https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter.jpg" class="attachment-post-thumbnail size-post-thumbnail wp-post-image" alt="Chinese President Xi Jinping is pushing common prosperity" loading="lazy" srcset="https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter.jpg 1500w, https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter-300x200.jpg 300w, https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter-1024x683.jpg 1024w, https://www.asiafinancial.com/wp-content/uploads/2021/09/Chinese-President-Xi-Jinping-is-seen-during-a-show-commemorating-the-100th-anniversary-of-the-CPC-at-the-National-Stadium-in-Beijing-June-28-2021.-RtrsThomas-Peter-768x512.jpg 768w" sizes="100vw" /> <figcaption style="line-height: 17px; font-size: 12px; font-weight: 500; margin-top: 10px; color: #aaaaaa;"> Chinese President Xi Jinping speaking to a show marking the 100th anniversary of the CPC earlier this year. Photo: Reuters </figcaption> </figure> </div> <div class="content"> <p> </p> <p class="p1">Chinese President Xi Jinping’s drive for “common prosperity” is set to have a defining impact on life in the world’s most populous country over the next few decades in a policy shift described as a “<a href="https://www.asiafinancial.com/china-media-call-xis-regulatory-storm-a-profound-revolution">profound revolution</a>” by state media.</p> <p>At its core is a campaign to redress income inequality in China that is collateral damage from more than four decades of breakneck economic growth. It’s unleashed a swingeing regulatory crackdown on everything from big tech and gaming companies to private tutoring firms and housing prices.</p> <p>The aim is to return the nation to the original purpose of its ruling Communist Party as it shifts policy to prioritise socialism over capitalism, said the commentary.</p> <p>“This is a political change, and the people are becoming the main body of this change again,’’ it said. “All those who block this people-centred change will be discarded.’’</p> <p>It went on to warn that China ”will no longer be a paradise for capitalists’’ but reiterated earlier official comments that the regulatory crackdown doesn’t mean China will kill the rich to help the poor.</p> <p> </p> <div style="padding: 56.25% 0 0 0; position: relative;"><iframe style="position: absolute; top: 0; left: 0; width: 100%; height: 100%;" title="Explained: What is China’s Common Prosperity drive?" src="https://player.vimeo.com/video/647309387?h=2fec25cfd9&badge=0&autopause=0&player_id=0&app_id=58479" frameborder="0" allowfullscreen="allowfullscreen"></iframe></div> <p><script src="https://player.vimeo.com/api/player.js"></script></p> <p> </p> <p>Some investors view the change as part of the most significant philosophical shift since former leader Deng Xiaoping set development as the ultimate priority more than 40 years ago. It’s unnerved many investors and wiped more than $1 trillion off the value of China’s tech stocks.</p> <p>It will boost households and consumption at the expense of owners, and lead to increased risks for equity investors, <a href="https://www.morganstanley.com/about-us"><strong>Morgan Stanley Asia’s</strong></a> chief Asia economist Chetan Ahya, wrote in a research note.</p> <p>”Rebalancing towards consumption comes at a price,” said Ahya. ”A higher wage share helps households but affects the owners of capital. A declining share of corporate profits in GDP means that even with relatively high rates of GDP growth, corporate profitability in aggregate will face headwinds.”</p> <p>The following is AF’s guide to the key things you need to know to understand China’s drive for ”common prosperity:”</p> <p> </p> <h3><b>Wealth Inequality In Xi’s China</b></h3> <p class="p1">One key element of common prosperity is the expansion of the middle class in China, which currently accounts for around 300 million of its 1.4 billion population. Xi has said he envisions an “olive-shaped” income distribution where the middle class makes up the bulk of society.</p> <p class="p1">Today 1.1 billion people in China are still considered low income, with an estimated 600 million living on less than 1000 RMB ($156) per month.</p> <p><img loading="lazy" width="2560" height="1826" class="alignleft size-full wp-image-24956" src="https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-scaled.jpg" alt="The chronic wealth inequality in China is the collateral damage from more than four decades of breakneck economic growth. Asia Financial Graphic / Richa Gandhi" srcset="https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-scaled.jpg 2560w, https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-300x214.jpg 300w, https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-1024x730.jpg 1024w, https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-768x548.jpg 768w, https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-1536x1095.jpg 1536w, https://www.asiafinancial.com/wp-content/uploads/2021/11/China_income_inequality1-2048x1460.jpg 2048w" sizes="(max-width: 706px) 89vw, (max-width: 767px) 82vw, 740px" /></p> <p class="p1">One barrier to creating a larger middle class may prove to be the lack of investment in human capital in the country. Between 500-600 million people are low-skill sector employees in China.</p> <p class="p1">With the number of construction and manufacturing jobs decreasing, in part due to greater automation, John L Holden, senior associate (non-resident), trustee chair in Chinese business and economics at <a href="https://www.csis.org/">CSIS</a>, has suggested the future of this group could be one of the issues triggering the renewed interest in common prosperity.</p> <p class="p1">He argues that if China does become the “high income, high tech, high skill economy” that it aims to be, the low-skill service sector will only require 100 million people working in it. The government will then be faced with having to “keep transferring bags of cash to low-skilled people” or make a significant investment in education.</p> <p class="p1">“You have to educate this sector,” said Holden. “If you start educating people right now at [the age of] zero to three, four to six, six to 15, they’re going to be ready to enter this sector in 2035-2040.<span class="Apple-converted-space"> </span></p> <p class="p1">“If you compare China, a middle-income country, to all the other middle-income countries in the world, China has the lowest level of human capital in the entire middle income [bracket]. This isn’t a problem that can be solved in ten years… I don’t think that the current government understands what common prosperity in a high-income high-tech economy really depends on.”</p> <p><img loading="lazy" class="alignleft wp-image-24354" src="https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-alibaba.jpg" alt="Tech giants like Alibaba have pledged funds for China's Common Prosperity drive. Asia Financial" width="836" height="418" srcset="https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-alibaba.jpg 800w, https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-alibaba-300x150.jpg 300w, https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-alibaba-768x384.jpg 768w" sizes="(max-width: 706px) 89vw, (max-width: 767px) 82vw, 740px" /></p> <h3 class="p1"><b>Beijing’s Regulatory Crackdowns</b></h3> <p class="p1">The sudden buzz around common prosperity follows a year of market upheaval and new regulations in China. From the banning of cryptocurrency and the crackdown on for-profit education to the launch of carbon trading and the ongoing Evergrande drama, analysts suggest that a shift is taking place with a move away from a reliance on market outcomes to achieve goals.</p> <p class="p1">The new economy has become a particular target for new regulation, a pattern consistent with actions under previous administrations that acted to bring sectors such as banking, telecoms and shipping under control after periods of fast, largely unregulated growth.</p> <p class="p1">With Xi having stated that high-income earners and enterprises will be encouraged to give back more to society, the country’s beleaguered tech giants have quickly taken the hint and publicly pledged funds to support common prosperity.<span class="Apple-converted-space"> </span></p> <p class="p1">Among them, Tencent will invest 50 billion RMB with a focus on health and education services, as well as rural revitalisation, while Alibaba has pledged 100 billion RMB.</p> <p class="p1">“Another area that may be of concern is the informal economy like delivery drivers, couriers, those kinds of platform jobs,” said Dr Lefeng Lin, of <strong><a href="https://www.xjtlu.edu.cn/en/about/" rel="noopener">Xi’an Jiaotong-Liverpool University</a></strong> in Suzhou. “We have seen since last year that the government is trying to make policy to protect those kinds of workers and regulate the platforms. But we haven’t seen yet where these policy directives will go.”</p> <p> </p> <p><strong>Also on AF: <a href="https://www.asiafinancial.com/chinas-common-prosperity-to-hit-tech-harder-than-property">China’s ‘Common Prosperity’ to Hit Tech Harder Than Property</a></strong></p> <p> </p> <h3 class="p1">Zhejiang Demonstration Zone</h3> <p class="p1">Earlier this year, Zhejiang was established as a demonstration zone for common prosperity by the CPC Central Committee and the State Council.</p> <p class="p1">The province is one of China’s most affluent, with a comparatively small urban-rural divide.</p> <p class="p1">The plan for Zhejiang lists 52 goals across income, employment, housing, education and health, with the priority of wealth sharing and high-quality growth that will equalise access to basic services and narrow the urban-rural divide.<img loading="lazy" class="alignright wp-image-11818" src="https://www.asiafinancial.com/wp-content/uploads/2021/07/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins.jpg" alt="About 1.1 billion people in China are considered low income" width="333" height="222" srcset="https://www.asiafinancial.com/wp-content/uploads/2021/07/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins.jpg 1500w, https://www.asiafinancial.com/wp-content/uploads/2021/07/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins-300x200.jpg 300w, https://www.asiafinancial.com/wp-content/uploads/2021/07/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins-1024x683.jpg 1024w, https://www.asiafinancial.com/wp-content/uploads/2021/07/Chinese-President-Xi-Jinping-and-other-leaders-arrive-for-the-event-marking-the-100th-anniversary-of-the-CCP-at-Tiananmen-Square-in-Beijing-July-1-2021.-RtrsCarlos-Garcia-Rawlins-768x512.jpg 768w" sizes="(max-width: 333px) 100vw, 333px" /></p> <p class="p1">Among them is having the annual per capita wealth of all residents reaching 75,000 RMB by 2025, urbanisation rate reaching 75% and the income gap remaining at a “reasonable” level.</p> <p class="p1">In education, the province will also push for a 70% enrolment rate in higher education.</p> <p class="p1">Life expectancy for urban residents is expected to pass 80, while Lin also suggests other avenues may be explored for medical reform, particularly around various social insurance and welfare policies that are geographically restrictive.</p> <p class="p1">“[For example], right now it’s difficult for migrants to use their local insurance in their hometown if they retire,” said Lin.</p> <p> </p> <h3 class="p1"><b>Taxation’s Role In Reducing China’s Wealth Gap</b></h3> <p class="p1">One of the biggest questions surrounding common prosperity is what role, if any, reform of the taxation system will play. It is perhaps the issue that has attracted the most speculation since Xi’s August speech.</p> <p class="p1">Within China, taxation has traditionally played only a limited role in income redistribution, with the lion’s share of fiscal revenue accounted for by indirect tax over direct – a situation reversed in most developed countries.</p> <p class="p1">Nevertheless, the government announced the rollout of five-year property tax trials in several cities.<span class="Apple-converted-space"> </span></p> <p class="p1">Property tax, which has been on the table for around two decades, is however controversial for two reasons – firstly, it is widely believed that wealthy property owners have until now been successful in preventing the introduction of new measures, and secondly due to fears around the effect it could have on the housing market.</p> <p class="p1">“[Housing is] a key pillar of the Chinese economy. It contributes about 15% of GDP,” said Joyce Chang, managing director and chair of global research at JPMorgan, during a recent <strong><a href="https://www.csis.org/programs/about-us" target="_blank" rel="noopener">Center for Strategic and International Studies</a></strong> webinar.</p> <p class="p1">“Real estate investment alone accounts for about 25% of fixed investment. So if you think about a five-percentage-point slow-down in real estate investment then actually it takes about 0.4% off GDP growth in China.”</p> <p> </p> <h3>The Background To Common Prosperity</h3> <p class="p1">“Common prosperity is not new,” adds Chang. “It is an essential part of socialism, and it has been around since 1949, taking different iterations under different leaders.”</p> <p class="p1">She said it began with Mao who was focused on eliminating the private and individual economy – he was followed by Deng Xiaoping who began opening up China globally in the 1980s looking to eliminate poverty.</p> <p><img loading="lazy" class="alignleft wp-image-24355" src="https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-impact.jpg" alt="China's Common Prosperity drive is likely to impact its growth prospects. Asia Financial " width="840" height="420" srcset="https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-impact.jpg 800w, https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-impact-300x150.jpg 300w, https://www.asiafinancial.com/wp-content/uploads/2021/11/common-prosperity-impact-768x384.jpg 768w" sizes="(max-width: 706px) 89vw, (max-width: 767px) 82vw, 740px" /></p> <p class="p1">“And now you have the current iteration that really started under President Hu Jintao,” she added. “That was about developing a more people-oriented, scientific approach. You see that in the common prosperity language today that talks about the green economy, innovation and the new economy.</p> <p class="p1">“This was then strengthened under President Xi, who has focused on the whole issue of inequality and the ways in which we can redistribute.”</p> <p> </p> <h3 class="p1">International Impact Of Xi’s Drive</h3> <p class="p1">In September, ARK Invest admitted it would be reducing its China exposure, with founder Cathie Wood telling Reuters she believed “policy makers in China are beginning to play with fire” and that a major slowdown in China is “obvious.”</p> <p class="p1">As such, investors are divided on future China strategies. Like <strong><a href="https://ark-invest.com/" target="_blank" rel="noopener">ARK Invest</a></strong>, some have chosen to dump their stocks, including Australia-based Munro Partners, who cited “overreach” by the government as one of the factors influencing their decision. Previously, Chinese equities accounted for 15% of their portfolio.</p> <p class="p1">Others are more upbeat and advising a shift away from investment in tech and education companies towards smart manufacturing and consumer services.</p> <p class="p1">“We see growth coming down in China to about 5.5% next year,” added Chang, who said. “The demographics also point to growth coming down even lower than that in the years that lie ahead. And that has global ramifications. We estimate that every one-percentage-point decline in China takes about half a percent off of global growth.</p> <p class="p1">“We should expect to see more financial tightening to come given the nature of these [common prosperity] goals and what they have announced. Many of these goals are ones that they have in place until 2035 or 2049. This is not going away anytime soon.”</p> <p> </p> <ul> <li class="p1">By Callan Quinn</li> </ul> <p> </p> <p><strong>Read more:</strong></p> <p><strong><a href="https://www.asiafinancial.com/common-prosperity-sees-china-stock-investors-going-green" target="_blank" rel="noopener">‘Common Prosperity’ Sees China Stock Investors Going Green</a></strong></p> <p><strong><a href="https://www.asiafinancial.com/alibaba-tech-titans-to-invest-billions-in-common-prosperity-plans" target="_blank" rel="noopener">Alibaba, Tech Titans To Invest Billions In China’s ‘Common Prosperity’ Plans</a></strong></p> <p> </p> <div class="tags"> Tags: <a href="https://www.asiafinancial.com/tag/common-prosperity" rel="tag">Common Prosperity</a> </div> <div class="author-box"> <div class="profile_images"><img width="96" height="96" src="https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn-96x96.png" class="avatar avatar-96 photo imgauthor" alt="" loading="lazy" srcset="https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn-96x96.png 96w, https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn-150x150.png 150w, https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn-24x24.png 24w, https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn-48x48.png 48w, https://www.asiafinancial.com/wp-content/uploads/2022/05/Callan-Quinn.png 250w" sizes="100vw" /></div> <div class="author-content"> <h3><a href="https://www.asiafinancial.com/author/callan-quinn">Callan Quinn </a></h3> <p style="font-size: 14px;"> Callan Quinn is a freelance journalist currently based in Tbilisi, Georgia and the editor for the podcast ChinaTalk. She has previously worked as a journalist in the UK, China and Somaliland. 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