China’s Common Prosperity Program
China’s Common Prosperity Program
China Matters - Issue 1
Following initial efforts in economic reform and stamping out corruption over the last decade, President Xi Jinping introduced a “common prosperity” program in 2021 as a fundamental adjustment of the Chinese Communist Party’s policy platform. Since then, Beijing has initiated a series of regulatory reforms and crackdowns in the technology, entertainment, and education sectors as well as ambitious socioeconomic policies, such as a major rural revitalization campaign.
It is important for C-Suite executives to understand what motivated the Chinese government to launch the common prosperity campaign, its major objectives, implementation efforts, progress to date, and especially what opportunities the program presents to foreign multinationals.
The common prosperity campaign can be seen as a correction to some of the excesses during the leadership tenure of Xi’s predecessor, Deng Xiaoping, who, when launching his Four Modernizations campaign in 1977, famously warned that allowing some peasants to get rich first was, in fact, required to achieve common prosperity. Since then, Deng’s modernization drive has been astonishingly successful, but also created endemic corruption at all levels as well as rising levels of social inequality. The fact that a poor population nearly twice the size of the full population of the United States lives alongside a “crazy rich” elite who consume nearly half of all luxury goods sold globally, presents a serious challenge to social cohesion for China’s leadership.
In this context, the common prosperity campaign aligns with President Xi’s oft-stated belief in the superiority of China’s governance model over Western capitalism and the need for China to redistribute wealth, level opportunities for social advancement, and reducing social inequality. In addition, there appears to be a security dimension to the wide-ranging crackdowns that have been part of the common prosperity campaign in that the Chinese leadership appear to want capital and talent focused on strengthening its competitive position in key strategic sectors, such as semiconductor production and green technology, instead of video games and food delivery services.
There appear to be at least three major objectives for the common prosperity campaign:
Tackling Inequalities – At face value, common prosperity provides a new vision and development strategy by explicitly identifying income inequalities, urban-rural divides, and regional disparities as major challenges. Alternatively, common prosperity can be seen as a slogan to maintain social stability and political legitimacy by consoling those social groups that were left behind during China’s rapid development.
Legitimizing Leadership – The common prosperity program can rhetorically justify Xi’s policies and enlist “the masses” to help overcome elite resistance and reinforce Xi’s personal authority during the politically critical period ahead of the CCP’s 20th National Congress in the fall of 2022, when he will seek to secure a third term in office. In addition, the program attempts to revitalize Marxist-Leninist ideas and establish an alternative, or reformulated, ideological core to bolster the legitimacy of the regime and Xi as a leader.
Establishing the Superiority of the “China Model” – Xi believes that the West is incapable of tackling contemporary challenges such as the large and growing gap between rich and poor. Common prosperity emphatically addresses this gap, explicitly citing this as its policy intention in part to further distinguish the so-called “China Model” and promote its rhetorical, moral, material, and institutional advantages of over Western liberal-democratic capitalism.
In practice, while some concrete measures and general policies have been proposed, primarily regarding income redistribution, the common prosperity program remains mostly an outline without much detail on what is to be done. In addition, many programs are not especially new. In fact, such aligning of already existing policies with new political programs is common in China (e.g., the Belt and Road Initiative). More importantly, the common prosperity program seems challenged by several intrinsic contradictions, ranging from fiscal constraints, bureaucratic passivity and increasing opportunities for corruption to solving the fundamental dilemma between effective redistribution of wealth and maintaining economic growth.
At issue is that the problems common prosperity must solve are deeply rooted in China’s political and economic institutions. For example, implementation will require large intergovernmental fiscal transfers to local governments who have recently reduced the salaries of middle- and lower-ranking bureaucrats, suggesting cadres may find both legitimate and illegitimate ways to benefit personally from managing common prosperity initiatives. In part to meet large funding shortfalls as well as attract the required expertise, Beijing explicitly looks to the development of philanthropy, which, at first blush, suggests opportunities for both domestic and international philanthropic organizations. It is likely, however, that Beijing will further tighten its management, regulation, and control over the mid- and long-term, especially for international philanthropic organizations.
More fundamentally, Beijing must resolve the dilemma of how to provide economic growth incentives while simultaneously achieving effective income redistribution. It is important to note the wide-spread anxiety among China’s richer and middle-income classes that the vision of common prosperity could inadvertently sabotage economic growth as well as the notable contrast between the state’s emphasis on improving the socioeconomic interests of the low- and middle-income groups and its firm desire to limit those same groups’ participation in public decision-making. The Chinese government’s official goal of creating a “large, prosperous middle class” – often seen in the West as vital to the health of democratic polities - could in this regard be misleading for some Western readers.
Nevertheless, China’s drive toward common prosperity may create significant opportunities for foreign multinationals, especially in China’s healthcare industry, as the government seeks to expand access and quality. Traditional subsectors, such as medical devices, pharmaceuticals, and elder care, as well as emerging areas, such as biotech and digital healthcare, all stand to benefit. In addition, the common prosperity program seeks to create a healthier environment, which requires addressing environmental degradation, improving recycling and waste management practices, transitioning to sustainable energy sources, and investing in green technologies. Finally, efforts under common prosperity to boost the wealth of low-income groups and reduce regional disparities will foster a much larger consumer base and far more disposable income for discretionary goods and services, if successful.
In conclusion, common prosperity is a comprehensive redistribution-centered program with multiple layers of policy implications but also significant intrinsic contradictions that are not necessarily due to its scale or ambitions, but flow from a shortage of practical means conceived for achieving its goals. The coming years will require deft navigation by foreign philanthropic organizations and multinationals in general.
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1China’s Common Prosperity Program: Causes, Challenges, and Implications; Guoguang Wu, Asia Society Policy Institute, 2022
2Assessing China’s “common prosperity” campaign, Ryan Hass, Brookings, 9 September 2021
3How to Understand China’s Common Prosperity Policy, Alexander Chipman Koty, China Briefing, 21 March 2022.