The Reality of “Common Prosperity” Advocated by the Xi Jinping Administration

The purpose of " (gongtong fuyu, meaning common prosperity)" is to strengthen the middle class, contribute to the transition to a consumption-led economy, improve the quality of economic development, and promote social harmony and stability. Common prosperity can be interpreted as an attempt to boost confidence in the Communist Party by addressing equality issues, such as income disparity, that have been put on the back burner under rapid economic development. A notable distribution policy to increase the middle class is tertiary distribution, which transfers wealth from the rich through donations and charity. In secondary distribution, which is aimed at rectifying disparities through taxes, social security and fiscal spending, there are a variety of options but few specific actions. The possible introduction of a real estate tax is the only notable movement.

As for the three industries of real estate development, learning support, and IT, the government indicated that “the logic of development is undergoing significant change and their contribution to growth will decline” through common prosperity. The real estate development and learning support businesses were targeted from the viewpoint of reducing the burden on household expenditure related to housing and education, the IT industry from the political point of view that does not tolerate criticism of the government as well as from the economic and social point of view such as prohibition of abuse of monopoly position and protection of rights of gig workers.

Tertiary distribution involves the risk of acceleration of “Guo jin min tui” (the state advances, the private sector retreats), as more private enterprises are intimidated by forced donations while state-owned enterprises are left out of the framework. It is only secondary distribution that would make common prosperity possible, but the planned introduction of a real estate tax does not give grounds for optimism, as the number of areas of its trial introduction for five years are limited.

The economic and financial impact of the real estate development industry is so great that it is difficult to accept that its contribution to growth will decline. It is also questionable whether expenditure on education will decline, given the fact it has become more difficult to grasp the reality of the learning support business as the industry has gone underground.

With regard to the IT industry, it is too optimistic to assume that the industry will return to its pre-regulation growth trajectory just because investment has been strong or the legislation has taken effect to a certain extent. Because internet platforms are seen as undermining confidence in authority or subverting traditional values, it is reasonable to assume that the intervention by the Communist Party will not weaken.

The reason why the Xi Jinping administration is promoting common prosperity even with the expectation of slowing growth is that the development of SNS has widened the scope of comparison to measure disparities, and the public’s tolerance for disparities has decreased. This means that more and more Chinese people are deviating from the society advocated by the Communist Party, as exemplified by the rise of " (nei juan, meaning involution)" and the " (tang ping, meaning lying flat)." Common prosperity is also a sign of a sense of crisis over the failure of the traditional governing mechanism, which has been designed to boost confidence in the Communist Party through economic growth.

As the ratio of owner-occupied houses has risen, more households are identifying themselves as middle class, while more and more households are finding it harder to make ends meet due to the burden of housing loans. It will depend on the trajectory of housing prices whether China can move toward common prosperity through the transition to a consumption-led economy, improved quality of economic development, and social harmony and stability.

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