- Karishma Vaswani
- Asia Business Correspondent
China claims that its policies to reduce the growing inequality in the distribution of wealth are just what it needs at this point in its economic development, but critics say they bring with them greater control over companies and society in general.
And while this quest for “common prosperity” focuses exclusively on the people of China, it could have profound repercussions around the world.
One of the consequences of the “common prosperity” policy has been that Chinese companies have re-prioritized the domestic market.
Tech giant Alibaba, which in recent years has raised its global profile, has just committed US$15.500 millones on projects related to “common prosperity” in China and establish a working group, led by Daniel Zhang, its chief executive officer.
The company maintains that it is one of the beneficiaries of the country’s economic progress and that “if society is doing well, and the economy is doing well, then Alibaba is doing well.”
Its rival, the technology giant Tencent, has also signed up for the cause and has promised to contribute US$7.750 millones.
The Chinese corporate fabric is eager to show its commitment to the dictates of the Chinese Communist Party (CCP), but when the push began for companies to adhere to President Xi Jinping’s new vision it produced “a certain shock,” as he told me. privately a representative of one of the major Chinese companies.
“But then we get used to the idea. It’s not about robbing the rich. It’s about restructuring society and building a middle class. At the end of the day, we are businesses based on consumption, so it is good for us. “.
The luxury sector could be hurt
If “common prosperity” means paying more attention to China’s emerging middle class, it could spell a “boom” for companies serving these consumers.
“We see that the idea of prioritizing young people getting jobs is a good one,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China.
“If they feel part of the social mobility in the country, which had been suffering, it is good for us. Because when the middle class grows there are more opportunities.”
However, businesses linked to the luxury sector may not do so well, warns Wuttke.
“Chinese spending accounts for about 50% of global luxury consumption, and if China’s wealthy decide to buy fewer Swiss watches, Italian neckties or high-end European cars, the sector is going to take a hit.”
But while acknowledging that the Chinese economy needs critical reforms to increase the average Chinese earning, Wuttke says “common prosperity” may not be the best way to achieve that goal.
Steven Lynch of the UK Chamber of Commerce in China also does not believe this plan is a guarantee that the middle class will grow in the same way it has in the past 40 years.
Lynch likes to tell a story about how much the Chinese economy has grown in recent decades.
“30 years ago, a Chinese family could have a bowl of noodles once a month. 20 years ago, possibly once a week. Ten years ago, they started being able to eat noodles on a daily basis. Now, they can also buy a car.” , he tells me by phone from Beijing.
But Lynch points out that the common prosperity plan has not yielded any concrete results so far, beyond the efforts adopted by Alibaba and Tencent.
“There are a lot of instantaneous regulations that emerged in many sectors,” he says, referring to recent moves by the Chinese government to control technology companies. “That raises uncertainties and raises questions: If you look inward, then do you really need the rest of the world?”
The new socialism
In essence, common prosperity seeks a more equitable Chinese society, at least that’s what the Communist Party says. And that could transform the meaning of socialism in the global context.
“China wants to avoid the polarized society that some Western countries have and we have seen that they lead to deglobalization and nationalization.”
But experts argue that if the Party seeks to transform Chinese socialism into an alternative model for the rest, then common prosperity is not the way.
“It is part of the lurch to the left and towards greater control that has characterized the Xi Jinping period,” says George Magnus, a researcher at the China Center at the University of Oxford.
For Magnus, common prosperity does not mean replicating a European-style social welfare model.
“The implicit pressure is to fulfill the Party’s objectives,” he says. “There will be high and ‘unreasonable’ income taxes and pressure for private firms to donate to achieve the CCP’s economic goals, but not a big move toward progressive taxation.”
A utopian China
It has become clear that common prosperity will be one of the axes around which the state government and society in China will pivot. under Xi’s command.
With it comes the promise of a more egalitarian society and an older and richer middle class, as well as companies that reinvest part of their profits.
It will be a kind of utopian China that the CCP hopes will show itself as a viable alternative model to what the West offers the world.
But it has another aspect, more control in the hands of the Party.
China has always been a difficult environment for foreign companies.
Common prosperity means that the world’s second-largest economy has become an even more difficult space to navigate.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.