Advocating for a less unequal society and fewer inequalities between the rich and the poor is not a new idea in China, but it has gained traction in the rhetoric of Chinese authorities – in the search for “shared prosperity,” focusing on the local population, is likely to have huge repercussions in the rest of the world.
China says its policies to reduce inequality are exactly what the country needs now, and “shared prosperity” has become one of the main banners championed by President Xi Jinping in recent months.
But his critics warn on the other hand. In their view, these measures lead to greater control by the state over how the private sector and society are governed.
A notable outcome of the Shared Prosperity Principle is the new focus on the Chinese private sector, with its priorities directed toward the domestic market.
Tech giant Alibaba, whose global market has grown in recent years, has pledged $15.5 billion to boost co-prosperity initiatives in China — and has set up a dedicated team, led by the company’s CEO, Daniel Zhang.
The company says it has benefited from the country’s economic progress and that “if society is doing well, and the economy is doing well, then Alibaba will be doing well.” Its rival Tencent, another tech giant, is also entering this field. He pledged $7.75 billion to the cause.
He said privately that the Chinese corporate world was willing to show that it was contributing to the Communist Party’s mandate in the effort – but when the movement for more companies to publicly support leader Xi Jinping’s new vision began, it came as “a bit of a shock”. The BBC is one of the top executives of a Chinese company.
“But then, we get used to the idea. It’s not about stealing from the rich. It’s about restructuring society and building the middle class. Deep down, we’re a consumer company, so that’s good for us.”
The luxury sector can lose out
The origin of this income disparity can be traced back to the reforms made nearly 40 years ago, which opened the Chinese market economy and allowed for the accumulation of vast personal fortunes, according to Reuters. With the emergence of hundreds of billionaires in the country, inequality between rural and urban areas of China has grown.
If co-prosperity means a greater focus on the emerging Chinese middle class, it could mean rapid progress for the global companies serving these consumers. “We can see that focusing on young people getting jobs is a good thing,” Jörg Woetke, president of the European Union Chamber of Commerce in China, told the BBC.
“If they feel they’re part of the social mobility in this country, which is weak, that’s good for us. Because when the middle class grows, there’s more opportunity.”
However, companies associated with the luxury sector may not do well, warns Wootki.
“Chinese spending accounts for about 50% of the world’s luxury consumption – and if China decides to buy fewer Swiss watches, Italian ties, and European luxury cars, the industry will take a hit.”
However, while Wuttke recognizes that China’s economy needs decisive reforms to raise average wages in China, he says shared prosperity may not be the most effective way to achieve this goal.
Stephen Lynch of the British Chamber of Commerce in China also says that shared prosperity does not guarantee that the middle class will grow the way it has over the past 40 years.
He likes to tell a story about how fast the Chinese economy has expanded over the past few decades.
“Thirty years ago, a Chinese family was able to eat a bowl of dumplings once a month,” he says. “Twenty years ago, they could probably have a pot once a week. Ten years ago, that changed to a pot a day. Now they can buy a car.”
So far, though, Lynch says, the idea of shared prosperity hasn’t yielded anything tangible beyond the kind of corporate social responsibility programs that Alibaba and Tencent have embraced.
“There’s also a lot of immediate regulation coming up in various sectors,” he said of recent lawsuits against tech companies. “It causes uncertainty — and it raises questions. If they’re more inward-looking, do they really need the rest of the world?”
The new socialism
Shared prosperity is at its core making Chinese society more equal, at least according to the Communist Party. This would change the meaning of socialism in the global context.
“The party is now concerned about ordinary workers — like taxi drivers, migrant workers, and delivery boys,” says Wan Huiyao of the Beijing Center for China and Globalization.
“China wants to avoid the polarized society that some Western countries are experiencing, which we’ve seen lead to the decline of globalization and nationalization.”
But Chinese observers have long argued that if what the party really wants is to turn socialism — with Chinese characteristics — into an alternative model for the rest of the world, then shared prosperity is not the way to go.
“This is part of the shift to the left and part of the shift toward more and more control that was indicative of the Xi Jinping government,” says George Magnus, a research associate at the University of Oxford’s China Center.
Magnus adds that shared prosperity does not mean reproducing the European pattern of social welfare.
“The implicit pressure is to achieve the party’s goals,” he says. “There will be an ‘unreasonable’ high income tax and pressure on private companies to make donations to the party’s economic goals, but there will be no major steps toward progressive taxation,” he says.
Indeed, according to Reuters, Chinese officials said “shared prosperity” is not intended to “eliminate the rich” or “support the lazy”: the idea is that “those who get rich first” help those who are left behind, in August, Han Wenqiu, of the country’s Central Economic and Financial Commission.
In practice, state control over monopolistic sectors and against tax evasion has also increased.
Chinese utopia, from top to bottom
Shared prosperity is clearly an important part of how the Chinese state and society are governed under Xi Jinping.
With that comes the promise of a more equal society – a larger and wealthier middle class, and companies that give back to society rather than just turn a profit for themselves.
It is the kind of utopian, top-down China that the party hopes will prove to be a viable model for the world, as an alternative to what the West offers.
But it does come with one thing: more control and power in the party’s hands. China has always been a difficult environment for foreign companies to operate, and the shared prosperity means that the world’s second largest economy is becoming more and more difficult to navigate.
*With Karisma Vaswani covering BBC News in Asia
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