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Wednesday, August 18, 2021
An Assessment of China's Economic Policy of "Common Prosperity"
ANBOUND

On August 17, the 10th meeting of the Central Committee for Financial and Economic Affairs proposed a study on promoting common prosperity. It is of different significance to propose a long-term policy framework for "common prosperity" at the meeting of the Central Committee for Financial and Economic Affairs. This also means that "common prosperity" will become the next long-term goal of economic development after the targets of building a well-off society and the elimination of poverty has been achieved.

Of course, realizing common prosperity is a development direction that China, as a socialist country, has always adhered to. However, this goal has generally been designed and considered as the main goal of social development. This time, it is proposed as one of the goals of economic development, which has a special significance in itself. This policy shift means that the economic development path of "prioritizing efficiency while taking equity into account", adhered to since the reform and opening-up is changing.

According to ANBOUND researchers, achieving common prosperity still necessitates the fundamental principle of "prioritizing efficiency" in the development premise. Great changes have indeed taken place in China's economy and society after decades of "prioritizing efficiency" and rapid development. On the one hand, there have been great changes in the social class, while on the other hand, China has seen a lot of wealth accumulated. Therefore, in the new stage of development and the construction of a new development pattern, it is necessary to further consider the issue of "efficiency and equity". As far as the theme of "common prosperity" is concerned, it does not mean the equal distribution of social wealth in the new stage of development; rather more emphasis is placed on the balance of wealth distribution in development. This is also what the Central Committee for Financial and Economic Affairs mentioned in its meeting, "promoting common prosperity while pursuing high-quality development". Overall the developmental process of the country remains the foundation for achieving common prosperity; without development, there would be only "equality" rather than "prosperity". The pursuit of common prosperity under the premise of "prioritizing efficiency" implies the enhancement of "equity".

Specifically, the policy of common prosperity focuses on narrowing the gap between rich and poor, between regions, between urban and rural areas, between industries, and between enterprises. As far as these aspects are concerned, they need to be combined with regional integrated development, coordinated development of the central and western regions, rural revitalization strategy, and policies supporting the development of small and medium-sized enterprises. These policies, still, need to promote structural economic reform from the supply side, to achieve the balanced development of the overall economy and society. The emphasis of these policies is to improve the balance, coordination, and inclusiveness of development, enhancing the balance of regional development, the coordination of industry development, and supporting the development of small and medium-sized enterprises. This does not mean that there will be more restrictions on the development of private enterprises. On the contrary, private enterprises will be supported and protected to enhance the vitality of market players.

In terms of narrowing the gap between the rich and the poor, this involves not only the reform and improvement of the distribution system but also the construction and enhancement of the social security system and public services. According to the meeting, in realizing the policies in the field of distribution, the basic institutional arrangements for the coordination of the three distributions will be constructed, namely, the regulation of taxation, social security, and transfer payments will be increased and made more precise.

Meanwhile, the proportion of middle-income groups will be expanded, the income of low-income groups will be increased, high-income groups will be reasonably regulated, illegal income will be outlawed, and an olive-shaped distribution structure will be formed.

The construction of this distribution system implies that the government, as the main decision-maker of resource allocation, will continue to strengthen the social security of residents through public and fiscal policies, increase the expenditure in the areas of people's livelihood and public service security, and improve the "shortcomings" in the areas of people's livelihood. This means that fiscal policy will further tilt and shift towards areas related to people's livelihood. The focus of fiscal policy will be on key areas such as ecological civilization construction, "three guarantees", energy-saving and emission reduction, and rural revitalization.

Of course, the meeting emphasized that every effort will be made to establish a scientific public policy system and to form a reasonable distribution system for all. The meeting also stressed that the improvement of people's wellbeing should be based on sustainable economic development and financial resources, with the focus on strengthening basic and inclusive social security. In addition, it is necessary to promote equal access to basic public services, increase the investment in inclusive human capital, and improve the elderly health care and medical security systems, relief systems for those in need, housing supply, and other social security systems. These contents imply that fiscal spending will increase significantly. Therefore, the promotion of social security still needs to adapt to the current state of economic development and financial capacity, to avoid further increasing the financial burden.

In fact, the long-term policy of common prosperity has already begun to affect the market and industry. In terms of recent changes in macro policies and industrial policies, many domestic and foreign studies have noted that the essence of anti-monopoly supervision in the internet field, as well as the rectification and supervision in the fields of education, health care, and real estate, is to promote a more balanced and fair direction of economic development. A recent Morgan Stanley report also suggests that under a new logical paradigm, China appears to be trying to tilt the distribution of economic benefits towards workers, which will lead to a decline in corporate profits. "We see increased industry policy risks related to social imbalances, economic sustainability, and data and cyber security, while high-end manufacturing, technology autonomy, and clean energy are supported by favorable policies".

Of course, the rebalancing of the relationship between "efficiency and equity" and the redistribution of social wealth are not only a major adjustment facing China but also a challenge facing major countries around the world. In particular, the "2008 financial crisis" and the subsequent global economic development have shown a trend of social and economic polarization, which is not only the root cause of the "anti-globalization" in recent years but also the motivation of major economies to promote the "welfare" transformation in the post-pandemic period. As the United States pushes for a new infrastructure plan and a USD 3.5 trillion social safety net, Treasury Secretary Janet Yellen said the plan is designed to address the sharp social class polarization caused by the pandemic, noting that "the decline in public investment since the 1970s has exacerbated labor force decline and inequality".

China's integration of the goal of common prosperity into its economic development policy is similar to America's shift to "welfarist" policies. On the demand side, promoting common prosperity is also the main reason to realize the "internal circulation" of economic development and expand the domestic market space. In fact, the expansion of market demand and the improvement of household consumption cannot be achieved without the general improvement of household income, and the improvement of efficiency also cannot be separated from the improvement of workers' quality and ability. These are the basic factors driving long-term sustainable economic development. In view of this, as the Central Committee for Financial and Economic Affairs said at the meeting, the promotion of common prosperity should adhere to gradual and orderly progress and have a full assessment of the long-term, arduous and complex nature of common prosperity.

Final analysis conclusion:

China's long-term policy of achieving common prosperity through economic development has brought about a series of policy changes, including fiscal policy and market regulation, demonstrating the rebalancing of "efficiency and equity", which remains the main contradiction in economic and social development.

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