With common prosperity, China can avoid the excesses of unrestrained Western-style capitalism
- China and the West face similar challenges – widening income disparities, powerful Big Tech firms and deepening societal divides
- The difference is that China is tackling them head-on as it transforms into a modern socialist economy
China is not alone. Despite bilateral tensions, China and the West face similar challenges. Both confront increasing income disparities, the boundless growth of Big Tech firms, and a deepening divide between elites and the grass roots. But, unlike the rest of the world, China has decided to tackle these issues head on.
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Forty years ago, Deng Xiaoping lifted the ideological taboo on individual profit-seeking to allow some to get rich first, and then let the rising tide lift all boats. Today’s Chinese leadership believes it is time to let the tide come in.
Covid-19 has laid bare the inequality between haves and have-nots. Big Tech companies have grown even bigger and more powerful during the pandemic.
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China’s push for greater regulatory oversight is not motivated by a desire to crack down indiscriminately on the private sector, cut billionaires down to size, or limit Chinese companies’ international access.
Common prosperity is linked to the broader goal of social harmony. One of the greatest ironies is the hyper-competition in education, which has left parents anxious and children miserable. Now that most Chinese have fully embraced the digital life, there is also growing concern about the misuse of personal data.
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China’s authorities have recognised the social tensions and vulnerabilities that come with unchecked market-driven growth. While the failures and inequities are not unique to China, the Chinese approach to tackling these problems is different from most.
A second difference is that China is unlikely to adopt the kind of large welfare state found in some European countries. The country prizes hard work as a national and traditional virtue.
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And, unlike in the United States, the top 1 per cent are not castigated, even if some individual shaming (or worse, where lawbreaking is involved) plays a role. Chinese leaders want to eliminate only unfair sources of inequality, such as entry barriers, excessive monopoly powers and legal loopholes that enable illegitimate income.
A convenient critique is that China’s efforts to regulate companies and limit their growth ambitions will kill the incentive to innovate. But this ignores the fact that Chinese entrepreneurship is driven by more than monetary reward. To become important through a committed career or a major contribution to society is a way to “glorify one’s ancestors”.
Moreover, for every unhappy billionaire who needs to be “persuaded” to contribute more philanthropically, there are many more happy millionaires who genuinely welcome new regulations on big firms’ size and scope, as these will improve their own chances of becoming billionaires.
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China’s road ahead is fraught with challenges. No country of similar size has fostered a political economy both equitable and capable of fully harnessing innovation and efficiency. There are risks associated not only with deglobalisation but also with a continuation of globalisation that excludes China.
Another big risk is that policies designed to transform the investment climate and business environment will make matters worse or amount to overkill. An even more consequential risk is that ideology will take precedence over prudent economic management. But this is unlikely to happen.
Like many other countries, China will have to be mindful of near-term cyclical issues in the coming year, including the slow recovery from the pandemic, increasing indebtedness and default risk, more frequent natural disasters, and subdued investment and consumption.
But beneath the natural ebb and flow of market economies, the country will be moving towards greater equanimity, tolerating lower growth rates with an emphasis on quality, and greater cyclical volatility. Most Chinese will regard the sacrifices made to achieve common prosperity as both necessary and wise.
