Common prosperity in China: rich or poor, people have questions about Beijing’s attempt to spread the wealth
- From rural farmers to the corporate elite, China’s new economic plan aims to touch the lives of 1.4 billion people
- Albeit at opposite ends of the economic spectrum, with vastly different hopes for how the strategy will pan out, the haves and have-nots are asking surprisingly similar questions
Across China, the phrase “common prosperity” has become a major talking point spanning every demographic, from the rich and political elite to rural farmers and factory workers. Their concerns are vastly different, but many of their questions are quite similar.
“What does it mean?” “Will it work?” “How might it affect me?” Uncertainty abounds, and concerns are rife.
Steve Xie and Huang Weijie are private business owners who live more than 1,000km (620 miles) apart, in Zhejiang and Guangdong provinces, respectively. They don’t know each other, but they’ve had similar – and frequent – conversations with their friends about Beijing’s push for a more even distribution of wealth in the country.
“We entrepreneurs are chatting with each other,” said Xie, who has been running a very successful fabrics-exporting business for years in Zhejiang’s capital, Hangzhou. “We all joke that officials in Zhejiang and billionaires are keeping a low profile these days – they wish everyone would forget that they exist.
“Those of us who own villas and large, luxurious flats in Zhejiang – the government will certainly check our bank turnover, our personal and corporate tax payments, and see where our money comes from.”
Those types of concerns, however, do not resonate with most of the population, particularly the poor, working class that potentially stands to benefit most from this planned smoothing out of wealth. About 200 million people live on a monthly income of less than 2,000 yuan (US$309).
Yet, while there has been a very vocal outpouring of support, particularly on social media, many have also expressed scepticism and raised questions and concerns about this new heavy-handed public policy and its possible social and economic impact.
Zhejiang, with more than 64.5 million people, is particularly relevant at the moment because provincial authorities in July launched a pilot programme designed to achieve common prosperity by 2025 – by increasing local residents’ per capita disposable income to 75,000 yuan (US$11,600) while ensuring that the middle class comprises at least 80 per cent of the population – and Beijing’s hope is that the plan can be replicated across the country by 2035.
That could include Guangdong, where Huang, a small garment manufacturer in his forties, was forced to suspended operations and return to his rural hometown after domestic and international sales worsened in the past two years. He said he hopes the common-prosperity push will result in financial support being directed towards rural areas, where many older residents return after years spent in urban settings as migrant workers, often at factories.
“It will become increasingly difficult to find manufacturing workers in urban areas. Recently, I have been reading a lot of news about common prosperity, and I’d like to see a big push towards factories in the countryside – like an industrial-agricultural model with an industrial zone at its centre, surrounded by mechanised farmland and orchards.”
He suspects there will be resistance by large, urban conglomerates, but “we rural people definitely want resources to be invested in the countryside”.
In an article late last month, Robin Xing, Morgan Stanley’s chief China economist, described “common prosperity” as a shift in China’s economic governance framework.
As a result, the future could bring a number of regulatory changes, including in the property sector. And there will be a greater demand on local businesses, in terms of corporate philanthropy and corporate social responsibilities.
“Zhejiang actually has a well-developed private economy … and the local government had rarely come down to check taxes and control our operations in the past,” he said. “But now that senior local officials and fintech giants are being investigated, everyone here is panicked.
“Many towns here are rich, with yearly output values in the tens of billions of yuan. Now that Zhejiang is on its way to becoming the nation’s model for common prosperity, it means we may have to contribute more to the state. In addition, each town is being asked to develop into a small city, which requires a huge investment of resources.”
Zheng Yue, a senior executive with a Shenzhen-based company specialising in video surveillance, also has concerns.
“Honestly, we must be wary about common prosperity, and [China’s] private companies might feel more uncertain in their expectations of future operations because of that,” Yue said. “To achieve common prosperity, there must be a strong foundation, and that requires businesses to have a reasonable profit margin and be able to survive.
“As private entrepreneurs in China, we are all very practical, and operational considerations are not complicated – [we factor in] how much profit will be left after deducting the costs of labour, equipment, materials, taxes and fees.”
Yue also said that achieving common prosperity requires additional support for agriculture and public services such as education and medical care.
“Where does this money come from? It must come from local companies,” she said. “The common-prosperity policy will definitely reduce corporate profits, because labour costs such as social insurance and the wage base are bound to increase.
“Our company has seen staff costs rise from 5 per cent of the total costs to 15 per cent in the last two years. Profits, however, have plummeted compared with the pre-epidemic period, due to soaring raw-material costs, but it’s hard for downstream customers to raise prices in the end market.”
Meanwhile, the common-prosperity model is making high-net-worth individuals feel as though the speculative properties they own in first-tier cities are not the lucrative investments they long had been, including in the recent past.
To diversify her investments, Zheng said she recently cashed out on some real estate holdings in Shenzhen, worth tens of millions of yuan. She said she invested in a ceramic tile factory in a remote part of Guangdong, and she said plans to invest in stocks in sectors that can benefit from national policies in the future.
“As an individual, there is no way to go against the changing times, and we should constantly evolve in accordance with the developing situation,” Zheng said. “What I can do now is invest part of my capital in policy-supported sectors, while staying away from policy-bound sectors.”
But what about those who cannot afford even one home, never mind a portfolio of real estate holdings?
Arnold Qiu, a Guangzhou-based college student, seems to be taking a cautiously optimistic outlook.
“We young people don’t know what common prosperity will bring us, but we also haven’t gained anything from the economic development of the older generation,” he said. “Our parents spent so much money on our education, and now we’re living in a society where we have to work more than 70 hours a week to pay high housing prices, while in fear of being unemployed after 35 years old.”
Qiu also would like to see common prosperity narrow the wealth gap between private-sector employees and civil servants, in terms of social benefits and salaries.
However, there is still abundant wealth to be found in China’s private sector. Look at the fact that China now has more US-dollar billionaires than even the United States.
And it’s not as though common prosperity is a new idea. It’s been around since the 1950s under Mao Zedong, then resurfaced in the 1980s under Deng Xiaoping.
But that does not make people, especially the wealthy, any less skittish about what will happen to their money.
When recently discussing common prosperity, Xu Shanda, a former deputy director at the State Administration of Taxation, tried to placate those fears. He said it’s not as though rich individuals will no longer be able to splash out on luxury items such as wineries and yachts.