Common Prosperity and State Control

By Palepu Ravi Shankar

By Lt Gen P R Shankar (R)

Common prosperity is a core economic agenda of Xi Jinping and CPC in the 20th Party Congress. In fact, it is a recurring theme in China. One will hear of it more in future. However, it is neither a new phrase nor a new theme. Promoting common prosperity through collective efforts of the ‘communes’ has been a long stated objective of the CPC and an essential ingredient of socialism. It is a key feature of Chinese modernization. Common prosperity refers to affluence shared by everyone. As per the communists, eradicating absolute poverty and building a moderately prosperous society have been landmark achievements of common prosperity in the past decade. This is a laudable achievement in a population of 1.4 billion.

The communist method has been to initially make the pie bigger, and then divide it equitably through institutionally. In a larger sense, common prosperity means housing for all, enhanced access to medical care, education and employment, pooling social resources to improving public services, increasing employment and elderly care, water sharing and all such programs which go into better societal welfare and upliftment. Common prosperity policies also involve investments and incentives to address development and quality of life issues. Rural revitalization campaign to improve conditions in rural areas, encouraging industrial transfer to less-developed regions, and pursuing carbon neutrality are all part of common prosperity.When seen in this light, common prosperity makes immense sense. In fact it would not be out of place to say that the communists have grown a rather large pie and have divided it reasonably well to lift millions out of poverty and ensure that the commoner has a better way of life as compared to a few decades back when Chinese citizens used to die of starvation.

What’s different between the common prosperity of the yore and Xi’s concept? Understanding this is the key to what has happened in China since the past one year and where it is headed. Xi feels that, as some Chinese have grown rich, it is time to lift those ‘left behind’ through a common prosperity drive. Xi’s concept of  ‘common prosperity’ is apparently an effort to bridge China’s huge gulf between rich and poor.

Besides income inequality, common prosperity seeks to address perceived social ills stemming from capitalism and unchecked growth. The effort apparently, is also to narrow the gap between China’s rich urban and coastal areas vis a vis its less affluent mountainous and rural regions. So far Xi has avoided defining how he intends to achieve it. However, there are indications of his methods and the real purpose behind common prosperity.

During the 20th  Party Congress, Xi has stated that  ‘We will steadfastly push for common prosperity. We will improve the system of income distribution. We will ensure more pay for more work and encourage people to achieve prosperity through hard work. We will promote equality of opportunity, increase the income of low income earners and expand the size of the middle income group. We will keep income distribution and the means of accumulating wealth well regulated.’ In essence he will control everything. That is the real story.  

The common prosperity slogan was used last year to crackdown on the big tech, education and real estate sectors. These were sectors which were to have created wide inequity and the divide between the rich and the poor. The crackdowns resulted in huge losses in these core sectors which constituted around 40-50 % of the Chinese GDP.

Private business confidence remains shaky till date following the crackdown on the tech sector. Covid lockdowns battered the economy further to decrease the pie. Till date, Xi’s common prosperity program has stopped the Chinese pie from enlarging. It has however not narrowed China’s wealth gap. The poor and rich have both become poorer! While the rich have been targeted, the poor remain without the promised prosperity till date.

In his work report to the 20th  Party Congress ,  Xi  has pledged to bring disposable income to new heights and substantially grow the middle-income group as a share of the total population by 2035. Xi has also emphasised the need to raise the share of personal income and increase the sources of revenue, while acknowledging that tough issues, like employment, education, medical services, child and elderly care and housing, should be addressed. However in the same breadth he has also warned people of money worship and has mentioned about deeply shocking cases of corruption.

Xi Jinping’s idea to keep ‘income distribution and the means of accumulating wealth well-regulated’ at the 20th Party Congress has sent jitters down the spines of the wealthy and upper middle-class families in China. The outlines were kept vague. The reaction is that ‘the more vague it is, the more afraid everyone is.’ This renewed push to regulate wealth accumulation has triggered fresh worries. When Xi said ‘we will protect lawful income, adjust excessive income and prohibit illicit income’ analysts expect a wider array of taxes to support poor families and bolster the social safety net. Wealthy Chinese face a rocky road ahead. The fear is also growing about who might be targeted and how.

Reports also suggest that China’s middle class is frustrated and is in a ‘Tang Ping’ (lying flat) mode.  In the prevalent environment, assets and incomes of the middle class are shrinking. Their spending and investing attitudes are accordingly changing. The affluent middle class which used to buy luxury items, make investments and buy property, has apparently put its plans on hold.

The middle class is hanging on to its wealth. Their toolkits to retain  wealth security is shrinking. Banks have restricted precious metal trading. The collapsed housing market and stock market no longer offer security. Result.  Nationwide retail sales for consumer goods fell by 4.6 per cent year on year in the second quarter due to the overall economic slowdown, declining incomes and coronavirus-induced disruptions in logistics and supply chains. Politicisation of economic matters is feeding their insecurity. China’s middle class are low on confidence.

There is another spin off from the Common Prosperity theme.   Leading  private companies like Tencent and Alibaba, once key pipelines for job-hungry youths, have been cutting staff by the tens of thousands in the midst of a tech sector crackdown. In addition the private education sector, video game industry and  entertainment industry have all been emasculated for one reason or the other.

The key property market which provided employment thorough a host of industries is staggering from one crisis to the next. Youth unemployment has shot up to record levels as nearly 11 million new college graduates embark on an uncertain future. A few years ago China was a land of opportunity. Many young people were flocking to mega cities like Beijing and Shanghai because there were a lot of jobs and opportunity. Not anymore. Layoffs, poor job prospects and sputtering growth paint a grim picture for youth. China’s ‘national rejuvenation’ dream sounds hollow for its next generation.

Analysts suggest that the private economy needs to reopened. It generates a vast majority of the country’s jobs, growth drivers and revenue. It could also help in wealth distribution and tacking inequality to achieve ‘common prosperity’. It should and will boost China’s middle-class households. Accordingly, the government has been approached to roll-out immediate concrete measures to restore confidence that has faltered for almost three years due to the coronavirus pandemic and destruction of the private sector.

However the entire story is different. It is about state control. The private industry was becoming a threat to Xi’s control over people. It was accumulating too much data for Xi’s comfort and becoming a competitive  pole to the government for  control over peoples life. It had to be destroyed. Common Prosperity was the vehicle to do so. Hence to imagine revitalisation of the private sector by Xi is far-fetched. Xi visualises that large state owned industry, banks and other organisations under his thumb will be strengthened to generate jobs and huge profits from national and international transactions. These profits will be ploughed into the weaker and poorer sections of society to  achieve common prosperity. This effort will be boosted immensely by debt fuelled government investment into huge infrastructure plans on the anvil. Everything will be under his control. It will be his will to turn the tap as he desires.

On the surface Common Prosperity is about creating a fairer society which is winning Xi and the Party,  the required support from the ageing people in times of economic headwinds.  It aligns Xi with the people against the powerful. Hence deep down, common prosperity supports the  new order to keep complete political power in the hands of Xi and his ‘rule for life’ endeavour. It strengthens the Party’s control over government finances and promote further centralisation of power. Overall let us be clear. Common Prosperity is not a core economic agenda but a core toolkit for control of power in perpetuity.  

The author is PVSM, AVSM, VSM, and a retired Director General of Artillery. He is currently a Professor in the Aerospace Department of IIT Madras. He writes extensively on defence and strategic affairs @ www.gunnersshot.com.