At first glance, it sounds like Xi Jinping is taking a leaf out of Robin Hood’s book — by pledging to lift the wages of China’s poorest citizens, and getting the ultra-rich to pay for some of it.
On August 17, the Chinese President held a meeting with senior Communist leaders in Beijing and explained his plan to achieve “common prosperity”.
He called for “excessive incomes” to be “reasonably adjusted”, and that it was necessary to “encourage high-income earners and enterprises to give back more to society”.
Foreign investors were spooked by President Xi’s seemingly anti-capitalist remarks.
One week later, an official from the Chinese government’s finance and economics commission was sent out to clarify his leader’s remarks to reassure the public that “common prosperity” did not mean “killing the rich to help the poor”.
This overt political pressure triggered a surge in generosity among China’s billionaires and tech giants. They’re suddenly lining up to donate billions of dollars out of their own pockets for various social causes.
Tencent, which owns the popular social media app WeChat, has set aside 100 billion yuan ($20.8 billion) for social aid programs.
Online retail giant Alibaba also pledged to donate that amount to “common prosperity” projects like insurance for delivery workers and rural health care.
Meanwhile, Wang Xing — the billionaire founder of Meituan (China’s version of Uber Eats and Deliveroo) — transferred more than $2.7 billion worth of is shares into a foundation. As it so happens, his food delivery company is being investigated by China’s competition regulator, and reportedly facing a $1.4 billion fine.
At least 73 of China’s listed firms have told shareholders they will make contributions to President Xi’s “common prosperity” drive, according to a Bloomberg report.
Tech crackdown and ‘prosperity’
Common prosperity is not a new concept. It has been around since the 1950s, when Chairman Mao Zedong was in charge of a much poorer (and more socialist) China.
But when Deng Xiaoping took over in the late 1970s, he famously decided that the economy would grow faster if he “let some people get rich first” – and deal with the social inequality issues later.
Xi’s attempt to re-prioritise “common prosperity” partly explains why Beijing launched aggressive crackdowns on its biggest companies throughout the year – ostensibly to also protect consumer rights, data privacy, and work conditions in the gig economy.
Online retail giant Alibaba was slapped with a $3.7 billion fine (the highest ever recorded in China) for breaching anti-monopoly laws. This punishment also came after its outspoken founder Jack Ma gave a controversial speech, criticising China’s financial system.
Ridesharing firm Didi (China’s equivalent of Uber) was charged with illegally collecting its users’ personal data, and its app was promptly removed from the nation’s mobile stores.
This also coincided with Didi’s decision to list its share on the New York Stock Exchange in July — in defiance of government’s warning to delay the public listing.
Chinese tech stocks have suffered a massive sell-off as a result of Beijing’s sudden crackdowns. Their value has plunged by more than $1 trillion, while the personal wealth of their billionaire founders has dropped by over $100 billion.
Paternalism and propaganda
China has also been driven by its seemingly renewed socialist instincts to clamp down on (what it regards as) pressing moral issues. These include “effeminate” men appearing on TV, online lists ranking celebrities by their popularity, children spending too much time on video games, and tutoring centres earning profits from cash-strapped parents.
“There’s a particular problem with China’s authoritarian system of governance, which is being used to crack down on industries for other ends as well,” said Yun Jiang, editor of the Australian National University’s China Story blog.
“Common prosperity” is quite a nebulous concept which hasn’t been defined exhaustively. The government said it involves affluence being “shared by everyone” — not just materially, but also in “cultural terms”, according to a summary of Xi’s mid-August meeting, by China’s press agency Xinhua.
Xi also conveyed that he wanted more “fair” and “inclusive” conditions in society, as opposed to pursuing absolute equality, and that it would be achieved “step by step”.
But at the same time, he wanted to pursue “high-quality development” and work on “forestalling major financial risks”, Xinhua reported.
Essentially, the Chinese government is trying to achieve two goals at the same time — address the nation’s wealth gap while trying to keep its entrepreneurial spirit alive.
‘Working towards communism’
Since Deng opened up China’s economy from the late 1970s, it has rapidly grown to become the world’s second largest economy, producing billionaires faster than any other country.
The nation’s richest 1 per cent owns almost 31 per cent of the wealth, according to research by Credit Suisse (up from 21 per cent in 2000).
In contrast, 600 million people are living on just 1,000 yuan ($213) per month, according to Premier Li Keqiang. That’s a significant chunk of its population (around 41 per cent).
“The current inequality in China is a lot worse than in many capitalist countries, even though China is ostensibly a socialist country that is working towards communism,” Ms Jiang said.
“Such visible ‘hyper inequality’ can lead to social unrest. And for the Chinese government, social stability is very important.”
Some analysts say there’s a Robin Hood undertone to China’s wealth redistribution plan. But there are limits to that swashbuckler analogy, said Alicia García-Herrero, chief economist at French investment bank Natixis.
The Hong Kong-based economist said the Chinese Communist Party appears to be playing some kind of “blame game” with the rich.
“The existing power [the government] is saying, wait a minute, why are you [entrepreneurs] becoming so rich? The question I would then ask is: didn’t you notice before?”
Ms Jiang says Xi is focusing on “common prosperity” now (of all times) because the 2022 Party Congress is just around the corner.
Although China has abolished term limits, analysts say Xi wants to make sure his bid for a third term to be unstoppable — even though he is almost certain to be reinstalled.
Another reason cited for Xi’s focus on populism may be his concerns about the growing power and influence of tech titans.
“The growth of wealth in the hands of the very few has been exponential,” Dr García-Herrero said.
“Especially if you look at the huge weighting of Tencent, Alibaba, Xiaomi, and other tech giants on China’s stock market — it’s just mind boggling.
A controversial speech delivered by Alibaba founder Ma (in October last year) is generally acknowledged to be the “tipping point”.
He basically criticised the government for lacking innovation, while spruiking the his other company — a financial technology firm Ant Group (which was about to list on the stock market). It was expected to smash records by raising $47.5 billion on its market debut.
But Ma’s criticism turned out to be a big mistake (and a big shock for global investors) as Beijing quashed Ant’s public listing soon afterwards (apparently at Xi’s behest).
The risk of ‘common poverty’
“I actually think what China is trying to do, in itself, is not a bad idea,” Dr García-Herrero said.
“Rather than oblige companies to donate, just increase their taxes then redistribute, especially since China’s effective tax rate is very low. The key here is, companies and people need to know what to expect.”
Some economists believe China’s strategy could backfire if its intervention is heavy-handed, which would risk stifling innovation and economic growth.
“Robbing the rich to give to the poor” would only result in “common poverty,” Zhang Jun —Dean of the economics faculty at Fudan University — told The Paper (a Chinese-language news website) in late August.
“The prerequisite of common prosperity is that the pie must continue to get bigger.”
Another rare voice of caution came from Zhang Weiying, an economics professor from Peking University. Targeting wealthy people will have a negative impact on employment, consumers and philanthropy, he wrote in an article published by the Chinese Economists 50 Forum, a domestic think tank.
“If we strengthen our confidence in the market economy and continue to push forward market-oriented reforms, China will move toward common prosperity.
“If we lose our faith in the market and introduce more and more government intervention, China will only go into common poverty.”