China could soon reduce the gap between the rich and poor by imposing new taxes on property and inheritance, capping state-owned-enterprise (SOE) executives’ salaries, strengthening antitrust enforcement and promoting more charity.
All these suggestions were made by economists and commentators soon after President Xi Jinping spoke at a top Communist Party financial and economic affairs committee meeting on Tuesday, where the leader said China should aim to promote “common prosperity.”
Xi, who is also party general secretary, also told the committee that the country should pursue high-quality development and coordinate work on forestalling major financial risks. The announcement is the latest in a series of regulations and moves that are raising new questions about China’s capitalist credentials.
In May 2020, Premier Li Keqiang sent shockwaves when he said 600 million people were making less than 1,000 yuan per month (US$153), although the country’s disposable income per capita amounted to 30,000 yuan.
According to the Beijing Normal University, 964 million people, or 68% of the 1.4 billion population, earn less than 2,000 yuan per month.
The apparent renewed emphasis on “socialism with Chinese characteristics” has some investors worried about future corporate profitability. Analysts say those market jitters were seen in the Hang Seng Index’s fall of 550 points, or 2.13%, to 25,316 on Thursday, marking the Hong Kong market barometer’s lowest level in three weeks.
“Socialism with Chinese characteristics, a set of political theories and policies that represent Marxism–Leninism adapted to Chinese circumstances and at a specific time, has long been the party’s mantra while since the 1980s it steered a “to get rich is glorious” capitalist course.
It’s all raising hard, new questions about Xi’s new direction for the country as the leader advances various new slogans from “dual circulation” to “common prosperity.” Political commentators have also suggested the new common prosperity movement could spark a new intra-party political struggle in Beijing, akin to the anti-corruption campaign launched in 2012.
The party’s financial and economic affairs committee meeting was the first gathering of top officials after the Beidaihe Conference ended last week. Every year, senior party members and top officials meet informally in Beidaihe, a coastal resort town on the northeast Bohai Sea, to discuss key issues including national policy direction.
Before the conference, the central government imposed new regulations to curb reputed anti-competitive behavior among big internet firms including Tencent and Alibaba.
On July 2, Didi Global, a Chinese ride-hailing company that made its debut on the New York Stock Exchange on June 30, was accused by the Cyberspace Administration of China of illegally collecting users’ personal data and had its app removed from local phones.
On July 26, China’s State Administration for Market Regulation said food delivery companies should take steps to ensure their deliverers make at least the local minimum wage, reduce their workloads and strengthen traffic safety education.
Shares of Meituan, a food delivery giant, have declined by 26% since the announcement. New curbs on the after-school private tutorial sector, a multi-billion dollar industry, were likewise advanced as a measure to level the playing field for families that could not afford private lessons.
“Common prosperity is an essential requirement of socialism and a key feature of Chinese-style modernization,” Xi told the Tuesday meeting.
Xi called for adhering to a “people-centered” development philosophy while pursuing high-quality development. He also said efforts to fend off major financial risks should be coordinated in line with market principles and the rule of law.
As China marches toward its “second centenary” goals, promoting the people’s well-being and boosting common prosperity will strengthen the foundation of the Communist Party’s long-term governance, Xi said at the meeting, which was also attended by Politburo standing committee member Li Keqiang, Wang Yang, Wang Huning and Han Zheng.
Rather than having only a few prosperous people, “common prosperity” refers to affluence shared by everyone, both in material and cultural terms, and would be advanced step-by-step, the meeting said.
Achieving common prosperity would be a long-term, arduous and complicated task that should be promoted in a gradual and progressive manner, it said, adding that local authorities would be encouraged to explore effective ways that suit local conditions.
The meeting also encouraged creating conditions that are more inclusive and fair for people to get a better education, improve their development capabilities and build up “third distribution” or charity systems, as well as shaping a development environment that provides chances for more people to become wealthy.
It called for establishing a scientific public policy and reasonable distribution system that benefits everyone with a focus on primary and inclusive projects that facilitate people’s well-being and guarantee their basic needs. It also said the middle-income group should expand and help China form an olive-shaped income distribution structure.
Common prosperity had to include the elements of “common,” “fair” and “equality,” while egalitarian should be avoided, Yu Jianxing, a professor and the Dean of the School of Public Affairs at Zhejiang University, wrote in an article published by People’s Daily on Thursday.
The goal should also be sustainable so it would not rely solely on heavy taxes and high social security expenses.
Li Shi, co-director of the Institute for Common Prosperity and Development at Zhejiang University, wrote in an article published by China’s Economic Daily on Thursday that Zhejiang had been among the coastal provinces that benefited from the national strategy of “let some people get rich first” since the country’s opening-up.
Li said families with an annual income of between 100,000 yuan ($15,408) and 500,000 yuan amounted to about 50% of the population in Zhejiang. He said this was higher than the national level and would increase further.
At the same time, Li said it was time to review the country’s income distribution system. He said more direct taxes should be imposed on the high-income groups, while property and inheritance taxes should be launched.
He also said unreasonably high income, such as officials’ grey income and monopolies’ profits, should be curbed. SOE executives’ salaries should be limited, while people should be given incentives to donate to charity.
Zhejiang University’s Institute for Common Prosperity and Development was established on June 9. The provincial government announced on July 28 the launch of the first batch of 28 pilot projects related to common prosperity. It urged municipal governments to outline their three-year plans to make achievements that could be replicated and promoted in other cities.
Between October 2002 and March 2007, Xi was a leader in the Zhejiang provincial government. Zhejiang’s Hangzhou is also where Alibaba’s headquarters is located.
Shi Shan, a political commentator, said it might be true that some Chinese leaders had good intentions to let more people get rich.
However, he said under China’s authoritarian system the common prosperity goal could be used as a political tool for some incumbent officials to fight against those who had made their fortunes when former president Jiang Zemin was in charge in the 1990s and 2000s.
If this was the case, the underprivileged in the country would continue to suffer, he predicted.