China's "common prosperity" Drive

The US rhetoric on China is based on a bipartisan condemnation of the country’s human rights record, unfair trade tactics, military assertiveness, and authoritarian rule.

Reports from Xinqiang of the treatment of the Uighurs, accusations of dumping, the Belt and Road initiative, cyberespionage, aggressive posture towards Taiwan, and electronic surveillance of its own people appear to support such a view. The fact that China is the only country in the world to have eradicated COVID-19 through often ruthless methods involving forced isolation, draconian lockdown of whole regions, and cutting off almost all connections with the rest of the world, only corroborates this overall picture of a country that does not respect individual freedoms, and is pursuing world dominance through a variety of commercial and military tactics.

But this is a picture painted in far too broad strokes, unable to identify the fine grain of what is under way in this huge country. 

China emerged from WW2 with a civil war that ended with a military victory for the Communists under the leadership of Mao Zedong. The Communists undertook profound social, economic and cultural transformations in the country. They replaced the old system of tribal and clan allegiances and support systems with a new nationalised system of social support, which over time was cemented by a new focus on the nuclear family and on the one-child policy, which further eradicated traditional family networks. The economic reforms introduced in the 1980s by Deng Xiaoping allowed China to dramatically accelerate its economic growth, increased its international trade, and propelled a new image of the country, one of a modern, dynamic system where the Communist rulers appeared to be more pragmatic than their counterparts in other countries. 

It is important to keep the above developments in mind when evaluating China’s current historical phase. Since taking office in 2012, President Xi Jinping has steadily moved China in a new direction, one where  the pursuit of economic growth has been gradually replaced by a new focus on tackling inequalities in Chinese society and promoting a more home-based economic development. Xi's “common prosperity” drive aims to achieve these goals even if that means restraining some of the country’s more economically successful companies. This new direction is partly driven by demographic developments, brought about by the one-child policy and dramatic transformation of many of the country’s rural areas. 

Recent data from the Ministry of Civil Affairs show that in 2019, China's marriage rate plunged for the sixth year in a row to 6.6 per 1,000 people - a 33% drop from 2013 and the lowest level in 14 years. This is despite years of efforts by the authorities to lower the cost of marriage and boost birth rates in order to encourage more weddings.

Low or zero population growth translates sooner or later into low or zero economic growth. Until Xi, the country was experiencing annual growth rates around 10 percent, clearly unsustainable in the long term under the low demographic growth scenario. 

It is this internal dynamic that helps explain Xi's change of course. The “common prosperity” campaign is all about abandoning the high economic growth mantra and refocusing on the social aspects of growth - necessary to maintain social peace and stability.

Chinese business and technology reporter Chang Che, recently tracked down at least 18 “crackdowns” underway on a variety of targets, including technology giants, wealthy individuals, private schools, celebrities, video games, companies that have a lot of customer data or want to IPO in the US.

As Ryan Hass of the Brooking Institution recently pointed out, many of these crackdowns can be traced to the “common prosperity” drive. Hass reports that Xi Jinping highlighted this concept during his comments to the Chinese Communist Party Central Committee for Financial and Economic Affairs on August 17, suggesting that “common prosperity” is a fundamental requirement of socialism and is necessary to balance growth and financial stability. That committee later called for “reasonably adjusting excess incomes” and encouraging high-income individuals and businesses to “give back more to society.” It is to be expected that “common prosperity” will remain centrepiece in Xi Jinping’s for the foreseeable future. 

All this suggests that China’s Communist Party, far from losing a grip on the country in the years of capitalist-style growth, is still firmly in charge of all aspects of the country’s economy, society and culture, and is determined to pursue a policy of keeping the country on course towards harmonious development. 

A recent Financial Times article shows how under President Xi, China’s economic policy has been turning inward, replacing a growth model driven by trade to one driven by domestic consumers. The author shows how exports have fallen as a share of China’s GDP from above 35 per cent before 2010 to less than 20 per cent today.

Part of this turning inward might also be connected with pushback in the west against Chinese advances on the world stage. Over the past decade, Germany, France, the UK, and the US have all taken action to prevent acquisitions of perceived nationally sensitive companies by Chinese investors. China’s recent actions to curb some of the actions of its own companies should offer European and American countries an opportunity for launching a new age of dialogue with the country. The US in particular, should move from its current demonisation of China to a tough but constructive engagement, highlighting human rights and setting clear boundaries to China’s military actions in the Pacific, but recognising China’s key economic and political status in Asia and the world.

Europe should learn from Lithuania’s experience and avoid unnecessary confrontation with China while maintaining vigilance over the inclusion of some EU countries in its Belt and Road initiative.