China bets on shared prosperity

China is not alone. Regardless of which approach they apply to their respective political systems, and despite bilateral tensions, China and the West face some of the same challenges. Both are facing rising income inequalities, the boundless growth of Big Tech firms, and the deepening gap between the elite and the grassroots. But unlike the rest of the world, China has decided to tackle these issues.

During 2021, the Chinese government took 20-30 major steps to regulate and discipline an array of major corporations, from consumer-facing platform companies to education firms. The basis of these interventions was antitrust, data security and social equality—and sometimes all three together.

Even as these sweeping moves drew much commentary in the international press, they only scratched the surface of the deeper change that is underway. Regulatory and enforcement action is both necessary and welcome in a country where companies’ growth prospects and contribution to GDP have long overridden consumer welfare and protection.

The changes introduced in 2021 represent a “coming of age” for the Chinese economy, showing that people matter more than the total number. Under the new rubric of “common prosperity”, the government’s official goal for the coming decade is to create conditions for the growth of a large, prosperous middle class, better opportunities for all, and more “empathetic” treatment on the part of Chinese companies. . The resulting “middle-class squeeze” of uncontrolled Western-style capitalism should be avoided in favor of a more “olive-shaped” income structure.

Forty years ago, Deng Xiaoping removed the ideological taboo on personal profit-seeking by first allowing a few to become rich, and then letting the rising tide lift all boats. Today’s Chinese leadership believes it is time to let the tide go. COVID-19 has exposed the disparity between the rich and the underprivileged. Big tech companies have become even bigger and more powerful during the pandemic. With everyone staying home and living comfortably together—the elites as well as the public have turned their attention to domestic issues and the need for national self-reliance and independence.

Contrary to conventional wisdom in the West, China’s push for more regulatory oversight is not driven solely by a desire to crack down on the private sector, cut billionaires in size, or limit Chinese companies’ international reach. There were 407 public listings for Chinese companies in 2021, and more than 83% of them were private corporations, not state-owned enterprises.

General prosperity is linked to the overarching goal of social harmony. One of the biggest ironies in contemporary Chinese society is the over-competition in education, which has left parents anxious and children unhappy. Families are spending too much time and money on extracurriculars, filling children’s schedules with things they don’t need for the modern economy. The incident has been compared to a crowded theater in which some decide to stand up to get a better view, forcing everyone else to do the same. In the end, no one is better.

Now that most Chinese have fully embraced digital life, there is also growing concern about the misuse of personal data. In some high-profile cases, such abuses have cost people not only their personal wealth but also their lives. Furthermore, the Chinese tech giant has shown little concern for the welfare of employees, leading to a loss of motivation among overworked youth who had hoped to build a family and are now “lying flat” ( No longer going above and beyond my job).

Chinese officials have recognized the social tensions and vulnerabilities that come with uncontrolled market-driven growth. While the market failures and inequalities of the new digital age are not unique to China, the Chinese approach to dealing with these problems is different from that of most other countries. For starters, the reactions are often quicker and more dramatic. In contrast, US policymakers have done almost nothing to rein in Facebook, for example, despite the gradual disclosure of the company’s questionable practices and frequent reminders of the deeper social problems caused by its business model.

The second difference is that China is unlikely to adopt the kind of large welfare state found in some European countries. The country rewards hard work as a national and traditional virtue. And, unlike in the United States, the top 1% are not stigmatized, even though some personal embarrassment (or worse, where breaking the law is involved) sometimes plays a role. Chinese leaders seek to eliminate only “unfair” sources of inequality, such as entry barriers, excessive monopolistic powers, and legal loopholes that enable “illegal income”.

A convenient critique is that China’s efforts to regulate companies and limit their growth ambitions would kill the impetus for innovation. But this argument ignores the fact that Chinese entrepreneurship is driven by more than monetary rewards. Becoming “important” through a committed career or a major contribution to society is a way to “glorify one’s ancestors”, as the Confucian saying goes. Driven by a greater purpose, Chinese entrepreneurs adapt to changing circumstances while pursuing their goals resolutely.

Furthermore, for every unhappy billionaire who needs to be “persuaded” to contribute more philanthropically, there are many more happy millionaires who welcome the new rules on the size and scope of large firms as they become billionaires. will improve your chances.

The road ahead for China is full of challenges. No country of equal size has fostered a political economy that is both equal and capable of fully utilizing dynamic innovation and efficiency. There are risks associated not only with de-globalization, but also with the continuation of globalization that excludes China. Another big risk, according to some outsiders, is that policies designed to change the investment climate and business environment will make matters worse or be exacerbated. And the even more consequential risk is that ideology will take precedence over prudent economic management, reversing the mental instability that enabled the shift towards a full market economy over the past 40 years. But that is not likely to happen.

Fortunately, last year also brought many market-friendly developments, with BlackRock launching its first China fund and the Hong Kong Stock Exchange being approved to offer A-share futures. Foreign players are gearing up to expand the scope of foreign-funded institutional investment in China, proving that greater economic liberalization can coexist with tighter regulatory oversight. In addition, since the first phase of the trade deal with the US, China has approved 28 financial licenses and 100% of all tariff exemptions requested by US companies. Despite Sino-US tensions and pandemic disruptions, trade and financial flows have stalled.

China has also strengthened its climate commitments and announced that it will halt external financing of coal-fired power generation. With increasing awareness of the issue among corporates and households, the People’s Bank of China, local governments and financial institutions have pledged to support smaller companies, and regulators as part of a broader effort to integrate climate issues. A green-bond taxonomy is published. Macroprudential Management. Climate diplomacy is an important channel through which China can strengthen its ties with the rest of the world and demonstrate global leadership. This means both working with advanced economies and helping other developing countries achieve their net-zero emissions targets.

Like many other countries, China will have to be wary of various near-term cyclical issues in the coming year, including a slow recovery from the pandemic, rising debt and default risks, more frequent natural disasters, and lower investment and consumption. . But under the natural ups and downs of market economies, the country will be moving towards greater equity, tolerate lower growth rates and more cyclical volatility with an emphasis on quality. Most Chinese would regard the sacrifices made to achieve “general prosperity” as both necessary and wise. ©2021/Project Syndicate (www.project-syndicate.org)

KU Jin is Associate Professor of Economics at the London School of Economics and Political Science.