Old dog West may have to look to China to teach it new tricks
China led the way out of the pandemic economically last year and now investors and other experts are scratching their heads as they attempt to understand the bold and globally disruptive measures it is introducing into what is likely to be a new-look economy. The recent regulatory crackdowns and talk of common prosperity in China highlight that the authorities are not only trying to navigate through the short-term economic quagmire of the Covid-19 pandemic, but they are also instituting, in parallel, structural change in pursuit of achieving their longterm economic objectives.
That’s no easy task, as can be seen in a slowdown in its growth rate as a result of renewed bouts of Covid-19 infections. It’s also had to conduct a PR campaign in its local media to quell external upset over its unexpected decisions to clamp down on the internet, private tutoring and gaming sectors, with more expected to come.
But are such goals as common prosperity, policy sustainability and economic balance in the world’s second-largest economy such cause for concern, or will these measures possibly teach the Western policymakers a trick or two?
In an article for the South China Morning Post this week, Frank Tang explains some of the Chinese economic buzzwords that are causing much consternation. These include common prosperity, cross-cyclical adjustment, dual circulation and chief of industrial chains.
Common prosperity most broadly describes the type of economic system the Chinese Communist Party is seeking to build as it transitions from the socialist market economy that was introduced by former paramount leader Deng Xiaoping.
In a Brookings article that assesses China’s common prosperity campaign, Ryan Hass, a senior fellow at the Centre for East Asia Policy Studies, says that President Xi Jinping recently explained that common prosperity “is necessary to balance growth and financial stability”.
To achieve this balance, the Chinese Communist Party Central Committee for Financial and Economic Affairs called for “reasonably adjusting excess incomes” and encouraging high-income individuals and businesses to “give back more to society”.
In seeking to redress social inequality and economic disparity, says Hass, “China’s leaders may view themselves as correcting some of the excesses of Deng’s decision to ‘let some people get rich first’.”
Instead, their vision has been described as achieving an olive-shaped income distribution, with the middle-income earners becoming the wealthiest segment of the population. To do so, the Party aims to redistribute wealth and spend on public services such as elderly care, medical care, housing and social security.
Hass puts the extent of the challenge China is trying to overcome into perspective: “Beijing commendably succeeded in eradicating extreme poverty in China earlier this year. Even so, there still are still [sic] some 600 million workers who live off a monthly income of $154 or less. The fact that a poor population nearly twice the size of the full population of the United States lives alongside a wave of first-generation billionaires and millionaires who consume nearly half of all luxury goods sold globally creates complexities for social cohesion in China.”
Committing to achieving common prosperity – putting aside the possible draconian measures China may use to get there – is an admirable aim in a world where there are gaping inequalities that have widened even further during the pandemic.
Mammoth stimulus programmes in developed markets have predominantly served to help the rich get richer on the back of soaring equity prices and historically low interest rates.
Credit Suisse’s latest Global Wealth Report found that government stimulus programmes to mitigate the economic impact of the pandemic, namely share and house price rises, have benefited the upper wealth echelons, while the less wealthy have either seen no change in their wealth or, in many cases, moved backwards. Credit Suisse says that the net result has been a “marked” rise in global inequality.
In their efforts to achieve a sustainable economic outcome as a result of their stimulus measures, the Chinese authorities began withdrawing policy support as soon as they felt the economy was on a recovery track. Its experience, however, highlights what the Western advanced economies must contend with eventually too – but to a far larger degree, given the extent of the support they have extended.