China’s economic rebalancing and ‘common prosperity’

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Since August 2021, Chinese leaders have aimed to reduce economic inequality at home through a ‘common prosperity’ campaign. But Beijing’s attempts to reduce the income-inequality gap have worsened other fundamental problems in the Chinese economy related to its growth model, which relies on exports and investment rather than household consumption.

On 17 August 2021, China’s President Xi Jinping delivered a significant speech at a meeting of the Central Financial and Economic Affairs Commission of the Chinese Communist Party (CCP). He said the CCP had ‘won the battle against poverty’ in the last decade and ‘created favorable conditions for promoting common prosperity’. Regarding the latter point, he stated that it was time for the party to go a step further and begin promoting ‘common prosperity’ as an essential component of China’s modernisation plan, which runs until the middle of this century. Indeed, the point of the speech was to position the slogan at the centre of the country’s economic agenda.

Xi also claimed, in the same speech, that China must embrace common prosperity instead of unconstrained economic growth because the latter causes excessive inequality in the distribution of income. His stated goal is to prevent inequality from interfering with social harmony: ‘in some countries’, he said, ‘the rich and the poor are polarized and the middle-class collapses, leading to social fracture, political polarization, and populism. The lessons are very profound.’ At the time of this speech, the CCP was already engaged in a crackdown focused on the country’s largest technology companies. The party justified these actions by accusing the technology companies of infringing antitrust and data-security laws and regulations, and it stated that the companies’ high profits were unacceptable examples of capitalist ‘excess’. Thus, the common-prosperity slogan – with its emphasis on reducing inequality by regulating excessive income, increasing the size of the middle class and opposing the ‘disorderly expansion of capital’ – represents a return to the CCP’s socialist ideals. Meanwhile, it also serves as a justification for current policies and policies that will be implemented during Xi’s third term, which began after the 20th National Congress of the CCP in October 2022.