Bert Hofman

Opinion | How China can promote common prosperity and still keep economic growth going

Tax reforms and better social benefits will bring down savings, boost consumption, and so lessen reliance on credit-driven investment and cut banking risks

Investor fears of a return to a more planned economy should be assuaged – removing the policy uncertainty that common prosperity has raised should be a first priority

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Pedestrians cross a road in Beijing on September 14, 2021. Most of China’s tax revenues come from value-added taxes, consumption (luxury) taxes and social security contributions, which are regressive. Photo: Bloomberg

Bert Hofman

Published: 4:30pm, 13 Oct 2022

In President Xi Jinping’s expected third term, his new development philosophy is likely to play a central role, with its constituent parts – including dual circulation, ecological civilisation and common prosperity – becoming cornerstones of China’s socio-economic policies.

Since the recent economic slowdown, common prosperity goals seemed to have been put on hold, but in recent months, they have re-emerged. One sign is that Xi’s 2020 speech on the new development philosophy was published this August in the Communist Party’s Qiushi journal.

Last month, Han Baojiang, professor and director of the economics department at the Central Party School, said common prosperity would be a central policy feature after the 20th party congress.

In August, a People’s Daily article by Chinese Academy of Social Sciences vice-president Gao Peiyong also suggested common prosperity would be central in Xi’s economic programme.

A key question is what this implies for China’s economy. Handled well, common prosperity can be a powerful tool for rebalancing the economy towards more equal, consumption-driven growth. Handled badly, it can harm growth and stifle innovation and entrepreneurship.

Common prosperity is first and foremost a political objective, much like Deng Xiaoping’s vision of a “moderately prosperous society”, officially achieved last year. But Deng’s “some may get rich first” philosophy, which fuelled China’s extraordinary growth, has also resulted in rising income and wealth inequalities that have become a major political issue.