Towards "common prosperity"

“We have more cake now, let’s talk about redistribution”

习近平主持召开中央财经委员会第十次会议强调 在高质量发展中促进共同富裕 统筹做好重大金融风险防范化解工作 李克强汪洋王沪宁韩正出席

Xi Jinping, while presiding over the 10th meeting of the Central Financial and Economic Affairs Commission, stressed the importance of promoting common prosperity amid high-quality development and coordinating and effectively carrying out the work of preventing and resolving major financial risks. Li Keqiang, Wang Yang, Wang Huning and Han Zheng attended the meeting.

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Introduction

On Tuesday (August 17), Xi Jinping presided over a meeting of China’s highest economic decision-making body, the Central Financial and Economic Affairs Commission. The meeting examined the issues of “common prosperity” and financial stability. My translation of the official readout for the meeting is in the next section.

The outcome of this meeting sends a strong signal that the Chinese leadership is highly concerned about the ramifications of inequality, and are now rolling out policies to address it. This includes added government scrutiny of rich individuals and private enterprises:

[The State] must strengthen the regulation and adjustment of high incomes…reasonably adjust excessive incomes, and encourage high-income earners and enterprises to give back more to society.

The meeting focused on the idea of “common prosperity,” which is something that will likely grow in prominence in the Party-state’s political rhetoric.

Having supposedly achieved the building of a “moderately prosperous society” this year, the next priority for Xi seems to be addressing inequalities that may erode Party legitimacy and hinder China’s further development.

For context, China’s rapid development coupled with its political economy has led to rising economic and social inequality in recent decades. Despite Xi’s claim of victory over absolute poverty back in July, 600 million out of 1.4 billion Chinese are still living on a monthly income of around or below CNY¥1000 (US$154).

The Chinese leadership’s perceptions about economic and social inequality will increasingly shape its policy choices across numerous areas, including financial system stability, regulation of tech companies, education policy, rural development, etc.

Recent regulatory actions by Chinese authorities illustrate how inequality can drive policy considerations (or at least be used as a justification for decisions). For example, Chinese regulators have targetted China’s tech giants for anti-competitive behaviour and labour exploitation. China’s private tuition sector has been shut down because policymakers believe that the sector adds to social inequality while putting a heavy burden on kids and their parents.

We should expect more sectors to come under government scrutiny, wholly or partly on the grounds of inequality. We should also expect the Party-state to ramp up pressure for rich individuals and private enterprises to “give back more to society”. My concern is this the Party-state will try to circumscribe this “giving back” as to align with its interests and values. Philanthropy with Chinese Characteristics for a New Era, anyone?

In short, in the past, Beijing cared most about the size of the cake (“why talk about splitting the cake when there is very little cake in the first place?”), but in recent years there has been a shift towards caring more about the distribution of the cake (“we have more cake now, let’s talk about redistribution”). In his report to the 19th Party Congress in October 2017, Xi put it like this:

While China's overall productive forces have significantly improved and in many areas our production capacity leads the world, our problem is that our development is unbalanced and inadequate…This has become the main constraining factor in meeting the people's increasing needs for a better life.

For those of you interested in how the Chinese leadership perceives the nexus between inequality, economic development, income (re)distribution, and financial risks, I’d recommend you to keep reading.

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Translation

Xinhua (Beijing), August 17 — Xi Jinping, the General Secretary of the Communist Party of China (CPC) Central Committee, President of the State, Chairman of the Central Military Commission, and Director of the Central Financial and Economic Affairs Commission, presided over the 10th meeting of the Central Financial and Economic Affairs Commission on August 17. This meeting examined the issues of firmly promoting common prosperity, preventing and resolving major financial risks, and effectively carry out work to develop the financial system in a stable manner.

Xi Jinping stressed, in an important speech at the meeting, that common prosperity is an essential requirement of socialism and an important feature of Chinese-style modernisation. It is necessary to adhere to our people-centred development ideology and promote common prosperity amid high-quality development. Finance is the core of the modern economy; it has a bearing on both development and security. It is necessary to abide by the principles of marketisation and legalisation, and coordinate and effectively carry out the work of preventing and resolving major financial risks.

Li Keqiang, Member of the Standing Committee of the Political Bureau of the CPC Central Committee, Premier of the State Council and Deputy Director of the Central Financial and Economic Affairs Commission, Wang Yang, Member of the Standing Committee of the Political Bureau of the CPC Central Committee and Chairman of the National Committee of the Chinese People’s Political Consultative Conference, Wang Huning, Member of the Standing Committee of the Political Bureau of the CPC Central Committee, Secretary of the Secretariat of the Central Committee and Member of the Central Financial and Economic Affairs Commission, and Han Zheng, Member of the Standing Committee of the Political Bureau of the CPC Central Committee, Vice Premier of the State Council and Member of the Central Financial and Economic Affairs Commission attended the conference.

The meeting heard reports on the issue of firmly promoting common prosperity presented by the National Development and Reform Commission, the Ministry of Finance, the Ministry of Human Resources and Social Security, and the Office of the Central Rural Work Leading Group. The meeting also heard reports on the issue of preventing and resolving major financial risks and effectively carry out work to develop the financial system in a stable manner from the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the National Development and Reform Commission and the Ministry of Finance.

The meeting pointed out that since the start of reform and opening up, our Party has profoundly summarised both positive and negative historical experiences. We realised that poverty is not socialism; we broke the shackles of the traditional system; and we promoted the liberation and development of social productive forces by allowing some people and regions to get rich first.

Since the 18th Party Congress, the Party Central Committee has placed greater importance on progressively achieving common prosperity for all people. It has taken effective measures to safeguard and improve the livelihood of the people, won the tough battle against poverty, completed the building of a moderately prosperous society, and created favourable conditions for promoting common prosperity.

We are moving towards the second centenary goal, adapting to the changes in the main contradiction in our society [between unbalanced and inadequate development and the people’s ever-growing needs for a better life], and working to better meet the ever-growing needs of the people for a better life. We must make the promotion of common prosperity for all the people the focus of our efforts in seeking happiness for the people, and continuously consolidate the Party's foundation for long-term governance.

The meeting stressed that common prosperity means the prosperity of all people in both their material and spiritual [moral] lives. Common prosperity does not mean the prosperity of a few, nor is it neat and tidy egalitarianism. Common prosperity needs to be promoted in stages.

We must encourage hard work and innovation as means to wealth, and insist on safeguarding and improving the livelihood of the people in the course of development. We must create more inclusive and equitable conditions for the people to improve education and development capabilities. We must open up channels of upward mobility, create opportunities for more people to become rich, and form a development environment with participation from everyone.

We must adhere to our basic economic system, base ourselves on the primary stage of socialism, and to the "Two Unswervingly" principle [unswervingly consolidate and develop the public sector economy, and unswervingly encourage, support, and guide the development of the non-public sector economy].

We must maintain the public ownership system as the mainstay and simultaneously develop the economics of a variety of ownership systems. We should allow some people to get rich first, encourage those who got rich first to assist those who are not yet rich, and focus on encouraging hard-working, legal business operations, and those leaders of wealth acquisition who dare to pioneer.

We should do our best, given the knowledge on the limits of our capabilities, to establish a scientific public policy system, and form a reasonable distribution pattern for everyone. At the same time, we should plan and coordinate to reconcile demands with [hope] possibilities, base the safeguarding and improving of the livelihood of the people on the foundations of economic development and financial sustainability, and focus on enhancing the construction of the people's livelihood guarantees that are basic, inclusive and large in the public consciousness.

We should adhere to gradual and orderly progress, fully consider the long-term, arduous and complex nature of the common prosperity enterprise, and encourage all localities to explore effective paths in accordance with local conditions, draw lessons from experience, and gradually roll out [policy measures].

The meeting pointed out that it is necessary to adhere to the people-centred development ideology; promote common prosperity amid high-quality development, correctly handle the relationship between efficiency and fairness; build a foundational system with arrangements for coordinating and supporting primary distribution, [secondary] redistribution, and tertiary [re]distribution; increase the adjustability and precision of taxation, social security, and transfer payments etc; expand the size of middle-income groups as a proportion of the population; increase the income of low-income groups; reasonably regulate [adjust] high incomes; and prohibit and suppress illegal incomes. These measures aim at creating an olive-shaped [income] distribution structure with a large middle and small ends. It would promote social justice, the all-around development of humankind, and enable the entire people to stride firmly forward towards the goal of common prosperity.

The meeting stressed the need to elevate the balance, coordination, and inclusiveness of development; accelerate the completion of the socialist market economy system; enhance the balance of development between different regions; strengthen the coordination in developing economic sectors; and support the development of small and medium-sized enterprises.

Efforts should be focused on expanding the size of the middle-income group: seize the focal points and implement precise measures to push low-income earners into the middle-income bracket. We must promote equalisation with respect to basic public services, increase investment in universal human capital, and improve the systems for pension, medical care assurance, discovery and assistance of those in need, and housing supply and security.

We must strengthen the regulation and adjustment of high incomes, protect legitimate incomes in accordance with the law, reasonably adjust excessive incomes, and encourage high-income earners and enterprises to give back more to society. We must clean up and regulate unreasonable incomes, rectify the order of income distribution and resolutely prohibit and suppress illegal incomes. We must protect property rights and intellectual property rights, protect legitimate wealth creation, and promote the regulated and healthy development of all types of capital.

We must promote the common prosperity in the spiritual [moral] lives of the people, strengthen the guiding influence of the Socialist Core Values, and continuously meet the diverse, multi-leveled, and multi-faceted spiritual, moral and cultural needs of the people. We should strengthen public opinion guidance on the issue of promoting common prosperity to provide a favourable public opinion environment for this enterprise.

We should promote common prosperity for farmers and rural areas, consolidate and expand the achievements of poverty eradication, comprehensively promote rural revitalisation, strengthen the construction of rural infrastructure and public service systems, and improve the human living environment in rural areas.

The meeting pointed out that the 19th Party Congress designated the prevention and resolution of major risks as one of the three major battles [in addition to poverty alleviation and controlling polution]. Over the past few years since that time, under the strong leadership of the Party Central Committee, the Financial Stability and Development Committee under the State Council has advanced its work in accordance with the basic guideline of “stabilise the overall situation, plan and coordinate, implement policies targetted at specific categories of issues, and dismantle difficulties with precision”. The Financial Stability and Development Committee under the State Council has achieved important milestones in the battle to prevent and resolve major financial risks, held the bottom line, that is, no systemic financial risks, and effectively safeguarded national economic and financial stability and the safety of the people’s [private] property.

The meeting stressed that ensuring the stability of the general economic and financial situation is of great significance. We must adhere to worst-case scenario thinking, enhance the awareness of the system as a whole, follow the principles with respect to marketisation and legalisation, and plan and coordinate the work of preventing and resolving major financial risks.

We must consolidate the foundation of financial stability, deal effectively with the relationship between stable growth and risk prevention, consolidate the good momentum of economic recovery, neutralise systemic financial risks with high-quality economic development, and prevent secondary financial risks arising from the process of dealing with risks in other areas.

It is necessary to implement party-government joint responsibility, streamline and clarify the functions and responsibilities of different parties, ensure effective mechanisms, allocate work based on a division of labour and cooperation, and create synergies.

It is necessary to implement the requirement of strictly governing the Party, improve the supervisory capacity of the cadre team in the financial system, elevate the level of digitalisation and intelligentisation of supervision, drive the punishment of financial corruption and prevention and control of financial risks in an integrated fashion, accelerate reform in key areas, and effectively guide public opinion in the financial market. We must strengthen the rule of law and infrastructure construction with respect to finance, deepen the credit system, and give full play to the fundamental role of credit in the identification, monitoring, management, and resolution of financial risks.

Members of the Central Financial and Economic Affairs Commission attended the meeting as well as comrades responsible for the relevant departments in organs of the [Party] Central Committee and the State.

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