The number of times Chinese President Xi Jinping uses specific terms in his speech can shed light on the main axis of China’s policy–and also explain why China’s major technology companies have been experiencing misery recently.
“Bloomberg” reported that “common prosperity” appeared more and more frequently in Xi Jinping’s speeches. In the eight years before he took office, he only mentioned “common prosperity” occasionally; last year, he began to mention the term more often, 30 times in total. So far this year, he has spoken 65 times, twice as many as last year.
This means that China is moving from the strategy of “some people get rich first” in the Deng Xiaoping era to the next stage: to redistribute the wealth that China has accumulated to the wider masses.
Widening gap between rich and poor in China
“Common prosperity” was first proposed by Mao Zedong, but the successor, Deng Xiaoping, focused first on improving China’s economy and productivity. Since then, China’s economy has grown rapidly, but the gap between rich and poor has also widened.
According to the World Inequality Database, China’s top 10% of the richest people have an income of 41.7% of China’s gross national income. The country produces rich people at an extremely fast rate. The Hurun Research Institute of China announced the 2021 Global Rich List. There are 1,058 billionaires in China, which is 50% more than the 696 in the United States.
At the same time, Chinese Premier Li Keqiang pointed out that 600 million people, more than 40% of the population, have a monthly income of only 1,000 yuan, which is only enough to pay for one month’s rent in a medium-sized city in China. China’s Gini coefficient—measures the degree of inequality in a range of 0 to 1, with 0 representing complete equality, and above 0.4 representing inequality—have reached 0.711 in 2015, fell back to 0.697 in 2019, and rose again last year Is 0.704.
On August 17, at a meeting of the Central Finance and Economics Committee chaired by Xi Jinping, the Chinese authorities stated more clearly the goal of common prosperity: “Expand the proportion of middle-income groups, increase the incomes of low-income groups, and reasonably adjust high-income groups… , “Two ends of the olive-shaped distribution structure”, and said that it will use taxation, social security, transfer payment and other policies.
According to “Bloomberg” analysis, Xi Jinping used to focus on “excessive income,” but this time China’s goal may be expanded to include not only the super-rich, but also the slightly richer rich. Although there is no clear official definition of these two groups, Bloomberg believes that China’s promotion of overall equality represents a wider range of high-income earners.
For Xi Jinping, this move will also help promote his vision of China’s “double cycle.” The South China Morning Post pointed out that if the Communist Party loses its connection with the ordinary salaried middle class, it will be in danger, because even if the super-rich possess political power, they do not have the power to promote domestic consumption, which is to promote the “internal cycle” of China’s economy. Important link.
How to redistribute wealth? Find clues about “three allocations”
What everyone is most curious about is how China redistributes its wealth? The economic strategy of the past gave birth to so many rich people. Now, how does it dig money out of their hands?
There are several points where you can find clues. The first is the “three allocations.”
At the meeting, China mentioned that “correctly handle the relationship between efficiency and fairness, and build a basic institutional arrangement for the coordination of primary distribution, redistribution, and three-time distribution.”
The term “three distributions” has aroused controversy in China. Deutsche Welle pointed out that this concept comes from the book “Shareholding System and Modern Market Economy” published by economist Yan Yining in 1994: Income Distribution in a Market Economy There are three distributions. The first distribution is based on the principle of efficiency by the market. The second distribution is based on the government’s balance of efficiency and fairness. It is redistributed through taxation and social security. The third is based on morality. Distribution through personal resource donations under the influence of power.
At present, China has experienced the first and second distributions. The first time was China formed under the leadership of Deng Xiaoping. Su Jingchun, an associate researcher of the Chinese Academy of Fiscal Sciences, wrote in a Sina column that China will also adopt a second allocation afterwards, but the adjustment is not strong enough. Xi Jinping now obviously believes that it must be advanced. To the third distribution.
At first glance, the third distribution resorted to the voluntary contributions of companies and individuals, but the BBC Chinese website pointed out that under the influence of China’s formal policy, doing charity may become a “coercive” force. .
At present, some Chinese companies have hurriedly kept up with the pace of government policies. The day after the meeting of the Central Finance and Economics Committee, Tencent, which was also targeted recently, announced the launch of the “Special Project for Common Wealth”, which will invest 100 billion yuan within 4 months to increase the income of low-income groups, improve basic medical care, and assist. Rural economic development and support for grassroots education.
Su Yue, an economist at the Economist Intelligence Unit, pointed out that Chinese companies must be prepared to face the new policy environment, tax enforcement will be stricter, and donations and charity will become the “new normal.”
Zhejiang Province becomes a “Common Wealth Demonstration Zone”
The second observation point is Zhejiang. The province has been selected by China as a “Common Wealth Demonstration Zone” to test the new income distribution system. The goal is to increase the province’s per capita disposable income by 45% to 75,000 RMB by 2025. ; In 2020, the per capita disposable income of Zhejiang’s urban and rural areas will be RMB 62,700 and RMB 31,900 respectively.
The policy document “Opinions on Supporting Zhejiang’s High-Quality Development and Building a Common Prosperity Demonstration Zone” issued by the State Council of China pointed out that the practice tested in Zhejiang will gradually form a model that can be replicated and promoted throughout China.
Among them, it can be seen that China will still strengthen the “second distribution”, that is, taxation. In the section on how to “regulate” the income of high-income groups, China pointed out that it will levy property taxes, such as housing tax and inheritance gift tax.
In addition, China will also implement and restrict unreasonable income in Zhejiang, such as improving the “salary limit” system for state-owned enterprise executives. It emphasizes that it is not to restrict high income, but to restrict unreasonable income, including gray income and high income in monopoly sectors.
Under the premise of common prosperity, we can see what is driving China’s various measures such as cracking down on technology companies and restricting IPOs. In the face of the declining birth rate and the widening gap between the rich and the poor, China is regaining its socialist “spirit”, but can it succeed in boosting its productivity while avoiding the withdrawal of funds? China’s every move in the future has to be closely observed.
(Author: Zhang Fangyu; This article is from “Business weekly》Reproduced with authorization; the source of the first image: Dazhi Image)