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The Logic behind China’s Common Prosperity and Implications for U.S.-China Relations

The Logic behind China’s Common Prosperity and Implications for U.S.-China Relations

The Logic behind China’s Common Prosperity and Implications for U.S.-China Relations

China\ a country with annual per capita income exceeding $10\000\ declared that it achieved a moderately prosperous (小康) society to mark the 100th anniversary of the founding of the Chinese Communist Party (CPC)\ but the World Bank classifies China as the world’s most unequal country due to its high Gini coefficient. Chinese President Xi Jinping frequently mentioned “common prosperity” (共同富裕\ gongtong fuyu)\ in 2021\ and led the detailed discussion at the 10th meeting of the Communist Party’s Central Committee for Finance and Economic Affairs on August 17. And the detailed visions and strategies were announced in October 2021 through Qiushi\ the Communist Party’s official theoretical journal. 

Reasonable income redistribution policies are the essence of the CCP’s push for common prosperity\ and the CCP aims to expand the size of the middle-income group . To this end\ President Xi expressed his determination to undertake massive efforts at redistribution\ underscoring the promotion of common prosperity amid high-quality development.

In its pursuit of common prosperity\ China has taken aim at the upper echelons and their monopoly with crackdowns on the technology industry and private tech companies in the context of preventing the “disorderly expansion of capital.” President Xi mentioned that the huge inflows and outflows of capital caused many of the imbalances in the Chinese economy\ specifically pointing to unequal access to internet-related technologies as the main culprit for worsening income inequality. The problem is that a series of policy measures undertaken by the CCP failed to curb the state-run companies’ monopoly practices and even strengthened them in the absence of systematic monopoly regulations. 

In line with efforts at promoting common prosperity\ Chinese authorities have targeted excess in the property market\ trying to stabilize high housing prices. This is because property bubbles have emerged as the biggest burden for the middle-income group in China. Much of China’s economic growth has been achieved through large-scale nationwide infrastructure projects and real estate development. However\ the Chinese economy’s dependence on the property market deepened with rising property speculation in the process\ raising questions about whether such a growth model can continue. As the widespread private education turned out to be a heavy burden on Chinese citizens whose incomes have become unstable in the wake of the COVID-19 pandemic\ China reorganized private education companies into non-profit organizations in implementing policies to promote common prosperity. These policies show that the CCP focuses more on stabilizing the livelihoods of the middle-income group in urban areas than on integrating the impoverished population in rural areas into the urban middle class by shoring up efforts at income redistribution.

To gain an edge in its strategic competition with the United States\ China seeks to increase investment in strategic emerging industries through its state capitalist approach based on “common prosperity.” This implies that China is bracing for a rivalry over governance models with the United States. China believes that market capitalism widely accepted in the U.S. and the West is only focused on boosting corporate profits and pursuing personal interests\ which inevitably gives big companies too much power\ deepens inequality\ and stokes social unrest. China’s “common prosperity” is a move to curb a disorderly expansion of capital. It is closely tied to China’s state capitalism model that aims to rein in big tech companies with tighter regulations and increase support for state-owned enterprises that dominate emerging strategic industries. 

With its “common prosperity” policy\ China seeks to bolster its state capitalist system and is trying to widen opportunities and living conditions for the country’s middle classes to strengthen the system. The Biden administration\ for its part\ has also rolled out a foreign policy for the middle class. Such developments show that empowering middle class is a policy priority for both the U.S. and China at the moment. This is because the support of the middle class is the key to ensuring the stability of a governance model\ especially at a time of heightened political uncertainty stemming from the tetchy rivalry between Washington and Beijing over governance models. China wishes to avoid the decoupling of the two economies\ but it knows that economic decoupling from the U.S. is inevitable\ as  globalization and subsequent erosion of the American middle class have drained the U.S. society’s support for close economic ties with China. As the U.S.-China decoupling is currently underway alongside the unfolding governance model rivalry between the two powers\ the world is unlikely to revert to the closely-knit global economy shaped by globalization. If the world economy continues to roll down this path\ a period of intense uncertainty characterized by rising inflation and sluggish economic growth will likely unfold in the years ahead. 

Amidst the uncertainty\ making a binary choice between Washington and Beijing should not top Korea’s priority list. What matters is creating a solid foundation and well-thought-out principles that will underpin Korea’s economic security going forward. Fortunately\ the ramifications of the rivalry between the U.S. and China over governance models are still largely confined to the two countries\ and so far\ the rivalry has not morphed into a new cold war that frames the ongoing competition as “market capitalism versus state capitalism.” Therefore\ for Korea\ the key to its success is not making a zero-sum choice between the two superpowers. It is imperative that we diversify our economic relations and seek multi-layered cooperation to link a larger and more diverse range of countries in the coming years.


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