Part I

On Tuesday, August 24, a meeting of the Communist Party’s Central Committee for Financial and Economic Affairs was held in Beijing to discuss “common prosperity”, namely how to produce growth with equity. The focus of the discussion was on the need to generate welfare for all citizens on the road to achieving the goal of a modern socialist society by 2049, the centenary of the founding of the People’s Republic of China.

During the event, the most heated discussions centered on President Xi Jinping’s call for an unprecedented clampdown on various sectors of the economy such as technology, online education and real estate, which had grown in an exorbitant and unchecked manner, fueling growing income inequality, rising debt levels and slowing consumption.

Xi felt that once the country had lifted all citizens out of poverty, it should move towards a system that cares much more about those sectors that have yet to achieve optimal living conditions. This is what he called “common prosperity”, which was defined as the possibility for all to share the wealth, for which a strong economy is needed to allow a better distribution of wealth.

While the president did not mention that the government would aim to reduce the income of the richest to give it to the poorest, he did advocate for “better governance and more balance in the economy,” focusing on grassroots consumption as the key economic multiplier rather than the capital-intensive investments that were the basis of the economy in recent years.

In the president’s words, “We can allow some to get rich first and then guide and help others to become rich together.” He was then more explicit in stating that: “We can support wealthy entrepreneurs who work hard, operate legally and have taken risks to create businesses… but we must also do everything possible to establish a ‘scientific’ public policy system that allows for a fairer distribution of income”, concluding by adding that the government must be concerned with the protection and improvement of livelihoods that aim for a healthy economic development that aims at a perspective focused on strengthening a universal and inclusive security system.

This debate, which was preceded by measures never seen before and had been done very tangentially in the past, now took place with all the rawness that the country’s situation calls for. Among the measures proposed to achieve the proposed objectives are changes in tax policies and social security payments for middle-income earners. Also, actions aimed at increasing financial benefits for low-income groups and strong measures against corruption and bureaucracy. Likewise, the need to safeguard property rights, particularly intellectual property rights, was also addressed.

In his speech, Xi warned that common prosperity should not only apply to financial markets, but also to the spiritual and cultural life of society and extend to rural and urban areas, in particular, the government must focus on improving infrastructure and living conditions in the countryside.

China, Russia and Iran have offered mutual support and dynamic deployment at a time when all three have been targeted by Washington for sanctions https://t.co/ZyPDH4mnHT pic.twitter.com/vF60hU49na

– MV (@Mission_Truth) August 31, 2021

This grand task will involve all levels of government aligned around the development of plans aimed at the goal of achieving common prosperity. In an attempt to systematize the initiative, common prosperity was defined as a means to “adequately address the relationship between efficiency and equity,” which involves greater and better financial oversight. In these terms, the proposed system aims to stimulate what has been called the “third distribution”, i.e., the creation of opportunities for high-income groups and companies to give something back to society, including voluntary and charitable donations.

It could also mean cuts in personal income taxes and higher taxes for the richest, “including taxes on property, inheritance and capital gains, or introducing more preferential policies for charitable trusts and public welfare donations” according to Xiong Yuan, chief macroeconomics analyst at Guosheng Securities, a Chinese financial services company based in Shenzhen, quoted by journalists Orange Wang and Su-Lin Tan of the South China Morning Post  newspaper in Hong Kong.

The reaction of Western analysts to these measures was not long in coming. They immediately expressed concern about the possible effects that these measures could have on the owners of capital, although it is recognized that by achieving a greater distribution of salaries, this will help families. These opinions expose the inability to understand the Chinese model of economy, falling back -once again- on the idea of considering its validity under the sieve of the laws of the market designed in the West, which are intended to be sold as universal truths. Western analysts criticize China’s attempt, through these measures, to have the State exercise strong regulations in the economy in order to balance economic growth and prevent financial risks.

Although these measures have taken shape at this point in history, it should be remembered that in the very foundations of the policy of reform and opening up and in several of Deng Xiaoping’s speeches it was made clear that the emergence of rich and millionaires was necessary to accelerate the country’s growth through their personal enrichment. In a way, Deng expounded that in the stage initiated in 1978, the rich were a necessary evil that at some point in development would be adjusted through the implementation of policies and laws, assuming that the achievement of common prosperity would be a “long, arduous and complicated task.”

Since then, no Chinese president has placed the pursuit of prosperity at the margins of his political endeavors, but never before as now has so much emphasis been placed on its realization, nor, it must be said, have there ever been such conditions as now to be able to undertake the task successfully. Xi himself acknowledged that former President Hu Jintao and former Premier Wen Jiabao addressed the need to solve the contrast between the rich provinces in the east and the more backward ones in the west, as well as the discrepancy between the agricultural and industrial sectors.

This stage of transition to socialism is in sight, the objective of which is the development of the productive forces and the creation of a material, economic and technological base that will allow, in the first stage, a greater number of citizens to have access to the material and cultural benefits that society is achieving.

Part II

The forms and methods of construction of socialism are not written anywhere. The fathers of scientific socialism made a materialist analysis of history using the dialectical method to point out some guidelines, but as Marx himself said, his theory is not a dogma.

Each country must develop its own practice and gradually clear the path by applying the theory to the conditions of each nation, taking into account its history, culture and traditions. In the case of China, Mao Zedong drew the foundational lines of “socialism with Chinese peculiarities”, Deng Xiaoping adapted it to a new situation that demanded solving the problems of poverty and development when the productive forces of capitalism reigned untainted in a world where capital and technology were the exclusive patrimony of the West and some other countries.

Now, Xi Jinping has proposed to build the “Chinese dream” which is the advancement of society towards the dissolution of the differences that even today expose the difficulties to carry forward a balanced and harmonious development of society towards socialism. This is what has been called the road to common prosperity in the prolegomena of the first stage of the transition to socialism.

But this is not without setbacks, mistakes in some cases, unforeseen situations in others. It cannot be ignored that the class societies that have prevailed for millennia on the planet have forged men and women in whom the individual still prevails over the collective, the pursuit of profit and gain of a group or sector over the supreme interests of society and the community, and the attainment of material goods as an expression of happiness and success, ignoring the importance of full spiritual and value fulfillment as the eminent goal of humanity.

It is necessary, then, to “make the road as we go”, as Antonio Machado said in his beautiful poem “Caminante no hay camino” (Walker there is no road). That is socialism, a road to be walked.

In the case of China, the last few years have brought a considerable increase in wealth, to the point that today it has a “middle class” of 340 million people earning between 15,000 and 75,000 dollars a year, and this figure is expected to reach 500 million in 2025. Likewise, by the end of 2020, China also had 5.28 million “rich” people, with a family wealth of more than one million dollars. By 2020, the richest 1% of Chinese owned 30.6% of the country’s wealth, up from 20.9% two decades ago, according to a report by Zurich-based Swiss financial services firm Credit Suisse.

In practical terms, such a development has resulted in a widening income gap in the country. The Gini coefficient of income has ranged from 0.46 to 0.49 over the past two decades. A level of 0.4 is usually considered the red line of inequality. Meanwhile, the wealth Gini coefficient rose from 0.599 in 2000 to 0.711 in 2015, fell to 0.697 in 2019 before rising again to 0.704 last year, according to the report.

On the flip side, last year the country still had 600 million people living on a monthly income of $154, barely enough to cover rent in an average-sized Chinese city. This is a problem that needs to be solved. And it was to solve it that the meeting of the Communist Party’s Central Committee for Financial and Economic Affairs held on August 24 was dedicated.

It is a matter of correcting a deformation that threatens to become a risk to the stability of society. In this sense, it is clear that in the past the Chinese economic model considered that economic efficiency, rather than equity, was the main instrument for development. To that extent, they understood that they had to allow a small number of people to become rich first within the framework of a plan that sought the success of the strategic project. Now, it is understood that if controls are not established, the objective of building socialism could be lost, so the search for common prosperity has been put at the center of politics and economics.

For years, not only in China at the time of Mao, but also in most of the countries that moved towards socialism, equality was confused with equity. It was forgotten that equality is a bourgeois principle originating in the French revolution when it was a question of eliminating the differences between the rights of the nobility and the citizens. At the time it was revolutionary, but it had to give way to new paradigms that would bring about better living conditions for the majority in order to advance towards their liberation.

Socialism, through its principle of distributing “each according to his ability to each according to his work” outlined an idea of equity that is proper to it. Precisely, China is now turning to a more equitable society compared to the egalitarianism of Mao’s time.

The third distribution that was pointed out last week refers to the attempt to move forward in overcoming this situation, in such a way that the Chinese government intends to regulate “excessive income” and “unreasonable income”, encouraging large companies and millionaires to “give more back to society”.

Of course, such a policy has generated concern among the social strata, while in the West, transnational media and economic analysts have been “up in arms”. Ding Shuang, Chief Economist for Greater China and North Asia at Standard Chartered Bank, said that “the aim of the third distribution idea was to use moral force to encourage people to give back to the community,” on the assumption that such contributions should be voluntary although in his view, many rich people will feel pressured to “give money away.”

A day after the Central Committee meeting, tech giant Tencent announced that it had set up a “common prosperity” fund of more than $7.7 billion to “help low-income groups, improve health coverage, boost rural economic development and support grassroots education.”

Since the concept of common prosperity is not just about income but also involves access to public services, there will be tight controls on any idea of increased private business involvement in areas such as education, care for the elderly and health care. The government will turn to inclusion and accessibility to private service providers, and will be strict in controlling prices, as has already been happening in the field of education. Similarly, the state could intervene in setting better wages while safeguarding labor rights.

China says “no” to market economy https://t.co/ahcbpsgDoI pic.twitter.com/YHySYi7nNb

– MV (@Mission_Truth) September 8, 2021

President Xi Jinping assured that the government intends to strengthen the fight against monopolies, while promoting policies of not accepting unfair competition, all of which are considered indispensable obligations to improve the socialist market economy system. Xi stated that in the new stage, it was necessary to create optimal scenarios for the development of “all market agents, especially small and medium-sized enterprises”, as well as to “better protect the rights and interests of consumers”.

In this context, the Chinese government is oriented towards using the tax mechanism as the main instrument to reduce the wealth gap. Last March, the Standing Committee of China’s National People’s Congress announced that the Chinese authorities plan to review the country’s anti-monopoly legislation this year in order to create stronger legal mechanisms to stimulate socio-economic development. The decision is in line with the logic of increasing “top income regulation” to improve “wealth redistribution,” which is the very essence of socialism.

According to Wang Jun, an analyst at the Chinese “think tank” Center for International Economic Exchanges: “The stagnation of consumption has made it clear that it is urgent to increase people’s incomes and focus on fair distribution”. However, setting this policy entails a new challenge, since the implementation of corresponding measures will entail higher social spending, which translates into new burdens for the state budget. The question then arises: where will these resources be obtained? The increase in taxes on millionaires and large companies, especially technology companies, will be aimed at assuming most of the investment that will make these measures a reality.

In this context, the Chinese government is geared towards using the tax mechanism as the main instrument to reduce the wealth gap. Last March, the Standing Committee of China’s National People’s Congress announced that the country’s authorities plan to review the national anti-monopoly legislation this year in order to create stronger legal mechanisms to stimulate socio-economic development. The decision is in line with the logic of increasing “top income regulation” to improve “wealth redistribution,” which is the very essence of socialism.

According to Wang Jun, an analyst at the Chinese “think tank” Center for International Economic Exchanges: “The stagnation of consumption has made it clear that it is urgent to increase people’s incomes and focus on fair distribution”. However, setting this policy entails a new challenge, since the implementation of corresponding measures will entail higher social spending, which translates into new burdens for the state budget. The question then arises: where will these resources be obtained? The increase in taxes on millionaires and large companies, especially technology companies, will be aimed at assuming most of the investment that will make these measures a reality.

In this context, in November last year the government prevented Ant Group, owned by billionaire Jack Ma, from going public on the Shanghai and Hong Kong stock exchanges. At the time, the technology company, a subsidiary of Alibaba, was targeting an Initial Public Offering (IPO) of 37 billion dollars. Likewise, last July 28, agricultural tycoon Sun Dawu was sentenced to 18 years in prison for promoting a series of actions against the State.

More recently, the travel app Didi Chuxing was sanctioned after it ignored a recommendation to postpone its US$4.4 billion IPO in the United States. Tightening legislation around the booming private education sector, which has been heavily criticized for exorbitant price increases during the pandemic, has also come under scrutiny in recent months, causing a major impact in China and beyond.

Unlike in the West, where companies and millionaires are the ones who make the decisions, finance the campaigns of presidents, parliamentarians, governors and mayors, determine the agenda and even allow themselves to sanction the leaders, because in reality it is in them where the power resides. In China, the State assumes the responsibility of setting limits to the big economic players in order to defend the best interests of the citizens.

Translation by Internationalist 360°