Common Prosperity: Is Zhejiang showing the way?

Back in 2012, President Xi Jinping for the first time spoke about the idea of establishing what he called “Common Prosperity”. After the conclusion of the 18th Party Congress that had just elected him as new General Secretary of the Party, he pledged that China would “unswervingly take the path of Common Prosperity”.

While observers did not pay much attention to it at the time, the concept has since gained steam and greater visibility, especially since the Chinese leadership announced in mid-2021 that the goal of eradicating absolute poverty had been achieved. On August 17th last year, at the 10th session of the Central Financial and Economic Commission, the country’s top economic policymaking body, Xi elevated Common Prosperity to the status of China’s overarching economic and social concept. The concept would play a key role in driving policymaking onwards, in pursuit of the 2nd centenary goal of “building China into a great modern socialist country” by 2049, by which time “Common Prosperity for the entire population would be basically achieved”.

Until now, however, despite its potentially far-reaching impact on the course of China’s policymaking, Common Prosperity is still a rather vague concept and invites as much confusion and misperceptions as it does hopes and dreams. While Xi in his August speech emphasized the need for a more sustainable development path in light of an existing growth model heavily skewed towards the interests of industrial and export sectors, outside observers have largely drawn attention to what they have labelled a “regulatory storm” – that is, policy measures that have hurt the business of large internet platform enterprises such as Alibaba, Didi, Meituan or private education providers. Other commentators meanwhile have focused more on measures to curb the “disorderly expansion of capital”, for many a euphemism for a political campaign against private capital, leaving an impression that Common Prosperity aims to rob the rich to feed the poor.

The various interpretations have compelled the authorities to make several rounds of clarifications and explanations on what they mean by Common Prosperity. Most recently, for example, Ha Zengyou, head of the Department of Employment, Income Distribution and Consumption at China’s top economic planning agency, the National Development and Reform Commission (NDRC), clarified on February 17th 2022 that “we must be aware that there is still a big gap between China’s development level and that of developed countries, therefore we must ensure and improve people’s livelihoods on the basis of sustainable economic development and financial resources”. Local governments should now focus on improving basic public services, including education, healthcare, elderly care and housing, Ha added.

This echoes earlier statements – e.g. by Han Wenxiu, deputy director of the Office of the Central Finance and Economics Commission, in early January – that made clear that China first needs to make the economic pie bigger and better through “high-quality development”, and only then start to distribute its pieces more equally through institutional adjustments. Instead of “welfarism” or “laziness”, Xi wants to boost the country’s industriousness and hard work, while ensuring fairer distribution of the spoils.

The Zhejiang “Action Plan”

But how exactly do economic planners in Beijing intend to implement Common Prosperity policies in practice? Already in his August speech, President Xi had demanded that China shall hurry up to develop a national-level action plan, a plan the NDRC is now working on. The plan focuses on narrowing the income gaps between different regions, urban and rural areas, as well as in granting all citizens access to public services. Moreover, a monitoring and evaluation system will be set up to keep track of how well the Common Prosperity progresses.

Given the fact that the national action plan is still in the making, it is too early to pinpoint exactly how the drive will be brought to bear in different sectors or regions. A first indication of how it might unfold, however, might be the Zhejiang Common Prosperity Demonstration Zone that was established last May. The Zhejiang Provincial Development and Reform Commission (DRC) recently published a draft version of the “Action Plan to ‘Expand the Middle’ (扩中) and ‘Raise the Low’ (提低) (2021 – 2025)”, which gives valuable insights into what kind of Common Prosperity policies are being experimented with. The Action Plan intends to double the size of the province’s middle-income group by 2025 and strives towards an olive-shaped income distribution structure. More precisely, Zhejiang aims to make 80 percent of its residents fall under the annual household disposable income bracket of RMB 100,000-500,000 (US$16,000-80,000), and 45 percent of residents in the bracket of RMB200,000-600,000 (US$32,000-95,000). The Action Plan identifies eight different key policy areas which are to be optimized and geared towards the Common Prosperity goals, as well as nine employment categories towards which supportive measures and incentivization mechanisms will be tailored to.

The eight key policy areas range from optimizing the employment system, to the promotion of private wealth management, to a recalibration of the tax system, all the way to cultivating a “spirit of Common Prosperity”. Thus, local policymakers are taking a very multidimensional approach to achieve the goal of changing the income distribution structure of Zhejiang.

The nine employment categories, on the other hand, which are singled out in the Action Plan are each allocated a number of support and incentive mechanisms from which they will be able to take advantage – with lower income employment groups profiting more, leading to a rather nuanced form of redistribution. These nine categories include skilled workers, R&D personnel, SME owners/self-employed persons, college graduates, high-skilled farmers, workers in new employment forms, migrant workers, low-income farmers, and needy groups. Gig economy workers, for instance, will profit from a wide range of supportive policies, such as greater protection through a standardization of labor rights or improved access to upskilling offers and social security. Skilled workers, on the other hand, will be given less direct support.

A cautious inference from the Zhejiang experiment is that key resources will be allocated depending on the specific needs of different groups of people, rather than introducing a one-size-fits-all formula for Common Prosperity. Furthermore, although redistribution is doubtlessly one of the main aims of Common Prosperity, Chinese policymakers indicate that instead of taking a “rob the rich to feed the poor” approach as some have speculated, they rather intend to take a much more nuanced approach which seeks to differentiate between different employment groups, incentivizing and supporting workers according to their specific needs and thus upholding the dynamism of the Chinese economy while simultaneously slowly closing the huge gap between rich and poor.

As Zhejiang’s timeline is ambitious – doubling the size of its middle-income group in a mere five years –, foreign businesses, especially those in B2C industries and with branded products, should watch closely how their target client segments and their consumption needs will grow both in terms of volume and change in qualitative terms. Beyond this, for any foreign business caring for local adaptiveness, it will be crucial to observe evolving social patterns of a society that will not only possess more wealth, but critically possess it in a much more cohesive manner than today, in order to understand how a Chinese society on its path to “national rejuvenation” will work socially, in other words how work, consumption and life in general are viewed by its citizens.