“Common Prosperity” and the Economy

By | September 6, 2021

Global Source Partners

What does Xi Jinping’s “common prosperity” mean for the economy?

Andrew Collier | Aug 30, 2021

Executive Summary

Xi Jinping launched his vision for common prosperity officially in an internal meeting in the Politburo on August 17. This was a follow-on to the harsh regulations imposed on China’s technology sector. Although Xi has been using the term “common prosperity” for several years, its appearance in his speeches doubled in 2020, according to a Bloomberg analysis. What does this term mean for the economy and the markets? We draw several conclusions:

  1. Targets related to inequality that enhance Xi’s popular appeal will be at the top of the list. This includes wealthy entrepreneurs and their companies and those deemed not contributing to the construction of a socialist society.
  2. Luxury goods and those involved in “corrupt” consumption will suffer either from press campaigns or actual policy changes such as higher taxes, reduced profit margins, or other financial measures.
  3. The property market will continue to be curtailed. This follows the reduction of risk through the Three Red Lines policy in 2020 (which I presume was launched by the central bank and not the Politburo and was a reasonable policy). However, a serious attempt to enact a property tax is unlikely.
  4. Fundamental restructuring will not occur that could meaningfully contribute to improving income redistribution. This includes the state sector and the use of the VAT instead of general income taxes.

Xi Jinping is most determined to reduce the challenge posed by large, powerful companies (such as Jack Ma) but lacks the interest – or power – to alter the country’s underlying economic structure, particularly the state sector, which could significantly improve income equality in China. (For full report, contact Global Source Partners).