The facts: At a meeting of the powerful Finance and Economy Commission (FAC), Xi Jinping, its chair, underscored the need to establish a society of “common prosperity.” This phrase has become a signal for the plan to battle rising inequality and redistribute wealth from top-earners to lower tiers of the population, to create an “olive-shaped social structure” with a large middle class and few super rich or poor. Coming directly after the annual break of the central leadership, it sent a strong message.
What to watch: “Common prosperity” is the new buzzword in Beijing, and Zhejiang province, one of the richest areas in China, is official pilot province for establishing it. Many of the tech firms currently under regulatory scrutiny are headquartered there, and they are already starting to establish large charities for the purpose. Meanwhile in Zhejiang’s capital, Hangzhou, the party secretary is under investigation for suspected “disciplinary violations” - a euphemism for corruption, while thousands of officials have been asked to sever personal or family business ties that might pose a conflict of interest.
MERICS analysis: The “common prosperity” program is meant to address China’s inequality problem now that poverty has officially been eradicated. Large private companies therefore face two issues: tougher regulation on data and competition, and a populist, ideologically driven push to cut private “unruly expanded capital” and shift these resources to lower social strata. The charities hastily established by Tencent and Meituan show that companies are aware of this. However, as long as the most powerful mechanisms for redistribution of wealth – income, wealth and property tax to finance better welfare – are left untouched, the olive-shaped society will be hard to achieve.
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