In November 2020, Chinese authorities abruptly called off the highly anticipated Initial Public Offering (IPO) of fintech firm Ant Group. This was set to be the largest IPO in world history, raising perhaps as much as $37 billion. International media was immediately abuzz with speculation about what lay behind this startling decision. Many sought to pin the blame on a speech made a few days earlier at a high-profile financial conference by Ant’s eccentric founder, tech tycoon Jack Ma. In front of leading state and Party figures, including Vice President Wang Qishan, Ma had openly criticised what he regarded as the excessive regulation of China’s financial sector. This explanation, however, which assumed that a major policy decision stemmed from the petulance of offended Party officials or, perhaps, the inability of doctrinaire socialist bureaucrats to accept the towering success of China’s leading private entrepreneurs, failed to grasp the bigger picture.
What has unfolded since then indicates that this moment heralded the start of a profound policy shift to which Ma’s speech was little more than a sidenote. It extends well beyond fintech, with tightening of regulatory policies in recent months extending to the real estate market, private tutoring, ecommerce, cyberspace, and many other sectors. Carried out under the official Party slogan of ‘common prosperity’, this is a long-term project to fundamentally restructure China’s economy and reshape its society through, in large part though not exclusively, reining in excessive private wealth accumulation while protecting consumers and, in some cases, workers. Prominent examples include clamping down on excessive working hours for tech employees, the requirement of expensive private tutoring companies to register as non-profits, trials in a property tax to control housing speculation, and moves to boost the incomes of courier drivers.
Many of the measures involve high risk, both in terms of resistance from powerful groups whose interests are being challenged, and from potentially serious knock-on repercussions – as we are witnessing now in the real estate industry, where huge development companies such as Evergrande are in trouble as authorities seek to restrain their over-reliance on seemingly endless cycles of state-backed debt – a central pillar of China’s economy since the 2008 financial crisis.
There is, as yet, little clarity from outside observers on how to interpret this broad but multifaceted project, which is regarded simultaneously as an authoritarian crackdown and (credit to New York-based news platform SupChina) a ‘red new deal’. It is certainly seen by many as a sign of China becoming more socialist. This is how China’s leaders want to portray it as well. A well-publicised article by Xi Jinping in the influential Party journal Qiushi last October stated that common prosperity sought to “perfect the structure of the socialist market economy”. However, any assumption that China is beginning to shun the capitalist market system on which its impressive growth has hitherto depended is misguided. In reality, capitalist systems are always sustained through some degree of state regulation and selected forms of public, collective or state-provided goods. This safeguards their functionality, rather than making them any less capitalist. Measures to rein in stratospheric levels of private wealth produced out of predatory practices are as much about assuaging simmering discontent among the middle class as they ever were about restricting the consolidation of political power bases outside the Party.
Indeed, China’s Communist Party has thrown in its lot with the burgeoning middle class. First of all, its future depends on their continued political allegiance. Second, the Party’s vision of China’s economic future relies on building up a broad-based middle class of consumers to fuel the domestic economy, thereby easing off China’s long-term reliance on exports and international trade, particularly with the US – a partnership which has become increasingly fractious and unreliable. Finally, and relatedly, leading policymakers have long been seeking to ‘upgrade’ China’s core labour force from one founded primarily on low-cost manual labour, to one of white collar professionals working in high value added, high tech and service industries. This highly-educated, aspirational workforce must be kept on side.
Indeed, practically speaking, runaway inequality is a terrible idea for any nation-state, whether liberal democratic or not, resulting not just in economic marginalisation but a sense of political and cultural alienation – social phenomena which are intimately connected. In the US, for example, we see this now manifested in rising discontent and political turbulence on both the left and right, and growing portions of society seeking faith in dangerous conspiracy theories as trust in both political leaders and the mass media – persistently disconnected from, and unresponsive to, their lived experience – has been frittered away. (Chinese policymakers surely watched the rise of Qanon under Trump like a hawk – let us not forget, China is historically no stranger to weird mass cults when belief in its governance is severely shaken.) The Biden administration has been, somewhat ham-fistedly, seeking to address these issues through industrial strategy. We should understand Xi’s common prosperity programme as operating within this same framework – a global system of late capitalism gone awry.
As the common prosperity programme progresses, China will remain, as it has been for some time, essentially capitalist, with an economy rooted in consumerism, profit-making and commodified labour. In fact, the current policy shift is, in many ways, the continuation of an already established trajectory. Widespread reforms in recent years to China’s hukou (household registration) system were likewise billed as a drive towards equality. This system, a legacy of the Mao period, divided China’s population into urban and rural people, determined where they could live and work, and allocated state resources differently to each, resulting in long-entrenched urban-rural inequality which for years worked to the benefit of China’s growth but which has reached its limits both economically and politically. The much-hyped phasing out of this hierarchical urban/rural distinction has not led to freedom of movement and equal opportunity, however, as a draconian round of forced evictions of (mostly rural) migrant workers from Beijing in the harsh Winter of 2017-18 attested to. The prominent labelling of this group in official policy language around that time as the “low-end population”, undeserving of a place in one of China’s most desirable cities, raises questions about how seriously we can take the promise of a common prosperity programme launched so soon afterwards. Who the winners and losers will turn out to be in this latest round is one to watch.
The opinions expressed are those of the author. They do not reflect the opinions or views of ISPI.
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