The View | What to expect as China’s economy transitions towards common prosperity

While it is too early to say that China has completely shifted its growth strategy, the policy of ‘cross-cyclical adjustment’ suggests the market must prepare for more short-term volatility

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A man sleeps on a bench near a government billboard touting “prosperity, democracy, civilisation and harmony” on a street in Beijing on May 5, 2015. Photo: AP

Published: 9:15am, 1 Sep 2021

Investors have two main questions regarding China. The first is, why has Beijing changed course and cracked down on certain sectors, particularly private education and tech? And, second, why does China’s economic policy remain restrained when growth faces increasingly strong headwinds?

While the two may not look very related, both point to a single question: has China changed its development strategy of prioritising economic performance? A deeper question is perhaps: has the fundamental framework that favours “efficiency” over “equality” been abandoned?

China observers should know that after Deng Xiaoping advocated the establishment of a market economy in his 1992 southern tour, a market-centric, efficiency first, equity second “neoliberalism” took hold in China’s political and economic ideology.

However, it might be premature to make a bold call and say that the Chinese authorities will abandon this ideology, which has after all helped to boost the economy over the past decades.

In fact, although the Chinese government is now pushing for “common prosperity”, officials have been quick to explain that seeking to tackle inequality does not mean “killing the rich to help the poor”.

A more practical way to understand China’s policy dynamics is, I believe, to narrow down the question. That is, given that achieving common prosperity will be a relatively long-term goal, what will happen in the next couple of years? More specifically, what will the policy approach be during this period of transition?