The push to achieve common prosperity in the People’s Republic of China is set to shake up the Chinese and global economy - as well as how New Zealand companies consider doing business with that country 

It is commonplace in New Zealand to speak of the opportunities for doing business in the Chinese market in almost exclusively market terms. That is the dominant language of business in New Zealand and it’s the cornerstone of the agreed rules in the 2008 free trade agreement with the People's Republic of China (PRC).

Plenty of businesspeople in and from the PRC speak in a similar way. Business is business after all.

Recent events in the PRC, however, suggest businesses may need to start thinking more broadly. Political leaders and intellectuals are actively rethinking contemporary China’s hybrid socialist market economy and introducing policies to bring to fruition the socialist ideal of common prosperity.

Common prosperity is an old idea in the PRC and it is one that has been making a comeback. Chinese President Xi Jinping’s 2017 speech to the 19th National Congress of the Communist Party of China, introduced a new “principal contradiction facing Chinese society in the new era ... between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. He proposed common prosperity as the solution. 

In recent months, Xi has frequently referred to the term. On August 17 he argued “common prosperity is a key trait of socialism and an important feature of Chinese modernity”, whilst admonishing “excessively high incomes”, and suggesting businesses give back more to society.

The fact that internet giant Tencent immediately put $7.7 billion into social initiatives following these comments, and that others followed suit, suggests a serious change in the Chinese economy could be underway.

READ MORE

• China on the move...
• Why is China on the move in the South Pacific?
• Huawei data centre built to spy on PNG
• The dangerous new cold war brewing with China will test New Zealand even more than the old one
• Emails reveal NZDF wanted to go harder on the threat of Chinese influence

This transformation could simply be an adjustment to rein in dangerous inequality by strengthening the underfunded social welfare system and cracking down on illicit income and tax evasion. That is the position some Chinese economists are taking, and for many this would be welcomed, along with greater corporate social responsibility and philanthropy, as a long overdue correction.

Or it could be a sign of an even bigger shakeup of the economic model.

Recent headlines on the Chinese economy present a worrying picture. China’s tech sector has been rocked by regulators' actions around initial public offerings from Ant Finance and Didi and restrictions on Tencent. Last month, new regulations severely cut down online game time for minors, as well as cracking down on private education companies and fan clubs and celebrities, seemingly as part of an effort to enforce state-mandated core socialist values and to achieve common prosperity.

Reflecting on these events, columnist Li Guangman argued in an op-ed, republished in the People’s Daily, that a “profound transformation” was underway. Li argued the events represented a “return to the original intentions of the Communist party” and “a return to the essence of socialism”, while identifying further industries for rectification.

We’ve been here before, albeit when the Chinese economy was far smaller and less integrated globally.

When the PRC was established in 1949, the party introduced a command economy. This had production targets and a quota system replacing supply and demand, rationing replacing consumption, rural communes collectivising agriculture and work units providing employment, housing, and education. Class struggle and anti-imperialism were central to efforts to create common prosperity.

Many tend to think that all ended under Deng Xiaoping in the 1980s, but that is only partially true. What emerged was a hybrid economy.

One of China’s most famous, though often neglected, economic thinkers and planners of the era is Chen Yun. He oversaw the first stage of China’s post-1949 economic development before falling out with Mao Zedong over the Great Leap Forward and Great Proletarian Cultural Revolution. Chen returned in 1978 to work with Deng Xiaoping in the early stages of the reform era.

Chen conceived the bird cage theory, where the bird (the market) could move freely but only within the constraints of the cage (the plan). In the mid 1980s, his views fell out of favour as China’s growth took off and the earlier ideals of the communist revolution, namely equality and class struggle, gave way to the idea that a ‘rising tide raises all boats’.

Now that the PRC has achieved decades of rapid economic growth and Xi Jinping has declared “complete victory” in eradicating absolute poverty, the question of what a socialist market economy is returns to the fore, now under the guiding ideology of Xi Jinping Thought.

It is too early to say the bird has been put back in its cage. Market forces remain a central and key part of the debate on the direction of the socialist market economy. We should watch this debate carefully, however, because the result will have huge implications for how regulatory market economies like New Zealand engage with the Chinese economy in the coming decades.