As is well known, the Chinese authorities have been tightening their grip on major IT companies such as Alibaba and Tencent through the application of an anti-monopoly law since the end of 2020. Their actions went beyond the confines of a mere anti-monopoly law enacted in the summer of 2021 as it evolved into redistributive policies under a government touting the slogan of “common prosperity”. Many were concerned that the implementation of such radical redistributive policies would hamper future growth.
However, in a government activity report presented by Premier Li Keqiang at the fifth session of the 13th National People’s Congress (NPC) held in March, the term common prosperity appeared only once. The central and local government budget reports also did not specify any concrete targets for fiscal allocation toward common prosperity. Is this indicative of a change in the government’s orientation?
I actually do not think that the emphasis on common prosperity last year had the aim of implementing radical redistributive policies. Instead, I see it as a “vaccine”, in the sense of a precautionary measure against widening disparities caused by the growth-focused strategy that Beijing is consistently advancing.
The key point to take point of is improving market-based allocation (of production factors). The Communist Party already released a document on “improving the market-based allocation of production factors” in April 2020, when the Covid-19 pandemic struck.
The document talks about the five major production factors of land, labour, capital, technology and data, emphasising a direction toward (1) abiding by market mechanisms and realising highly efficient arrangements, and (2) eliminating institutional factors that obstruct the smooth transfer of production factors as well as promote the creation and development of a factor market.
Reiterating this, in January 2022, the State Council announced its “comprehensive pilot reform for the market-based allocation of production factors” and clarified its concrete plans for the marketisation of the five major production factors.
Furthermore, the “Report on the Implementation of the 2021 Plan for National Economic and Social Development and on the 2022 Draft Plan for National Economic and Social Development” that was announced at the most recent NPC talked about concrete initiatives for improving the factor market so far.
The specifics include promoting the efficient use of land resources through the marketisation of land use rights, establishing a system that allows workers to evaluate and utilise their own technologies and skills, promoting fluidisation of the labour market, and establishing a system to safeguard the intellectual property rights of technologies developed.
...it does not seem unreasonable that the current administration, recognising the inevitability of this series of factor market reforms entailing widening disparities, has highlighted common prosperity as a precautionary measure and is using it as a "vaccine" to prevent criticism from being directed at the administration.
These are “supply-side structural reforms” that the Chinese government has advocated as a course for long-term economic development since around 2014. It may be seen as a continuation of efforts to tear down the vested interests of local governments and state-owned enterprises, promote fluidisation of production factors, and aim for sustainable growth by increasing productivity. In this sense, the policy direction appears to be fundamentally neoliberal, and as long as this is promoted, economic disparities will inevitably continue to widen.
Considering this, it does not seem unreasonable that the current administration, recognising the inevitability of this series of factor market reforms entailing widening disparities, has highlighted common prosperity as a precautionary measure and is using it as a "vaccine" to prevent criticism from being directed at the administration.
Now, these factor market reforms are also the final stage of China’s marketisation reforms, which have been carried out since the 1980s. For example, with regard to the land system, which is a representative production factor, they have implemented “reforms to separate rural land ownership rights, contract rights, and use rights” for farmland. This is to split farmers’ rights to farm village land where ownership belongs to the farm village community into non-transferable “contracting rights” and transferable “land management contracting management rights”, and to promote the circulation of the latter.
Previous land reforms have been carried out under the overwhelming power of local governments, which has led to inefficient distribution as well as collusion between governments and developers. Factor market reforms appear to be directed toward breaking down that and creating nationwide unified market mechanisms.
The context of this acceleration of such factor market reforms is likely to be a recognition that factor mobilisation-type economic growth has reached its limit as well as the leadership’s judgment that the time has come to make use of experience and know-how about marketisation reform accumulated over 40 years since the reform and opening up.
At the same time, with China’s economic growth entering a downturn and the limits of the so-called zero-Covid policy having unpredictable negative effects on the economy, we may expect the implementation of such reforms to face greater headwinds, including the tearing down of vested interests. We too need to keep paying close attention to how the factor market reforms develop as they are thought to affect the future growth of the Chinese economy.
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