Common Prosperity: China’s Shared Vision with the West
Jason Hsu, Ph.D.
Chairman & CIO
One of the most powerful lessons I learnt from my communications class was that context always trumps content. For example, research finds that people overwhelmingly trust more attractive presenters even if they present identical information as less attractive presenters.
Similarly, when Western economists talks about wealth redistribution to reduce runaway income inequality, most of us understand and appreciate the necessity of this mechanism for keeping capitalism from ultimately consuming and undermining itself. But when Beijing talks about inequality and the need for wealth transfer to maintain long-term social harmony, the West proclaims the end of capitalism and a return to communism to China. The message they proclaim is that industrialists and entrepreneurs should get out of Dodge ASAP.
Even though I am currently traveling in China and speaking with business leaders and policy makers, I cannot speculate with any certainty what is in the head of President Xi and his politburo. I can only go by the actual words stated by Chinese leaders and try to understand them in the context of China’s economic development. So, let me start with what Beijing has actually been saying.
For the past several months, Beijing has been speaking pedantically — almost as if explaining economics 101 to an undergrad — about the three primary forms of wealth redistribution.
- Taxes on income and assets, which reduces the wealth of the rich.
- Government services, subsidies and payments – financed by taxes – that improve conditions for the poor.
- Philanthropy, where the rich directly assist the less fortunate without a government role.
This third form of redistribution has recently found its way into the lexicon of Chinese leadership. Beijing has noted that philanthropic giving in China lags behind Western countries, and billionaires, who have benefitted so enormously from the rapid growth of the Chinese economy, could imitate their Western counterparts by giving back. Most of us would agree that more billionaires, Chinese or otherwise, emulating MacKenzie Scott and Melinda Gates wouldn’t be a bad thing or lead to the collapse of capitalism.
Philanthropic giving has made headlines in China as Beijing has begun promoting its policy agenda for common prosperity. The Party argues that China has developed enough that it must not focus solely on economic efficiency and GDP growth. Instead, the country must focus on higher quality growth—a growth that is slower, gentler, and lifts all boats. From this point forward, wealth creation derived by environmental pollution, aggressive mining, labor exploitation and real estate speculation will be frowned upon. Growth that comes with public safety risks or regulatory non-compliance will also be heavily discouraged. What Beijing is essentially saying is that “the end no longer justifies the means.”
That said, perhaps there’s more to it. Perhaps Beijing talking about philanthropy and Chinese robber barons in the same breath gives adequate cause to speculate. Perhaps reminding people that an estate tax could be on the horizon while trumpeting philanthropy could sound like a veiled threat. Conspiracy theories are always more interesting for headlines and conversation.
But as a boring economist, I mostly see China trying to be more like the West. China has travelled a similar path of economic development as other developed economies. As it emerges, its government will seek to do more to create basic social safety net and finance that welfare with more taxes. As things stand today, China has no capital gains tax, no property tax and no estate tax. It also has no minimum wage and lax labor rules. It is far, far more “right” in its labor policy, taxes and welfare than most Western countries.
Talking about philanthropy, talking about an aspirational vision of common prosperity—essentially more taxes to finance welfare spending and more pro-labor policies—these do not make China a candidate for regression back to central planning, nor do they make China a regime against business and entrepreneurship. Instead, they just make China more like the U.S.
This article was first published to LinkedIn:
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