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Xi’s “common prosperity” in theory and practice

Investors have been accustomed to ignoring the rhetoric of communism from China, which is nominally communist for the past three decades, so leaders who put equality firmly at the heart of the economic agenda have caused a little more heartburn. rice field. Therefore, the October 15 release of a more complete copy of President Xi Jinping’s remarks on “common prosperity” in mid-August attracted considerable interest.

The publication of the party’s theory magazine, Seeking Truth, was surprised by the novel words about “reasonably adjusting” excess income in the original reading of Mr. Xi’s speech in mid-August. It seems to be aimed at reassuring investors and entrepreneurs. Of Beijing’s campaign to curb that internet giant.

The unfolded remarks still contain such words, but there are some notable differences in tone and structure. “Common prosperity depends on diligence,” Xi said, saying that entrepreneurs who comply with the law should be especially encouraged, and speak strongly about entrepreneurship. The newly announced statement also warns of “welfareism” and the dangers of government dependence. This is a word that was not in the original reading.

Theoretically, investors like it quite a lot. Most importantly, Xi understands the importance of incentives, and the rapid expansion of regulatory campaigns over the past year risks damaging entrepreneurship. The speech is also consistent with Beijing’s long-standing skepticism about large spending on social services, as opposed to infrastructure and carrots for businesses like cheap land. In particular, China’s anti-circular policy in the first months of the coronavirus outbreak focused on grace lending to businesses rather than direct income support to households as in the West.

The overall message seems to be that the policy pendulum is moving towards equality. Increasing taxes on high-income earners and increasing pressure on donations, modest increases in spending on social programs and education, and increased antitrust in some areas. But that is not the same as the significant expansion of China’s welfare state and economic policy.

The problem, of course, is that this is all happening for the 20th Party Convention next fall. Mr. Xi’s bid for the unprecedented third phase in China’s real power by showing that he has solutions to problems such as inequality, affordable housing, and expensive parenting. It will probably be strengthened. The whimsical ways in which a particular industry or business is dealt with also have a strong political taste.

China recorded a sharp slowdown in the third quarter as the pandemic rebound diminished. Beijing is currently addressing long-term issues such as household debt and energy consumption. Anna Hirtenstein of the WSJ explains what investors are paying attention to. Photo: Long Wei / Sipa Asia / Zuma Press

Although there have been signs of warning for the private tutoring industry for some time, the de facto decapitation of this sector and its foreign listed companies overnight remains highly uncertain and vulnerable. I sent a strong signal. Similarly, despite some legitimate criticisms of Ant Group’s business model, the company’s sudden dropout from grace is associated with Jack Ma’s very general criticisms of some of Xi’s signature policies. You cannot avoid the conclusion that you are.

It is often said that the US stock market prefers split governments because inertia and ossification cause problems, but at least they are predictable and better than unchecked overregulation. Similarly, China’s consensus-based elite governance model brought about by Deng Xiaoping has caused many problems such as pollution and corruption, but is reasonably predictable and addresses various economic interest groups. Was there.

For better or for worse, those times are over. It remains to be seen if that change will bring about the common prosperity that Mr. Xi envisions.

Write in Nathaniel Taplin (nathaniel.taplin@wsj.com)

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Xi’s “common prosperity” in theory and practice

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