common prosperity is not the end of reform

Common prosperity has emerged from the 20th Party Congress as the core of neo-socialist policy for Xi’s New Era. Now elevated to a received truth in the Constitution, it flags the direction of the political wind underscoring the shift to economic management via Party structures, to cadres rather than professionals or entrepreneurs.

This sea change is encoded in changes of core personnel. The new lineup sees the retirement of virtually every globally-recognised, market-oriented finance professional. Dropped from the central committee and hence readily replaced are Liu He 刘鹤, Vice-Premier, head of Xi’s Financial Stability and Development Committee and the face of the US trade deal; Guo Shuqing 郭树清, chief banking and insurance regulator, touted as the only senior leader who understands the PRC’s financial sector risks; Yi Gang 易纲, wily PBoC governor, US economics PhD, and close ally of Liu He; and finance minister Liu Kun 劉昆.

Disappearing heavyweights is not the only indicator of a coming inflection point for economic management. Ideologue Wang Huning 王沪宁, drafter of the November 2021 ‘third historical resolution’ that burnished Xi’s standing, and No. 2 in the COVID response Party Group, is tipped to oversee the legislature (National People’s Congress), responsible for the enacting laws. Li Qiang’s 李强 promotion to the premiership signals disdain for both reformists and Party norms. Similarly, Party loyalists Cai Qi 蔡奇, Ding Xuexiang 丁薛祥 and Li Xi 李希 are elevated mainly in view of ties to Xi (see profiles below).

virtue signalling

Revisiting Mao’s ‘common prosperity’ was flagged in early 2021. Proclaimed in a Zhejiang demo zone announced in July that year, it soon faded from the public eye as COVID absorbed policy bandwidth. Heterodox Party voices and reformists alike deride it as ‘common poverty’; they fret it portends a return to the planned economy. In the Mao era, the Party could destroy older ruling strata and institutions to ‘build socialism’. Repeating this now, with entire generations of human and other capital built around ‘reform and opening’, would come at a cost.

Liu Shangxi: baseline equity of outcomes

Policy veteran Liu Shangxi 刘尚希 Chinese Academy of Finance president, while not heterodox, is contrarian. When launching a new book on the topic, at the time of the Congress he reminded listeners that Mao era ‘common prosperity’ was disastrous: it caused shortage and even starvation, bringing the Party to the brink of extinction.

Survival demanded the efficiency only markets could provide. But reforming leader Deng Xiaoping 邓小平, followed in due course by Premier Zhu Rongji 朱镕基, drove things to another extreme, in Deng’s formula ‘prioritising efficiency while paying due attention to equity’—equity, in this case, meaning fairness.

The administration of Hu Jintao 胡锦涛 and Wen Jiabao 温家宝 (2002-12) set out to correct this at the 17th Party Congress (2007) when ‘social justice’ was promoted in Party discourse. ‘Equity’ was promised equal billing via ‘secondary distribution’, i.e. state welfare policy.

Liu contends that only by making the cake bigger can we get down to better sharing it. Implicitly slighting new-era poverty alleviation, he dismisses narrowing income gaps in isolation as pointless.

Efficiency and equity are like a seesaw: push one up, and the other goes down. The linkage between ‘making’ and ‘dividing’ the cake cannot be grasped in standard-of-living terms: human development is the key. Equitable outcomes entail treating equity as a baseline rather than as an afterthought. Structural reform without appropriate follow-up, easing income gaps while masking the ability gaps behind them, ends up blocking development.

Wen Tiejun: ‘people’s economy’

As sketched in our last post, ‘in and around the Party Congress’ rural affairs pundit Wen Tiejun 温铁军 has a divergent view. Giving his own interpretation of common prosperity, he applies the term ‘people’s economy’, imposing on it a Mao-left stamp.

Wen cites jurisdictions that resist domination by capital, above all foreign capital, that remain patriotic and develop independently. Hallmarks include independence, locality, all-roundness and a ‘people’s’ character

  • independence: avoid earning income by servicing overseas interests
  • locality: make sure development dividends feed back to the local area
  • all-roundness: all-round (green, beautiful, sustainable etc.) development
  • people’s: ownership by the ‘whole people’

Xi insists the Party ‘not forget its original mission’. Wen takes this to mean safeguarding state-owned enterprises which embody the people’s blood and sweat.

So far, so orthodox, but as mentioned in our earlier post, other voices pounced on the meaning between the lines. Noted economist Xiang Songzuo 向松祚, associated with Hu Jintao, fired a first salvo on 27 September. Other non-mainstream economists chimed in shortly after.

Xiang, for example said, ‘Wen Tiejun’s nonsense completely negates reform and opening, using inexplicable and absurd new words to deceive and mystify’. Ren Zeping 任泽平, formerly chief economist with ill-fated Evergrande Group, claims ‘China will keep moving towards marketisation and internationalisation’.

According to a Wen supporter, Xiang, Ren et al. dismiss the ‘socialist market economy with Chinese characteristics’, a Xi commitment. He laments that they want to engage in free and liberal capitalist market economics. But, he hopes, voicing this will wake up the Party faithful.

Outside observers may reserve judgement: Wen was among ‘scholars who rushed to Chongqing’, i.e. would have thrown his lot in with Bo Xilai’s 薄熙来 program of ‘singing Red songs’ and otherwise invoking the populism of the Cultural Revolution (see profile in ‘in and around the Party congress’). Wen is, in other words, subject to charges of opportunism; his ‘people’s economy’ slogan is easily decoded as a defence, not of ‘the people’, but of Party/cadre interests.

game on

Presenting the political situation post-Congress in cameo, the divergence between Liu Shangxi and Wen Tiejun foreshadows how common prosperity is to be hammered into shape. To observers, Beijing’s familiar games of interest threaten to be tougher than ever. Disloyalty to the Party has already caused heads to roll—loyalty to Xi now dominates the game.

State-market conflict permeates PRC history. ‘Understand and protect the market economy’, another strongly argued reformist statement by enthusiast Zhang Weiying 张维迎, former president of the Guanghua School of Management, appeared in highbrow aggregator Aisixiang, on 21 October 2022, while the Congress was still winding up. Significantly, it was a reprint from 15 years before.

Back then Zhang was as concerned about threats to the market under Hu Jintao, as Liu Shangxi is under Xi Jinping. And what stands out now is not the novelty of Zhang’s argument, but the no. 1 spot it has won this week on Aisixiang’s daily ratings.

The third Xi administration may dislike market reformers and thrust them to the outside of the power elite. But it will struggle to make them unpopular.


new faces in the politburo standing committee

Cai Qi 蔡奇 | Mayor of Beijing

Working closely with Xi, often directly under him during overlapping postings to Fujian and Zhejiang, Cai was transferred to Beijing in 2014 as General Office Deputy Director of the National Security Commission—a body established by Xi—later becoming mayor, then Party secretary. He earned merit with the untroubled 2022 Beijing Winter Olympics, even more for enacting Xi’s ‘zero-COVID’ with better outcomes than Shanghai. His image was damaged by the forced eviction of thousands of migrant workers from the city in 2017 in an effort to cut its growing undocumented population.

Cai is one of few to enter the Politburo without prior appointment to the Central Committee, his rise fast-tracked by appointments from Xi. In his speech to the Party Congress, he named Xi the ‘People’s leader’, a term conventionally reserved for Mao.

Now mayor of Beijing, Cai is a former deputy head of the Central National Security Commission. He was formerly mayor of Hangzhou, and Director of the Propaganda Bureau and Party Standing Committee, Zhejiang. Holding a PhD in political economy from Fujian Normal University, he is deemed a Party intellectual and close confidant of Xi.


Ding Xuexiang 丁薛祥 | Politburo Standing Committee Member

Ding has dual roles as CCP Central Committee Office Director and General Secretary Office director, directing Xi Jinping’s office as his chief of staff. He joined the Politburo in 2017. Ding was previously chief of staff to Shanghai Party secretaries, including Xi, in 2007. Reportedly impressing Xi with his administrative abilities and political counsel, he was promoted to the Shanghai Party Committee as a Standing Committee member, later serving as Secretary of its Political and Legal Commission. He rises to the Politburo SC, never having served as governor, provincial party secretary or minister.

It is said that no other official has spent as much time with Xi in the past decade. Recently, he accompanied Xi to Hong Kong to commemorate the 25th anniversary of the Handover and to Kazakhstan, the first overseas trip for China’s leader since the COVID-19 pandemic began. Ding could become vice-Premier, assisting the new Premier in managing the economy. His age places him as a potential successor to Xi.

Ding holds a bachelor’s degree in engineering from the Northeast Institute of Heavy Machinery. He worked in the Shanghai Research Institute of Materials 1982-99 before his rapid rise in the Party. He holds a Master’s in administration and Science from Fudan University. Party watchers describe him as a model technocrat with expertise in new materials research, an area deemed critical to economic development plans.


Li Xi 李希 | Guangdong Party Secretary

Currently Party Secretary of Guangdong, Li has been appointed to the Central Commission for Discipline Inspection and is set to be made responsible for anti-corruption as its director. Li is said to have risen due to nominating a site where Xi’s father, Xi Zhongxun 习仲勋, started an uprising in the Civil War, to study Party history. Taking a bachelor’s degree in Chinese at Northwest Normal University (1982-86), Li was an assistant to Li Ziqi, a former comrade of Xi’s father. He is said to have been an enthusiastic promoter of Xi’s anti-corruption campaign.

Li climbed his first Party rungs in backward Gansu and Shaanxi. Appointed Liaoning Party Secretary in 2015, he undertook the same role in Guangdong (2017), south China’s economic powerhouse and a reliable marker of future promotion to the Standing Committee. He has been a Deputy Secretary of the Shanghai Party Committee and Director of its Organisation Department. He holds an MBA in executive management.


in case you missed it…

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cp.signals—domestic policy movement
jobs for the boys
in and around the Party Congress

policy shifts—spots and zooms in on critical shifts
virtual trade fairs don’t cut it
PRC-EU railpolitik

cp.explainers—explaining key institutions and policy tools
explainer: getting GMOs to market
explainer: ‘integrated’ aged care

cp.observer—monthly roundup
september: RMB revisits 2008 rates
august: NEV exports a bright spot