Lessons for the United States from China’s “Common Prosperity” Push


The Chinese Communist Party has waged a charming campaign in the United States. Amid all the stories about a silenced tennis star, a #MeToo scandal, missing billionaires and Uyghur concentration camps, Americans are also starting to hear about Beijing’s efforts to reduce inequality and create a kind of healthier and more balanced economic growth. China’s “common prosperity” message has filtered through mainstream television broadcasts such as 60 Minutes on CBS and national newspapers.

And while there are legitimate doubts as to whether an authoritarian government with a risky human rights record, a history of debt-fueled growth, and a ruling class with its own vested interests in the old system can implement better policies, there are nonetheless important lessons America should learn from China’s efforts to do so – in particular, the focus on quality over quantity in terms of growth.

In recent years, this has involved reforms in the banking sector, restructuring of local government debt, anti-monopoly measures against Big Techs, and more recently an attempt to deflate the real estate bubble. Struggling real estate giant China Evergrande may still melt and take the rest of the industry with it, but I have to admire Beijing for doing exactly what the United States failed to do as the subprime crisis approached, in identifying problematic businesses. before a crash, and trying to squeeze air out of a bubble before it causes the rest of the economy to crash.

The abandonment of speculation and debt slowed growth considerably. This is not a bad thing. In a recent research note, macro investor and China scholar William Callanan, founder of Syzygy Investment Advisory, said the efforts represented a kind of “quantitative crunch” in the shift from quantity to quality. growth (higher wages and more emphasis on sustainability). While there was some increase in fiscal stimulus ahead of the 20th Chinese Party Congress next fall, it is not, as TS Lombard said in a memo, “a China’s classic revival, “but rather a plan to” move forward better “focused on areas such as cleaner energy, smart infrastructure and the digital economy.

This is all part of the country’s efforts to create a “dual circulation” economy based on greater autonomy and “indigenous innovation”, with the aim of increasing productivity and wages in high growth industries. While some see this as China’s own version of nationalist decoupling from the United States, I would say it makes perfect sense for Beijing. The world’s second largest economy should think about how to create a new economic ecosystem specially designed for its future.

Tying local production to growing local demand makes sense for all kinds of reasons, from geopolitics to the environment. This creates more resilient and redundant supply chains, and allows manufacturers to move up the economic food chain faster, as extensive research has shown.

China has in fact learned this type of iterative manufacturing and industrial policy from the United States. Interestingly, America’s most innovative companies, such as Tesla (which is all about controlling its own supply chain), have never strayed from this model. Others will follow; a recent McKinsey survey of global supply chain managers found that nearly 90% expected more regionalization and localization of production in the future.

A final lesson America could learn from China’s joint prosperity efforts is the importance of holding corporate leaders personally accountable for wrongdoing. Obviously, an autocratic state follows a very fine line here lest it be tempted to go too far – throwing even corrupt business leaders into the gulag without trial is, needless to say, bad for them. human rights and investor confidence. Washington has the added constraint that, unlike Beijing, it cannot simply demand that the Big Techs pay their fair share of taxes; it must pass a law requiring it.

But sending executives who broke the law after a fair trial to jail and checking corporate excesses before the crisis is good. China recently made some improvements to investor protection programs and securities laws. In November, Kangmei Pharmaceutical, formerly one of China’s largest publicly traded drug makers, was convicted of fraud and had to pay investors $ 387 million. Chairman Ma Xingtian and his wife, as well as four former leaders, were held personally financially responsible, and Ma himself was imprisoned.

Had a number of American executives received the same treatment amid the countless financial crises and corporate scandals of recent years. This has, of course, been one of the main refrains of populist left and right in recent years – that “no one has gone to jail”. It may be that the mastery of political and business elites will be the greatest future challenge for the United States and China.

Of course, liberal democracies have more transparent justice systems and a free press to make sure they do. Politicians remain accountable to the electorate, however polarized it may be. China, meanwhile, has paved the way for President Xi Jinping, whom many see as the next Mao, to become a leader for life. Beijing’s “common prosperity” effort has its merits. But that cannot obscure the fact that in China, the Communist Party itself remains the biggest risk in the market.

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