Views on Common Prosperity and Longer-term Implications
Value Partners’ Co-Chairman and Co-Chief Investment Officer Dato’ Seri Cheah Cheng Hye recently joined leading China-focused executives and thought leaders at the NextChina2021 Conference, where they shared insights on how to navigate the business and geopolitical complications of the coming decade.
In recent months, investors might have been confused about China’s “Common Prosperity” program. In his keynote speech, Dato’ Seri Cheah shared his views on what Common Prosperity means and its longer-term implications to China.
We have summarized key points from the speech. You can also watch the full video replay below or download a copy of the full transcript.
What is Common Prosperity
Despite having eliminated absolute poverty in recent years, a majority of the Chinese population is still classified as lower income. The “Common Prosperity” program is critical to China’s vision to raise roughly half of its population to the middle class and double its economy again, achieving an income level for the Chinese population similar to Eastern Europe’s by 2035.
Common Prosperity does not emphasize wealth distribution. It is anti-monopoly and aims to promote a level-playing field for businesses and make society more productive and fairer. The recently announced “Zhejiang Plan”, which is intended to serve as a model of demonstration for the whole country, supports private enterprise, innovation, market development and small and medium-sized enterprises (SMEs). Hence, we can be reassured that Common Prosperity does not intend to kill the entrepreneurial spirit of the Chinese people.
China’s market-opening and pro-business reforms in the past four decades are irreversible. Today, China has 40 million SMEs providing 50% of tax revenues, 60% of GDP, 70% of patent applications and more than 80% of urban employment. China’s stock market is also the world’s second-largest, indicating that capitalism is alive and very well in China. The objective of Common Prosperity is to create a society that is highly sustainable and inclusive, looking more like an oval-shaped society rather than a pyramid.
Beijing’s regulatory reforms over the past year against property developers, internet platforms, after-school tutoring and others are aimed at problems that can’t wait for long-term solutions. The reality of Common Prosperity is that it is mainly about long-term structural reforms. President Xi himself stated it will take decades for Common Prosperity to be achieved.
There is a huge range of factors that can bring success or failure to the Common Prosperity program. One of the biggest challenges is how to deflate the overheating Chinese property market as China aims to channel more savings away from real estate into manufacturing, innovation and green energy sectors.
Property and related services currently account for about 20-25% of the entire Chinese economy. One has to tread very carefully when trying to “tame the monster”. Over-regulation could potentially trigger social and financial instability, which is unacceptable. And yet, the success of Common Prosperity could depend on getting property right.
A further complicating factor from the Chinese point of view has been the increasing tensions between China and the United States, making Common Prosperity targets much harder to achieve. So, I believe, from the Chinese perspective, China will continue to look for ways available to improve relations with the United States.
The Full Transcript Can Be Downloaded
Watch The Full Video Replay
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