AXA IM Talk on Asia & China Market: What to make of China’s ‘Common Prosperity’ push?

In this month’s video, our Senior Emerging Asia Economist Aidan Yao will walk you through the fundamental drive behind China’s recent regulatory storm – the strategy shift to ‘Common Prosperity’ – and how it’s likely to play out in the future.

Please find the full script below:

Hello, welcome to our monthly video series, my name is Aidan Yao. I’m the senior Emerging Asia economist here at AXA Investment Managers.

A powerful wave of regulatory storm has swept through many parts of the Chinese economy, leaving investors baffled at Beijing’s intentions behind the far-reaching actions.

We see many of these moves as part of a progressive shift in China’s long-term development plan from Deng Xiaoping’s ‘allowing some people to get rich first’, which prioritizes economic growth, to a pursuit of ‘common prosperity’, which tries to better balance between the speed of growth and quality of growth.

One could also see the pursuit of “common prosperity” as a natural extension from poverty alleviation, with the latter trying to lift people up from the bottom of society, while the former tries to redistribute wealth from the top. Together, they try to remold the income and wealth distribution in China from the current “pyramid shaped” structure to an ‘olive shape’ structure

To succeed in such endeavor, we believe major policy changes are needed in three areas. First, redistribution of income and wealth through taxation and other incentives. Second, improving social welfare by providing basic protection for the underprivileged. And finally, creating equal opportunities for all through industrial policies and regulations. We think many of the recent policy and regulatory changes fall into those three categories.

Finally, reducing inequality for a more egalitarian society is no easy feat. We believe Beijing need to strike two delicate balances:

The first balance is between ‘income creation’ and ‘income redistribution’. While the latter has gained prominence recently, the former is equally as important for a developing country like China.

The second balance is between long-term sustainability of growth and near-term macro stability. Managing the side effects and risks associated with some of the structural changes is going to be an important measure of the strategy’s success.

You can find more information on this topic in our latest publication on our websites.

Thank you very much and stay safe.