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Macroscope | The winners and losers as ‘common prosperity’ reshapes China’s economy
- Improving the lot of the less well-off could boost consumption and drive capital towards ‘policy-friendly’ sectors such as electric cars and green energy
- Most at risk are entertainment companies in gaming and live streaming, while those offering public services such as health or housing can expect greater scrutiny
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“Common prosperity” is the latest buzzword for China’s markets. The term has been mentioned by over 70 major Chinese companies in their latest earnings reports and by President Xi Jinping in over 60 speeches this year, up from 30 last year and just six in 2019.
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It is part of a series of political priorities, including dual circulation, environmental protection and family values, that is driving major shifts in Chinese markets. But they are having trouble digesting this latest priority.
In stark contrast to last year, Hong Kong- and mainland-listed Chinese equities have clearly underperformed compared to their US counterparts. Nearly three quarters into the year, Chinese equities are lagging US markets by around 40 per cent. This divergence is wider than during the 2013 taper tantrum and the 2015 bursting of the Chinese equity bubble. Even European indices have fared far better this year.
Earlier this year, the underperformance was largely attributed to China’s slowing economy; more recently, investors are blaming stricter regulatory oversight. It has been a struggle to find a reliable framework to understand and predict regulatory moves – now, common prosperity looks like the best conceptual lens through which to understand the policy direction.
Common prosperity is not a new concept. It came up in the Mao era and was repurposed 40 years ago by Deng Xiaoping, who famously proposed to let some people get rich first in the journey towards “prosperity for the entire people”.
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‘Socialism with Chinese characteristics’ explained
‘Socialism with Chinese characteristics’ explained
Deng’s policy pivot towards decentralisation and privatisation allowed Chinese household wealth to grow astonishingly over the past few decades – with gross domestic product per capita rapidly converging towards advanced-economy levels.
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