Donald Low

Opinion | From tuition ban to Evergrande collapse, is China tripping over its chase for ‘common prosperity’?

China’s crackdown on tech and a range of other sectors shows its economic policies are increasingly driven by ideological rather than market considerations

But instead of promoting ‘common prosperity’, innovative enterprises are being snuffed out by regulators in the belief that the economy can be engineered to fit utopian visions

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A customer shops at a supermarket in Nanjing. Photo: AFP

Donald Low

Published: 8:00am, 16 Jan 2022

Since the last quarter of 2021, signs of a sharply decelerating Chinese economy have begun to emerge. This slowdown goes well beyond the property, private education, and internet platform companies that were the targets of intense regulatory action in the last 12 months.

In the first year of the pandemic, China’s success in suppressing the spread of Covid-19 provided the impetus for a strong rebound at the start of 2021. The Chinese economy grew by 18.3 per cent on an annualised basis in the first quarter of 2021. In the last quarter of 2021, GDP growth is expected to slow to below 4 per cent.

This slowdown is likely to persist in the months ahead, as the Chinese authorities show no signs of letting up on a strict zero-Covid policy that has led to periodic lockdowns of Chinese cities, and depressed consumer and business sentiments.

People play cards behind a security barricade in Beijing amid the coronavirus pandemic. Photo: AP

China’s regulators are also likely to continue with their crackdowns in a range of industries, many of which have been key sources of innovation (and profit) in the last decade.

Chinese policymakers may argue that the current slowdown is a necessary but temporary correction, especially in the overleveraged (and inflated) housing sector and the under-regulated consumer internet industry.

This slowdown may even be justified by pressing policy goals: to curb excessive borrowing and speculation in real estate; concerns that China’s internet giants hoard and exploit personal data without regard for privacy; worries about financial stability with big tech’s entry into consumer finance; the network externalities and monopoly power that China’s tech titans enjoy; and the wasteful arms races in education that private tuition causes.

Underlying these industry-specific concerns is the grand vision of “common prosperity” – President Xi Jinping’s signature campaign to reduce inequality in China. Consequently, the debt limits on property developers and the crackdown on tech companies are framed in terms of ensuring affordable housing and preventing the “disorderly expansion of capital”.