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How two words are reshaping China’s tech landscape
Xi Jinping's campaign to narrow wealth gap has businesses repositioning themselves
Darryl Yu 17 Sep 2021

Emphasized by Chinese President Xi Jinping this year, the concept of “common prosperity” has sent ripples around the Chinese economy as firms look to demonstrate their commitment to the principle. While simple in its form, the idea calls for Chinese businesses to be more equitable in their development and strive to reduce wealth excesses in the country or give back more to society.

Despite notching up annual growth rates of around 10% over the past 30 years to become the world’s second largest economy, China has seen wealth inequality grow starker. According to the National Bureau of Statistics, China’s Gini coefficient, a measure of wealth inequality from 0 (perfect equality) to 1 (perfect inequality), is around 0.47, compared with about 0.41 for the United States.

The “common prosperity” concept has particularly rattled the country’s technology sector, which has experienced rapid growth in business over the past several years. National technology champions Alibaba and Tencent have become an integral part of China’s economy with activities ranging from mobile payments to e-commerce.

Looking to rein in the excessive influence of these new economy giants under the umbrella of common prosperity, Chinese regulators have begun questioning their business practices. For example, online food delivery platform Meituan has been taken to task over the issue of worker protection while ride-hailing app Didi has been investigated over its use of customer information.

China’s technology companies have seen their share prices drop since the start of the year.

More recently, regulators have targeted the country’s video game industry, lecturing gaming giants Tencent and NetEase on the need to strictly enforce and monitor video-game playing time limits for minors. Alibaba shares plunged earlier this week (-31.41% YTD September 2021) after reports emerged that regulators were pressuring Ant Group (an affiliate of the Alibaba Group) to break up its business operations, including its highly successful Alipay unit with one billion users. 

“The high-profile actions against online giant Alibaba, while originally framed as a personality conflict between Alibaba founder Jack Ma and Chinese President Xi Jinping, can more properly be framed as, at least initially, a financial stability issue in light of the rapid growth of Alibaba’s consumer lending subsidiary Ant Group,” Union Bancaire Privée says in a recent research note. “As seen in other economies, rapid change in the financial sector has the potential to create financial system instability, a challenge which China has frequently grappled with in its own history.”

2021 has been a proactive year for Chinese policymakers.

Looking to appease President Xi’s economic vision for equitable wealth spread, several business leaders in the technology sector such as Pinduoduo’s Colin Huang and Xiaomi’s Lei Jun have pledged to donate huge amounts of money towards social causes in China. Alibaba and Tencent likewise have each pledged 100 billion yuan (US$15.5 billion) towards common prosperity projects in the coming years.

Common prosperity is likely to gain more importance in China’s economy going forward as the country moves towards a balanced growth model compared to the double-digit growth of the past. According to Chinese authorities, the country has already made great strides in spreading wealth among its citizens, and about 100 million of its rural population have emerged from extreme poverty.  

The recent launch of the Greater Bay Area Wealth Management Connect in southern China is another example of common prosperity being put to work as the scheme seeks to create a level playing field for retail investors in mainland China to invest in Hong Kong or Macau, and vice versa. 

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