“Common Prosperity”-What is brewing in China and its impact on India?

By Vansh Mehrotra

When all the major economies in the world were suffering from a major contraction, China was the only country to have a positive growth rate. Fast-forwarding to 2021, it seems like China is trying to damage its own high growth rate. In case you have missed out on what’s going on for ‘China Inc.’ which has got investors from Shanghai to New York sweating over their investment plans, you will surely be astonished by how China is trying to kill its crown jewel industries.

Before beginning his third term in the year 2022, Xi Jinping is poised to make strong moves towards the goal of “Common Prosperity” till 2035 and basically achieve the goal by the year 2050. The concept of “Common Prosperity” is not new in China as it was first mentioned in 1950 by Mao Zedong and again in the 1980s by Deng Xiaoping for a China that was then impoverished. Deng said that allowing few people and regions to get rich first would help reach the ultimate goal of Common Prosperity. Since then China has become an economic powerhouse with the policy of “socialism with Chinese characteristics” but this has also increased the gap between the have and have nots. China has the most income inequality after the USA. Thus, it can be assumed that now the focus of the Chinese communist party is not only increasing the size of the pie but also the equitable distribution of the pie. It means that China does not want the concentration of money and power in just a few people but wants to build a nation with general prosperity with a low-income gap and where, if not everyone, a majority of its population is prosperous and satisfied.

This can also be viewed as Xi Jinping’s move to please the masses before his third term and to prevent any feeling of discontent against him. DiDi Chuxing Inc. operates passenger transportation platforms (the Chinese answer to Uber). The Chinese government came down heavily on DiDi Global Inc. for cyber irregularities a few days after it debuted on the New York stock exchange with a $68 billion valuation. Since then DiDi is trading 40-45% lower than its initial highs. It came to public attention in July that this can also be a move to keep the big companies of China in check and prevent them from getting too big. And the DiDi fiasco is just the tip of the iceberg. 

The Chinese government intervened in the $120 billion dollars private tutoring industry of China demanding it to turn non-profitable as well as banning any foreign investment in such companies. This wiped out billions of dollars from the market capitalization of these companies. The governments’ side of the argument was to lower the education costs of children for the middle class of China. According to a survey, 75% of the Chinese students were enrolled in some kind of private tuition. They also want to remove the monopolies of these big companies with foreign investors in such a socially important sector. This was also to boost a Chinese law that allows Chinese couples to have three children instead of two. 

Tencent, one of the biggest Chinese companies is also facing issues with the government as its exclusive music rights label license has been revoked by the government, citing violation of antitrust laws. Further, in its latest move, the Chinese government has considerably restricted the time that minors can play video games in China to 3 hours (8-9 pm on Friday, weekends, and public holidays). The Chinese government may say that it is for the betterment of children but it’s a huge cause of worry for gaming companies like Tencent whose 110 million minor users are being limited by this restriction, which will eventually affect their financials. 

This might look good from the general person’s point of view as their government is working towards income equality by targeting these humongous money-making machines. But it is a delicate time for China as the factory output went into reverse after a period of 18 months mostly due to the spread of the delta variant. Further, the companies which the government is targeting provide employment to millions of Chinese people as well help the government earn billions in foreign exchange. To escape the wrath of the government, the companies are now voluntarily contributing to the welfare programs of the government. Nasdaq listed e-commerce site- Pinduoduo has pledged to contribute $1.5 billion and Tencent has pledged to contribute $15 billion for the upliftment of the low-income community and other welfare programs of the government. 

These tectonic changes in China might have a lot in store for the Indian Inc. Since the start of the coronavirus pandemic, there have been enough noises and moves by some of the biggest companies to set up their global manufacturing plants in India-a shift from China. Now with these anti-capitalistic policies of the Chinese government and the various pro-business policies of the Indian government, it is more probable that India becomes the next “factory of the world”. Further due to uncertainty regarding the Chinese companies, a foreign investment which was being directed to these companies is now being channeled into India-a very good thing for both Indian startups (in the private market) as well as the listed companies (in the public markets). It can also reduce Chinese competition with Indian firms. But a thing which India should be cautious of is that it does not damage its environment in pursuit of growth just like China did. However, the change in China’s policies has a bright outlook for India. 

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