Common prosperity has gained importance recently "Common prosperity" was deemed the "fundamental principle" of Chinese socialism at the 18th Party Congress in 2012 and gained more prominence recently. The 14th Five Year Plan called for an "action plan" to make solid progress towards achieving the objective, which is to be fully realized by 2050. Common prosperity means a more equal society with better social welfare, not egalitarianism, and entails further household income growth, better public services, stronger social safety net, narrower income gap between different groups, regions and rural-urban areas.

Multi-faceted policies, no imminent major income redistribution The government plans to implement comprehensive policies to facilitate common prosperity. We expect support of labor and property income growth, which means supporting SMEs and services sectors, better labor protection, land use rights reform and building a better capital market; increase in public service provision by the state (while regulating non state participants to reduce the cost), enhancement of social safety net including pension, health insurance, and unemployment insurance. We also expect some adjustment in personal income tax and consumption tax, but such adjustment will likely be modest and gradual in the coming couple of years. We see property tax legislation probably picking up pace but likely rolled out gradually, and do not expect an inheritance tax soon.

Potential impact on the economy Common prosperity related policies will likely aid China's rebalancing of the economy towards consumption, especially consumption of lower and middle income population, and away from investment in some areas. In addition, the state's role in public services will be strengthened while private participation will be limited. Private capital may seek opportunities in other sectors or abroad. Households may be shifting more assets into financial markets while the government will face increasing fiscal constraints as it provides more public services and social welfare for an aging population, which may lead to some divestment from state-owned enterprises (SOEs).

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