China’s shared prosperity: A balance between regulation and innovation

CHINA'S initial pursuit of shared prosperity, aimed at addressing inequality and encouraging shared development, has produced diverging outcomes.

On the one hand, its targeted poverty alleviation strategy has successfully lifted its people out of poverty, achieving the United Nations’ 2030 Agenda for Sustainable Development’s poverty reduction target ahead of schedule.

In line with the aim for fairer income distribution, this has also motivated the Chinese government to initiate stringent measures to curb businesses and individuals from certain industries, such as real estate, technology and financial capital, from becoming too dominant or profitable.

On the other hand, a slowing economy, which unfolded as a consequence of numerous internal and external factors such as the property sector meltdown and the trade war, served as a reminder to the Chinese government of the importance of adopting supportive and flexible policies.

To stimulate economic growth, the government has rebalanced its policies by introducing transformative measures, which include financial stimulus and strategies to restore confidence in the private sector, especially the technology and internet industries, which have been subject to stringent regulatory monitoring since 2021.

This signifies a significant policy shift to rebalance the economy from one fuelled by debt and infrastructure development to an innovation and domestic consumption-driven model.

This has led to impressive industrial growth in modern industries in the country, particularly industrial automation, semiconductors, artificial intelligence and green technology.

This is the outcome of China’s long-term commitment towards investments in new energy, 5G infrastructure and transportation, as well as human capital development, which solidifies the country’s global competitiveness and self-reliance.

Prosperity beyond China’s borders

Shared prosperity is a socioeconomic goal that transcends borders, where growing the economy for the benefit of all segments of society in an inclusive and sustainable manner is pivotal for all countries.

China’s success in eradicating absolute poverty serves as an inspiration and role model for other countries, especially those that are in a similar predicament.

Following China’s example, these countries can enhance their investment in infrastructure, innovation and human capital to boost economic growth.

China’s visionary shift to cutting-edge industries has produced a burgeoning number of world-class firms, which enable the country to introduce innovative products with global consumer appeal.

In particular, China has evolved to become a global leader in renewable energy, electric vehicles and industrial automation.

Many Chinese firms have also ventured outside China to set up their manufacturing plants and diversify their export base, creating job opportunities and spurring the economy of their host countries.

For instance, the recent announcement that Chinese electric vehicle (EV) manufacturer BYD Company Limited will be setting up its first automotive assembly plant in Perak is expected to catalyse Malaysia’s EV industry.

This new venture will not only create employment opportunities but also encourage technology transfer, strengthen expertise in the manufacturing of EVs and promote the growth of supporting industries.

Moreover, through the Belt and Road Initiative, which Malaysia firmly supports, China has established large-scale investments with modern infrastructure with its partner countries around the globe, including 5G digital connectivity, artificial intelligence and green development.

This win-win strategy for both China and its partner countries promotes common development by strengthening global connectivity and facilitating the green transformation of the world economy, including the rapid transformation to zero-carbon energy.

Besides, China has fostered cooperative partnerships at the regional and international level. The country also plays an active role in bilateral and multilateral free trade agreements like the Regional Comprehensive Economic Partnership.

For example, during Chinese President Xi Jinping’s state visit to Malaysia in April, a total of 31 MoUs were signed, highlighting a shared commitment to strengthen collaboration in various strategic fields, including digital economy, connectivity, trade and infrastructure development.

This visit further reaffirmed the close bilateral ties between both countries and their dedication to jointly build a shared future grounded in cooperation and mutual respect, as well as reinvigorated China-Asean regional development and stability.

The recent economic transformation also creates attractive opportunities for investors, especially long-term growth-oriented investors.

According to investment specialist Qian Zhang from Baillie Gifford in “China: a tale of two stories”, global investors’ positive sentiments towards China are evident in the foreign flows to Chinese stocks, which turned net positive for the first time in two years in the last quarter of 2024.

These foreign investments further boost local enterprises, promote technological and industrial advancements and elevate the overall gross domestic product per capita of the country.

Collectively, these developments deeply resonate with China’s commitment towards a universally beneficial and inclusive economic globalisation, which promotes trade and investment liberalisation, undisrupted global production and supply chains and technological improvements; hence, significantly contributing to global economic development.

Conclusion

Being the world’s largest developing country, China has made substantial strides in terms of economic growth, poverty reduction and technological advancements. Echoing Baillie Gifford investment specialist Ben Buckler’s sentiment in “China: fear or FOMO?”, the country’s path to shared prosperity has its fair share of challenges and opportunities, demonstrating the importance of striking a balance between regulation and innovation.

Regulation is important to promote a healthy and sustainable economic development, which takes into account the interests of all stakeholders. This is crucial to ensure that businesses remain dynamic and profitable over the long run, while keeping unfair or illegal business practices at bay.

China’s recent policy shift reflects its commitment towards a more balanced and sustainable approach that values responsible business practices and innovation.

The effectiveness of this policy change, however, hinges on the cooperation and coordinated efforts between the government and market participants.

At the same time, the government should promote industry self-regulation to empower trade associations to assume a more active role in establishing standards and best practices for their members.

This structural shift also marks the country’s changing role on the world stage, with a greater emphasis on creating a better future of prosperity for the global community.

Dr Chow Yee Peng is an Associate Professor at Tunku Abdul Rahman University of Management and Technology. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT).