East Asia turns towards social well-being
The impact of the Covid-19 crisis has highlighted Asia’s further potential for prosperity, and even the widespread expansion of prosperity, and with the new social policies in China, Korea, Japan and elsewhere, the whole world stands to gain as consumer markets can expand spectacularly.
East Asia turns towards social well-being
New Age – New Road

East Asia turns towards social well-being

Photo: AFP/Jia Tianyong
Marcell Horváth - Eszter Boros 20/03/2023 17:15

Over the past decades, East Asia has become known for its “Little Tigers”, or rapid economic growth. In the 1980s, China, the “workshop of the world”, arrived among the emerging economies. Market opening and industrialisation policies have given hundreds of millions of people the chance to leave extreme poverty behind. The centuries-old lifestyle based on rural farming and big families has changed for many. At the same time, this led to significant social differences. Most recently, the impact of the Covid-19 crisis has highlighted Asia’s further potential for prosperity, and even the widespread expansion of prosperity, and with the new social policies in China, Korea, Japan and elsewhere, the whole world stands to gain as consumer markets can expand spectacularly.

How much inequality is actually present in East Asian societies boasting success stories of economic growth? The so-called Gini index can provide a quick answer, for example in terms of income. The indicator ranks countries between 0 and 100: the lower endpoint indicates perfectly equal incomes, while the upper value indicates the most unequal distribution possible. A look at some countries shows that China, like the US or Turkey, is one of the more unequal societies. Singapore, South Korea and Japan are in the middle. These countries have recently announced innovative initiatives, with Chinese President Xi Jinping’s “shared prosperity” slogan attracting the most international interest.
Photo: AFP/Wang Zhao

China: focus on quality of life

Looking at the last forty years of China, it is astonishing to think how much change the pragmatic turn marked by Deng Xiaoping has brought to the country and the world. After 1978, the “reform and opening up” policy was proclaimed, giving rise to the idea that “it doesn’t matter whether the cat is black or white, just catch the mouse”. Deng recognised not only the need for market instruments, but also the necessity of China’s situation at the time: to allow certain regions, social classes and individuals to get rich faster. The free trade pilot zones on the southern and eastern coasts began to prosper rapidly (e.g. Shenzhen, Shanghai, Beijing). Later, from the end of the 1990s, the internet, entrepreneurship and flexible regulation gave birth to tech and online giants (Huawei, Xiaomi, Alibaba, Tencent) in these hubs. A new wealthy class of company founders, businessmen and traders emerged. All this has led to widening regional and social disparities, even though tackling extreme poverty and territorial disparities have been on the agenda for some time. Beijing’s goal so far has been to eradicate deprivation and achieve a “moderately prosperous society”. In 2021, on the 100th anniversary of the founding of the Communist Party of China (CPC), they announced that this historic task had been accomplished, with an additional 100 million Chinese people lifted out of extreme poverty in the final phase.

This milestone opened a new chapter in Chinese social policy. Shared prosperity is a step up, as it focuses on the highest quality of life (well-being) in the widest scale. Of course, this involves many things, so there is also a redistribution dimension. The world press reported on the goal of “reasonable adjustment of excessive incomes”, which raised some concerns about a return to the communist past. Increased regulatory scrutiny of internet companies and social pledges by billionaire businessmen show that the government really does want more contributions and responsibility from the richest for the public good.

Yet it would be premature to conclude that Xi Jinping is going against Deng’s legacy and evoking the class warrior world of yesteryear. According to those familiar with the CCP’s ideological debates, Xi had already been advocating the simultaneous need for “increasing the cake and its fairer distribution”. They will therefore continue to stimulate growth and capital accumulation.

Moreover, the politics of shared prosperity is not in line with the Western welfare state, as the greater contribution of the existing winners is not expected primarily through fiscal redistribution. The way to a high quality of life is through economic activity. As Xi put it, shared prosperity is built on hard work, law-abiding enterprises and innovation.

Promoting general wellbeing can also help China achieve one of its long-standing goals: to boost consumption. Beijing has long recognised that export- and investment-led growth has its limits, and that domestic consumption can be the engine of sustained high growth. This is reflected in the model called the “dual circulation” in 2020 (the balance between external and internal economic circulation). The common prosperity policy is the latest pillar of the virtuous circle.

Zone in Zhejiang province

China’s eastern province of Zhejiang is the first to show what a high quality of life means, having been designated in 2021 as a pilot zone for shared prosperity. The accompanying Action Plan shows that well-being covers the “olive branch societal structure” (strengthening the middle class), broad opportunities for prosperity, universal access to public services and favourable living conditions.

The province aims to increase per capita disposable income by 43 per cent in four years, by 2025, to reach the level of developed countries. The urban/rural income ratio will be reduced below a multiplier of 1.9 and the income earned by workers in total GDP will rise by 2.2 percentage points to 50 per cent. Under the “at least one worker per household” principle, 5 million new urban jobs will be created. The key for rural areas to catch up is to attract industrial activity to return, to introduce new digital opportunities and to make more efficient and coordinated use of rural resources (natural assets, land, buildings, retired labour).

The “parent-friendly society” model is approached by reducing the cost of childcare and improving the educational and social institutional network. They are relying on digitalisation to expand education and healthcare: telemedicine, remote ECG and ultrasound stations are being set up. In “15-minute towns”, all this will be available in the immediate residential environment, offering a sustainable and healthy way of life (“one million solar roofs”, 500 “green factories”, “waste-free cities”).

Zhejiang is off to a good start, as it is already one of China’s most developed provinces and the cradle of many successful large companies (such as Alibaba and Geely). Analysts say the objectives are realistic, so there is a good chance that the comprehensive approach that characterises the zone will be extended to the whole country.
Photo: AFP/Xinhua/Liang Zhiqiang

Asia is building a new capitalism

In 2021, Japanese Prime Minister Fumio Kishida announced a “new capitalism” that would transform the way the market economy works through the quartet of innovation, digitalisation, green transition and resilience. The combination of growth and a more equal income distribution is also a key element of this approach, moreover, the pro-work, pro-business and pro-family focus is also clear.

In this sense, other major players in the East Asian region, such as South Korea and Singapore, are also pursuing a “new capitalism” alongside Japan. One way or another, these countries will have to cope with the (partial) depletion of the growth models they have had so far, and they seem to have the necessary adaptability for this. In South Korea, the concentration of power and wealth in traditional family business conglomerates, the so-called “Chaebols”, is being challenged by new challenges. The “new economic policy” of outgoing South Korean President Moon Jae-in has promoted, along with an income-driven and job-centred economy, a more level playing field for small and medium-sized enterprises with the “Chaebols”. The President is also known for the Korean New Deal 2.0, a major strategic programme with separate pillars on social safety nets and human capital development (Human New Deal), as well as entrepreneurship and local investment initiatives (Local New Deal).

Singapore has recently focused on wage growth, a fairer and more competitive tax system, and labour skills development. The tiny city-state is in a unique position because its economy is built on its role as a global financial and logistics hub. However, in 2022, a tax-centred budget (luxury tax, sales tax, carbon tax) has been decided to target the sustainable social transition.

This is not only of socio-political interest, but also reflects an important business trend. The combination of growth and more balanced income relations is expected not only to reduce internal social tensions but also to stimulate consumption. New consumer markets that were previously untouched could open up. McKinsey economists estimate that in this decade, by 2030, one out of every two extra dollars will be spent in the Asia-Pacific region, meaning that companies in the region could be competing for half of the global consumption growth, that is $10 billion. Companies need to understand the consumers of the new economies aiming for a high quality of life, who will make up 55 per cent of the world’s upper-middle class households in 2030. In the developed countries of Asia, a third of the households are now crowding the markets with single-person, urban-based, online consumers. It is “just” a matter of finding a sustainable, competitive way to meet demand...

Marcell Horváth - The author is the Executive Director for International Relations of the Magyar Nemzeti Bank

Eszter Boros – The author is an expert in the International Relations Directorate of the Magyar Nemzeti Bank

This article was originally published in our Hungarian-language magazine Eurázsia in 2022.

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