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  • January 2022
  • Background Note
  • HBS Case Collection

Common Prosperity? China Shifts Left

By: William C. Kirby and Noah B. Truwit
  • Format:Print
  • | Language:English
  • | Pages:21
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Abstract

Since the founding of the People’s Republic of China in 1949, the ruling Chinese Communist Party (CCP) has been mistrustful of entrepreneurs and the private sector that operates outside the government’s authority. In its first decades under Mao Zedong, the CCP nationalized all private enterprises, restricted private ownership, even of land, and the state determined output and price levels. However, after Mao died in 1976, Deng Xiaoping launched a series of market reforms aimed at opening up China's economy. For two decades, the private sector, now loosely regulated, flourished. By 2012, private firms contributed an estimated 70 percent of China’s GDP. Domestic Chinese companies became global unicorns, with average returns on private investments three times those of state-owned enterprises.
For today’s entrepreneurs, even politically connected ones, their greatest threat is their own government. Since President Xi Jinping assumed power in 2012, the state has asserted greater control over private markets and allocated resources towards state-owned enterprises operating in areas of strategic importance to China’s national security and geopolitical dominance: semiconductors, life sciences, and renewable energy.
Today, the government has ambitions to achieve “common prosperity,” a more equitable society, as indeed one might expect from a formally “communist” regime. If it succeeds, it will be the first time in the history of the People’s Republic that the promise of socialism will be visible. If, however, it succeeds at the cost of a private sector that contributes more than 60 percent of GDP and is the foundation of China’s economic growth, victory may prove short-lived.

Keywords

Market Reform; Gdp; Government Administration; Government and Politics; Private Sector; Governing Rules, Regulations, and Reforms; Economy; Globalized Economies and Regions; Entrepreneurship; Business and Government Relations; Globalized Markets and Industries; Social Issues; Society; Economic Growth; China

Citation

Kirby, William C., and Noah B. Truwit. "Common Prosperity? China Shifts Left." Harvard Business School Background Note 322-069, January 2022.
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About The Author

William C. Kirby

General Management
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