Gao Hao, Ye Jiawei

• In a context of rising global inequality, China’s common prosperity proposes a vision towards a more inclusive and equitable economic and social system.

• With an exceptional growth of revenue and wealth in the past decade, China has paved the way to unleash the power of philanthropy for social change.

• While immense prospects lie ahead, the sole impact of philanthropy remains limited. Governments, businesses and philanthropy have a unique opportunity to harness the power of public-private partnership in delivering common prosperity outcomes.

In the past months, China has demonstrated its firm commitment on the path towards “common prosperity”. China’s tech giants such as Tencent and Alibaba swiftly responded by each pledging 100 billion yuan ($15.5 billion) into sustainable social innovation, followed closely by a mobilization of the wider corporate sector and society at large. Behind this pivotal moment is China’s determination in moving towards a more inclusive and equitable economic and social system.

What is common prosperity?

Common prosperity is not a new concept and has its roots in China’s modern development history. In President Xi Jinping’s article on the “concrete actions to promote common prosperity”, he described the latter as “a general concept that involves all aspects of the society, […] the common prosperity we are pursuing is for all, affluence both in material and spiritual life, but not for a small portion nor for uniform egalitarianism.” This lays down the guiding principle that China’s growth should be people centric and that in the pursue of economic development, no one should be left behind.

With the objective to address the fundamental relationships between “efficiency and fairness” in resource allocation, common prosperity aims to move towards a more equitable distribution structure that promotes social fairness and justice by building institutional structures and driving policy changes across three layers of resource distribution:

• A first layer through market mechanism, based on the principle of efficiency (called the first distribution);

• a second layer through taxation and fiscal transfers, based on the principle of equity (called the second distribution);

• and a third layer through charity and philanthropy, based on the principles of ethics (called the third distribution).

China has accomplished remarkable advancement on poverty alleviation in the past decades by reducing the number of poor people by close to 800 million. As extreme poverty has been eradicated in the country in 2020, its main social focus is now shifting from addressing wealth and wellbeing in absolute terms to relative terms.

Image: Credit Suisse Global Wealth Report 2021

Rise of global inequality over past two decades

Maximizing long-term value creation for all stakeholders

China’s vision for common prosperity is placed in a context of global rising inequality, with COVID-19 exposing the accelerated social ruptures in all economies. The fourth industrial revolution and technological innovation vastly contributed to economic progress, but also brought profound impact on people and employment by changing the nature of jobs and skills. There is an urgent need to rebalance social systems and address inequalities.

As seen in many parts of the world, enlightened citizens and conscious consumers spur change toward stakeholder value creation across all segments of the society. China now is approaching these challenges from a top down perspective by progressively shaping and refining its regulatory and legal framework.

Thomas Piketty argued in his Capital in The Twenty-First Century that the rate of return on wealth overcomes the growth rate of income in the long term and thus foster inequality. The affluence of liquidity resulting from quantitative easing in major economies accentuated the disparity and at the current stage, no market forces can concretely reverse the growing wealth gap and social bipolarization.

Image: Matthew O. Jackson

The Great Gatsby Curve: higher inequality tend to come with higher economic and social class immobility.

President Xi Jinping wants to “oppose the unlimited sprawl of capital […] and promote the standardized and healthy development of all kinds of capital.” Common prosperity is a call to redirect the pursuit of absolute profit maximization towards social responsibilities, to ensure long term value creation for people, planet and society and optimize the wellbeing of all – much of the philosophy are on a conceptual level, close to the stakeholder principles.

Many of the ambitions have been revealed – as making social resources and public services more accessible for all; reskilling and upskilling workers to provide equal opportunities; or strengthening market regulation and reforming legislations, and affirmed in the China government’s recent actions, such as regulating the real estate and tutoring industry, enforcing employee social security protection on platform companies, as well as strengthening its antimonopoly law and financial market regulations.

Unleashing the power of philanthropy for social change

While the core of common prosperity is to emphasize the role of market and regulation, philanthropy received great attention as the third and complementary layer of redistribution. Efforts of lifting its population out of absolute poverty and the significant growth of revenue in the past decade has tremendously contributed to the advancement of philanthropy in China.

In recent years, the burgeoning Chinese entrepreneurs and family businesses substantially advanced philanthropy and stood out as an indispensable force in the country. In the past 10 years, total cash donations from the top 100 philanthropists increased by 200%. In 2021, the top 39 philanthropists have donated a total of 30 billion yuan ($4.7 billion) equivalent of cash and shares.

Image: Jiawei Ye and Hao Gao

Growth of the Chinese philanthropic sector in the past decade.

Here are some of the most notable examples:

• Lu Weiding, Chairman of China’s largest auto components company Wanxiang Group, donated 100% of its subsidiary Sannong Group’s equity interest – including controlling shares of 2 listed companies for a total of 11.17 billion yuan ($1.75 billion) into a charitable trust in 2018. A year later, he subsequently announced donating the entirety of Wanxiang Group to a second charitable trust.

• Yeung Kwok Keung, who founded one of China’s largest real estate group Country Garden, hit a 2.2 billion yuan ($340 million) record single donation to Tsinghua University to support frontier scientific research.

Corporations are at the core of the philanthropic sector in China by originating 80% of the donations (more recently 60% according to the Annual Report on China’s Philanthropy Development (2020)), versus in the United States where 69% of the donations are from individuals. Common prosperity therefore encourages those most capable to contribute back to society.

• Amongst the notable ones, Tencent Holding invested 50 billion yuan ($7.7 billion) to establish a Sustainable Social Value Organization (SSV) and have integrated sustainable social value creation into its business strategy. It subsequently set up a 50 billion yuan ($7.7 billion) dedicated fund to common prosperity, with an additional 5 billion yuan ($780 million) on its annual 99 Giving Day for the development of the philanthropic sector.

• Cho Tak Wong, Chairman of Fuyao Glass Industry Group, one of Asia's largest manufacturers of auto glass and who pledged 3.55 billion yuan ($560 million) worth of his shares into the Heren Charity Foundation back in 2011, is now donating 10 billion yuan ($1.56 billion) to establish a public university targeted to technical talent and skills development.

• Dang Yanbao, Chairman of Ningxia Baofeng Group, a diversified group focused on chemicals and renewable energy, has been since 2011 contributing 10% of its annual profit to the Ningxia Yanbao Charity Foundation. Together with his spouse Bian Haiyan, Vice Chair of the foundation, they pledged to donate 6 billion yuan ($940 million) in the form of university scholarships and subsidies to low income families in the Ningxia region.

Private businesses are the biggest beneficiaries of China’s reform and opening up. We must take on a more important role and play a bigger part. We insist on mutual benefit between employees and company, doing business with heart, and doing charity with love.

—Dang Yanbao

Corporations and UHNWIs are not the sole players in this space, common prosperity now also provides ground for a society wide of philanthropy mobilization. Since the launch of China’s “Charity Law” in 2016, philanthropic organizations flourished and played an important role in actively coshaping the philanthropic landscape and in the revision of the “Charity Law” to respond to new challenges.

Last but not least, the rise of online charity platforms has significantly facilitated individual giving. Online fundraising accounted for 20 percent of total nonprofit donations in 2019. In 2021, Tencent philanthropy through its eminent 99 Giving Day, has mobilized 68.7 million individuals over 3.57 billion yuan ($560 million) of donations, which represents a 330% increase on participant number and 200% increase on donation amount since its inception 7 years ago.

Opportunities for multistakeholder cooperation

While common prosperity opened a bright chapter for the Chinese philanthropic sector, it still faces many challenges and limitations. Philanthropic leaders and nonprofits are now urging legislators to speed up the improvement and further clarification of the legal framework and reform of the charity related fiscal policies.

Philanthropy is an incredible catalyst for change and brings reactive, flexible and innovative solutions to address global societal and developmental challenges, but it cannot solve the problems alone. In 2019, China had a GDP of 99 trillion yuan ($15.5 trillion) and a fiscal revenue of 19 trillion yuan ($3 trillion), but only collected 0.133 trillion yuan ($0.02 trillion) of social donations according to the Annual Report on China's Philanthropy Development in 2020. Philanthropy only accounted for 0.14% of China’s 2019 GDP, its impact is in reality limited compared to the colossal force of the market and fiscal policies.

Facing the current state of the world and scale of our challenges, the World Economic Forum is committed in cooperating with governments, businesses and philanthropy to harness the power of public-private partnership in advancing common prosperity.

The original article first published in:

https://www.weforum.org/agenda/2021/12/how-can-china-s-philanthropic-sector-advance-common-prosperity/