Yang Zheng: "Common Prosperity" from the Perspective of Economic Development and Enterprise Strategy

The source of this article: Times Finance Author: Yang Zheng

Abstract: The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China emphasized "solidly promoting common prosperity", and when describing the long-term goal of basically realizing socialist modernization by 2035, it clearly proposed that "more obvious substantive progress has been made in the common prosperity of all people". Common prosperity is the essential requirement of socialism and the common expectation of the masses of the people. In the context of common prosperity, platform monopoly and capital disorderly expansion have been curbed, people's labor remuneration will continue to increase, and by 2035, the economy and society will show a series of trend changes, including: China's total GDP will reach the world's first, the middle-income population will double, service-oriented demand will become dominant, urban and rural market consumption continues to expand, and the aging and low birth rate superposition will form a double challenge. Enterprises must adjust their long-term strategies in order to seize the opportunities in the trend and achieve a sustainable foundation. This paper tentatively proposes five strategic transformation directions for enterprises, including: from product manufacturers to manufacturing service providers, from closed organizations to open ecological organizations, from the pursuit of maximizing shareholder interests to the balance of stakeholder interests, from focusing on the young economy to embracing the family economy and the silver economy, and from the city-based to the new blue ocean market that combines urban and rural areas.

Keywords: common prosperity, 2035, trend change, strategic transformation

I. Development Background: Common prosperity is the essential requirement of socialism

Common prosperity is the essential requirement of socialism and the common expectation of the masses of the people. On November 9, 1984, Deng Xiaoping explicitly proposed the concept of "common prosperity." He pointed out: "Under the socialist system, some regions can be enriched first, and then other regions can be jointly enriched. On the afternoon of January 28, 2021, General Secretary Xi Jinping once again stressed at the 27th collective study of the 19th Politburo of the Central Committee that "entering a new stage of development, completely, accurately and comprehensively implementing the new development concept, we must pay more attention to the issue of common prosperity." On August 17, 2021, at the tenth meeting of the Central Financial and Economic Commission, General Secretary Xi Jinping once again stressed that "common prosperity is the essential requirement of socialism and an important feature of Chinese-style modernization, and it is necessary to adhere to the people-centered development ideology and promote common prosperity in high-quality development." ”

Since the reform and opening up, China's economy has achieved rapid growth, but regional differences, urban-rural differences, and differences in capital remuneration and labor remuneration have become more and more obvious. For example, in terms of the Gini coefficient, an important indicator that reflects the degree of difference in the distribution of residents' income, china's Gini coefficient reached 0.47 in 2016, which is higher than that of Western developed countries such as the United States (0.41), the United Kingdom (0.35), and Canada (0.32). According to the data of the National Bureau of Statistics, until 2019, China's Gini coefficient was above 0.465, higher than the "warning line" of 0.4 stipulated by the United Nations. In order to basically achieve common prosperity, we must strive to reach between 0.2 and 0.3 in 2035, meeting the relatively average standard set by the United Nations. Another example is the income gap, in 2020, the income ratio of urban and rural residents in China is 2.56:1, higher than most developed countries in Europe and the United States, in order to achieve common prosperity, it is necessary to continue to fall below 1.8:1 by 2035, and the income gap should continue to narrow. At the same time, comparing the development of wage income and labor productivity in recent decades, it can be found that the labor productivity of China's industrial enterprises has been greatly improved, the annual growth rate of labor productivity is close to 20.8%, while the annual increase in wage income is only 13.2%, and the high growth rate of the return on capital of enterprises has always been higher than the growth rate of labor return rate. In order to achieve common prosperity, the growth rate of wage income in the next fifteen years needs to be synchronized with or higher than the growth of labor production.

After more than 40 years of reform and opening up, China is currently transitioning from "efficiency first, taking into account fairness" to "efficiency and fairness", and will gradually move towards a "common prosperity" society that pays more attention to social fairness in the future.

Outlook 2035: Five important economic and social development trends

1. China's total GDP may surpass that of the United States, ASEAN will become the fourth largest economy, and Asia will become a global economic and trade center.

According to the forecast in the think tank report "China 2049: Towards a World Economic Powerhouse" by the National Development Research Institute of Peking University, China may successfully cross the middle-income trap by reaching the threshold of high-income economies set by the World Bank around 2025; if it maintains an average annual growth rate of more than 4.5%, the total economic volume is likely to surpass the United States and become the world's largest economy around 2030; by 2049, China is likely to reach the level of economic development of developed countries. Thus smoothly realizing the second centenary goal proposed by the central authorities.

On December 26, 2019, the ASEAN Secretariat released its annual ASEAN Integration Report, which announced that ASEAN is the fifth largest economy in the world with a volume of US$3 trillion, up two places from four years ago. With the signing of the Regional Comprehensive Economic Partnership (RCEP), in the next 10 years, ASEAN will benefit from the development of a unified market in the Asia-Pacific region, and under the stimulation of the dual factors of demographic dividend and latecomer advantage, the economy is expected to maintain more than 5% growth, and the total economic volume will reach 4.8 trillion US dollars by 2030, becoming the world's fourth largest economy.

By 2035, China's economic aggregate will become the world's first, ASEAN will also become the fourth largest economy, according to purchasing power parity, Asia's economic aggregate is expected to exceed 60% of the world's total economic volume, the world's economic center of gravity once again returned to the Asian region, Asia has become an important engine driving global economic growth. For multinational companies, the Asian market will become the decisive market in the next fifteen years, and the success or failure of the Asian market will determine the success or failure of the global market.

2. The middle-income group has doubled and substantial progress has been made in common prosperity.

According to the definition adopted by the National Bureau of Statistics, households with an annual household income (typical of a family of three) under the price in 2018 are defined as middle-income households. The tenth meeting of the Central Financial and Economic Commission stressed that efforts should be made to expand the size of middle-income groups, grasp the key points, and accurately implement policies to promote more low-income people to enter the middle-income ranks. From 2020 to 2035 is a critical period for China to move from the middle and high income stage to the high income stage, the central government has adopted a series of measures, the proportion of middle-income groups may increase from the current 30% to 60%, and the middle-income group will increase from 400 million to 800 million, to achieve the doubling of the middle-income population, and initially form an "olive-shaped" social structure, so as to achieve the goal of making more obvious substantive progress in the common prosperity of all the people. According to the experience of economic development, the doubling of middle-income people will release huge market demand, especially the doubling of service-oriented consumer demand such as medical care, education, sports, culture, tourism, entertainment, and family services.

On July 19 this year, the "Implementation Plan for Zhejiang High-quality Development and Construction of Common Prosperity Demonstration Zone (2021-2025)" (hereinafter referred to as the "Implementation Plan") was officially released, which proposed that we should adhere to the fundamental purpose of meeting the people's growing needs for a better life, take reform and innovation as the fundamental driving force, take the solution of regional disparities, urban-rural disparities, and income disparities as the main direction of attack, pay more attention to the rural, grass-roots, and relatively underdeveloped areas, tilt towards the people in difficulty, and solidly promote common prosperity in high-quality development Accelerate the breakthrough of the problem of unbalanced and insufficient development, and take the lead in realizing theoretical, practical, institutional and cultural innovation in promoting common prosperity. At the same time, the provinces are not far behind, and have begun to study and introduce a local version of the implementation plan for common prosperity. As a large socialist country, China has the problem of unbalanced development between regions, groups of people and industries, and it is foreseeable that common prosperity will become the main theme of China's social and economic development for a long time in the future.

3. The proportion of material-based consumption continues to decline, and service-oriented consumer demand has become dominant.

As China enters the late stage of industrialization, China, as the world's largest manufacturing country, the supply of material-based consumption has generally shifted from shortage to excess, and the supply of general material-based consumer products tends to be saturated. From 2013 to 2019, the proportion of material consumption expenditure in the per capita expenditure of Chinese residents fell from 60.3% to 54.1%, an average annual decline of 1 percentage point, of which the proportion of material consumption expenditure of urban residents fell significantly faster than that of rural residents. With the continuous decline in the proportion of material-based consumption, the proportion of service-oriented consumption continues to rise, which is prominently manifested in the rapid growth momentum of consumption fields such as medical and health, study abroad education, tourism and leisure, sports culture, and digital information. From 2013 to 2019, the annual per capita expenditure of China's residents' service-oriented consumption increased from 5245.9 yuan to 9886.0 yuan, an average annual growth rate of 11.1%.

After more than 40 years of reform and opening up and marketization process, China has solved the problem of supply of material products in a relatively short period of time, with the continuous improvement of residents' income level, in the next 15 years, China will enter a service-oriented consumer society. Morgan Stanley believes that in the next 10 years from now, The proportion of service-oriented consumption in China will increase from the current 45% to 52%. According to the prediction in the "China Consumption" green paper led by Chi Fulin, president of the Central Reform Institute, by 2035, the urbanization rate of China's permanent population is expected to reach 65% and then enter a relatively stable state, comprehensively considering the characteristics of the Chinese structure and industrial structure, the proportion of China's residents' consumption-oriented services is expected to reach about 65% in 2035, and surpass the United States to become the largest country in service trade around 2035.

4. The income gap between urban and rural areas has narrowed, and the urban and rural markets have continued to expand.

At present, China is still a big country with a dual structure of urban and rural areas, and the market potential of rural areas and small towns cannot be ignored. On the one hand, urbanization has led to the improvement of rural labor productivity and the rapid growth of farmers' incomes, which has promoted the upgrading of rural consumption structure; on the other hand, the urban and rural consumer markets have shown a new trend of integrated development, which has promoted the expansion of the scale of the rural consumer market. At present, the consumer market at the township and village levels accounts for 38% of China's overall consumer market, and is expected to reach 10 trillion yuan in 2030.

In 2020, according to the data of seven national censuses, the number of people living in rural areas was 500 million, accounting for 36%. By 2035 Chinese urbanization rate will reach more than 75%, the rural permanent population will be further reduced to 300 million people, and about 200 million rural people will enter urban life, which will bring huge service demand and economic growth. Studies have shown that only 18% of migrant households own housing in cities, and developmental human capital expenditures such as training, housing, and entertainment are even smaller. In the next 15 years, the demand for housing, rental housing and related supporting services such as medical, educational, and entertainment will grow rapidly.

5. Aging and low birthrate superimposed, forming a double challenge to economic development.

According to the data of the seventh national census, in 2020, China's population aged 65 and above is 190.64 million, accounting for 13.50%. According to the China Development Foundation, by 2025, China's elderly population over the age of 65 will exceed 210 million, accounting for 15% of the total population; by 2035, it will exceed 310 million, accounting for 22.3% of the total population. From the perspective of development trends, the speed and scale of aging in Chinese population are unprecedented, and they will enter a deeply aging society in 2022 and a super-aging society around 2033, and the pressure of China's "old age before getting rich" is huge.

At present, since the implementation of the comprehensive two-child policy, there has not only been no peak in fertility, but there has been a decline in fertility. In 2016, the "comprehensive two-child" policy was implemented, and the number of births climbed to 17.86 million that year, the highest since 2000, but then fell sharply year after year. The number of births fell to 17.25 million in 2017, another 2 million to 15.23 million in 2018, and 14.65 million in 2019. With 12 million in 2020, the number of births is down 18% from 2019, and the decline in the number of new births will become a long-term trend. People are the basic elements and driving force of economic and social development, and the coexistence of population aging and low birthrate is one of the largest "gray rhinos" in China, which will have a long-term impact on the labor supply and demand structure of the market.

Third, the response strategy: the strategic transformation direction of the enterprise

Michael Porter pointed out that few companies can always rely on the advantages of operational efficiency to stand in an invincible position, and the final result of operational efficiency instead of strategy is bound to be zero-sum competition. Operation management capabilities determine the current competitive advantage of enterprises, and strategic choices determine the future competitiveness of enterprises. Looking forward to 2035, in the context of common prosperity, the external environment of enterprises may undergo fundamental changes, and enterprises can only maintain the longevity of the foundation if they continuously adjust their strategies according to changes. Towards 2035, the authors suggest directions for strategic transformation that include:

1. Transformation from product manufacturer to manufacturing service provider.

In the next fifteen years, China will enter a service-oriented consumer society, from the large-scale industrial era to the production-centric, to service-centric, although processing and manufacturing still occupies a certain proportion of the economy, but value creation is increasingly inclined to the service link. Service manufacturing is the polymer of intellectual capital, human capital and industrial capital, and is the glue of the three. The high degree of aggregation of the three kinds of capital makes the service-oriented manufacturing industry get rid of the form of too strong manufacturing rigidity, low technical content and labor-intensive, and gradually move towards people-centered, actively introduce customers into the process of product manufacturing and application services, take the initiative to discover customer needs, and carry out flexible services.

Common manufacturing servitization transformation methods include: First, product life cycle services. The business model of the enterprise has changed from "once in a lifetime" to "once in a lifetime", enhancing the value of products throughout the life cycle, including replacing the one-time sales model with a long-term lease model for products, increasing the long-term value output of products, improving the operational efficiency of products, and even after the product is decommissioned, through recycling and remanufacturing, its value is regained. The second is system integration services. To provide customers with system integration services around the product, there are studies that around the product system integration service, can increase the entire contract value at least three to five times, more importantly, the system integration service makes the enterprise become the system integrator. 3. Value network collaboration services. Enterprises will do their own core business well, and for their own non-advantageous areas, choose to cooperate with other enterprises to coexist, through the value network collaboration services, reduce the overall cost of customers, enhance customer value, and strengthen the stability of the supply chain and value chain.

2. Transform from a closed organization to an open ecological organization.

The external environment facing today's businesses is shifting from stable to dynamic, and Robert McDonald, CHIEF Operating Officer of Procter & Gamble, borrowed a military term to describe this dynamic environment, "It's a VUCA world." "Vuca refers to volatility, uncertainty, complexity, and ambiguous. In a dynamic business environment, there is no point in simply emphasizing competitiveness, any individual is vulnerable, and building a sustainable ecosystem is the foundation for long-term sustainable development of the organization.

Chen Chunhua gave the definition of symbiotic organization in the book "Symbiosis", "Symbiotic organization is an efficient cooperative organization form based on customer value creation and cross-field value network, and the members of the network formed have achieved mutual subjects, common resources, value co-creation, and profit sharing, thereby creating a high level of development that cannot be achieved by a single organization." In the author's view, the core of the symbiotic organization is to create a symbiotic value network, to continuously create value for customers through collaborative innovation, rather than to improve efficiency through division of labor and competition, and to adapt to the dynamic business environment of "vuca" through the continuous self-iterative evolution of the organization. In the next fifteen years, the demand for enterprises to build an open ecological network will far exceed the needs of competitive strategies, and the driving force for sustainable development of enterprises will no longer be a single competitive advantage, but a more vital ecological network.

3. Shift from the pursuit of maximizing shareholder interests to the balance of stakeholders' interests.

For the first time in 2021, the Central Economic Work Conference listed "strengthening anti-monopoly and preventing the disorderly expansion of capital" as one of the key tasks. On the one hand, this is aimed at the problem that domestic capital has focused too much on traffic realization in recent years without paying attention to originality and basic innovation; on the other hand, since entering the 21st century, the growth rate of China's return on capital has long been higher than the growth rate of labor return, people with capital are getting richer and richer, and people who are relatively lacking in capital are getting poorer and poorer, resulting in a widening gap between the rich and the poor, and the Gini coefficient is still hovering at a high level, which will become an obstacle on the road to common prosperity in China.

As an important carrier of capital, enterprises must also shift from emphasizing the maximization of shareholders' interests to paying more attention to the balance of stakeholders' interests in the future, especially under the constraint of the "double carbon target", enterprises must pay more attention to the construction of ESG system (environment, social, and governance, that is, environmental, social and governance). e is concerned about the impact of enterprises on the environment, referring to the green inputs of enterprises in the process of production and operation, intensive use and recycling of resources and energy, etc.; s is society, refers to whether the enterprise and its stakeholders can achieve coordination and balance; g is management, mainly whether the board structure, equity structure, management remuneration and business ethics of enterprises are standardized. ESG goes beyond traditional investments based on financial metrics and is therefore more sustainable when considered from multiple dimensions. Over the past decade, the Shanghai Social Responsibility Index has risen by 58.02%, while the Shanghai Composite Index has risen by 14.36% over the same period, a trend that can be seen in many markets around the world. From the perspective of long-term performance, enterprises with ESG concepts or carbon neutral concepts will be more recognized by the mainstream values of the market and society and obtain higher growth.

4. Shift from focusing only on the young economy to embracing the "family economy" and the "silver economy".

As of July 2021, China has added more than 20,000 pension service-related enterprises this year. According to the results of the seventh national census, China's population aged 60 and above exceeds 260 million. The so-called "uncle and aunt will win the world", and the entrepreneurial space of the silver economy is gradually opening.

According to Morgan Stanley's "Consumption 2030: Service First" report, by 2030, the two most densely distributed age groups will be 35 to 44 years old and over 55 years old. From the perspective of income level, these two age groups also happen to be the two age groups with the highest disposable income. From the perspective of consumer behavior, the main consumption expenditure of people aged 35 to 44 is concentrated in household needs, while those over 55 years old are mainly aging and retired people. Therefore, by 2030, the focus of China's consumption will shift from the current "young consumers" to "family needs" and "silver economy". From the perspective of the characteristics of consumption, it will be more rational, pay attention to quality and emotional services. In the next fifteen years, it is expected that institutionalized services (such as education, health care, elderly care services, medical insurance, supply chain management), smart life (such as digital property management, smart home and driverless cars), and emotional companion services (such as emotional partners, pets, rehabilitation escort services, service robots and social platforms) will have stable and rapid growth potential, becoming the direction of corporate strategic focus transformation.

5. The new blue ocean market has shifted from being mainly urban to combining urban and rural areas.

In 2020, the total retail sales of consumer goods in China will reach 39.2 trillion yuan, of which the retail sales of rural consumer goods will reach 5.3 trillion yuan, accounting for about 13.52%, with great development potential. In recent years, the trend of rural consumption upgrading is obvious, and the growth rate has been faster than that of cities and towns for 8 consecutive years. At present, the consumer market at the township and village levels accounts for 38% of the total consumer market in China, and has great consumption potential. The "China Consumption" green paper released by the China (Hainan) Reform and Development Research Institute pointed out that in recent years, the growth rate of total retail sales of rural social consumer goods has been around 11%, and the total retail sales of rural social consumer goods in the next 10 years will be conditional to maintain an average annual growth rate of about 7%, and it is expected to reach 105724 billion yuan in 2030, achieving the goal of doubling on the basis of 2020. For enterprises, on the basis of consolidating the existing urban consumer market, the blue ocean market of 10 trillion yuan has more growth potential, and enterprises should adjust the market focus, from urban to urban and rural, channel sinking, resource sinking, network sinking, and laying out the new blue ocean market opportunities brought about by township consumption upgrading and rural population urbanization in advance.

(The author is Vice President of China (Hainan) Reform and Development Research Institute and Director of Enterprise Research Consulting Center)