Thread by @ChinaFinance40

The pursuit of common prosperity is a dynamic, long-term process that spans across generations, says Zeng Zheng, a CF40 Young Economist. It requires scientific planning, steady progress and sustained momentum. 1/12

In this process, it’s crucial to understand the relationship between government functions and market forces and their coordination in 3 dimensions. 2/12

DIMENSION 1: the relation between productive forces and production relations. Common prosperity involves both of the two aspects: “prosperity” indicates productivity growth, while “common” indicates production relations and distribution. 3/12

On one hand, China should give full play to market mechanisms in enriching means of labor, improving subjects of labor and upgrading labor skills to boost sustained productivity growth. This will lay a solid material foundation for achieving common prosperity. 4/12

On the other, the government should play its due role in market regulation to foster a proper ownership system, sound division of labor and reasonable product distribution. Improving relations of production is an important institutional&policy premise for common prosperity. 5/12

DIMENSION 2: the balance between fairness and efficiency. This balance can be tilted toward one side depending on the stage of development. 6/12

In general, at the primary stage of development, greater emphasis is placed on efficiency; as the economy grows, the two sides are more balanced, until the pendulum swing towards fairness with increasing wealth accumulation. 7/12

China has turned from focusing more on efficiency to placing equal emphasis on efficiency and fairness. It has made this change so that economic development can benefit more people in a fairer way to promote the sustained and balanced growth of the Chinese economy. 8/12

DIMENSION 3: how to cope with externalities and market failures. Market-driven increase in productivity is the main source for income growth, market forces are the determinants of the income distribution structure, ... 9/12

...the pricing mechanism drives the transmission of income distribution, and market incentives improve the efficiency of national income distribution. 10/12

However, the market has defects - imperfect competition, information asymmetry, regional disparity, and externalities that could result in failures in income distribution. 11/12

That’s where the government can make a difference. The government could work to create a level playing field, improve factor allocation, put in place reallocation measures and provide public goods to make up for market failures. 12/12

More at: cf40.com/en/news_detail…