May 23, 2026 | 15th Five-Year Plan | Economics
The Government Work Report released in March this year noted that the major strategic tasks in China’s 15th Five-Year Plan primarily encompass four areas: promoting high-quality development, strengthening the domestic economic cycle, advancing common prosperity for all people, and balancing development and security. Regarding the relationship between advancing supply-side structural reform, establishing a comprehensive domestic demand system, and promoting common prosperity, Professor Zhiyuan Cui (Advisor to the Hong Kong Reform Institute, internationally renowned political economist, and Professor at the Tsinghua School of Public Policy and Management) offered incisive insights in his 2021 article “The New Trinity: Supply-Side Structural Reform, Dual Circulation, and Common Prosperity,” first published in Issue 427 of the “Experimental Governance” Wechat public account. Regarding the factors influencing the structure of income distribution, Professor Cui argues that the simplistic notion that “primary distribution relies on the market, secondary distribution on the government, and tertiary distribution on society” is inaccurate. He contends that a more nuanced understanding of this issue is necessary to fully capture the profound implications of the concept of “common prosperity”. An updated version of this article is hereby published to enhance readers’ understanding of the key concepts in the 15th Five-Year Plan.
On August 17, 2021, General Secretary Xi Jinping presided over the 10th meeting of the Central Financial and Economic Affairs Commission, emphasizing the need to “promote common prosperity through high-quality development,” which drew widespread attention from both domestic and international media. According to a Xinhua News Agency report, “the meeting pointed out that we must adhere to a people-centered development philosophy, promote common prosperity through high-quality development, properly balance the relationship between efficiency and fairness, and establish fundamental institutional arrangements that promote coordinated and complementary distribution at the primary, secondary, and tertiary levels.” In addition, there was a need to “strengthen and enhance the precision of regulatory measures such as taxation, social security, and transfer payments; expand the proportion of the middle-income group; increase the income of low-income groups; reasonably regulate high incomes; eliminate illegal income; form an olive-shaped distribution structure with a large middle portion and narrow ends; promote social equality and justice; foster the all-round development of individuals; and enable all people to make solid progress toward the goal of common prosperity.”
Currently, a popular interpretation of the “common prosperity” concept arising from this Central Commission meeting is encapsulated in the following statement: “Primary distribution relies on the market, secondary distribution relies on the government, and tertiary distribution relies on society.” This article argues that such a statement fails to capture the profound implications of the “common prosperity” concept. Let us first examine the shortcomings of the assertion that “primary distribution relies on the market.”
There is no uniform institutional arrangement for “market economies” worldwide. Germany’s ”social market economy” grants employees greater rights to participate in corporate management and distribution decisions than the “shareholder primacy” model prevalent in the U.K. and the U.S.. In China’s “socialist market economy,” employee stock ownership at Huawei has become a well-known case. In 1990, Huawei first proposed the concept of employee stock ownership; at that time, employees purchased shares at 10 yuan per share, with 15% of Huawei’s after-tax profits allocated as equity dividends. In 2001, Huawei introduced a “virtual restricted stock” reform. These “virtual shares” conferred certain rights in relation to dividends and capital appreciation, but they could not be transferred or sold, and would become void upon an employee’s departure from the company. This arrangement shares some similarities with the concept of “internal capital accounts for employees” in Spain’s “Mondragon Cooperatives” [1]. In 2008, Huawei further allocated shares to all employees with at least one year of service at a price of 4.04 yuan per share. If employees lacked sufficient funds to purchase shares, Huawei provided bank guarantees in the company’s name, enabling employees to take out loans to buy shares. In 2013, Huawei implemented the “Time-Based Unit Plan” (TUP), a five-year profit-sharing program applicable to both Chinese and foreign employees [2]. While this institutional arrangement falls under “primary distribution,” it clearly cannot be explained simply by the vague notion of “relying on the market.” As an article in the Harvard Business Review argues, Huawei’s choice of employee stock ownership and profit-sharing stems from Ren Zhengfei’s philosophy of unifying fairness and efficiency [3]. In fact, Huawei’s employee stock ownership system (under which Ren Zhengfei himself holds less than 1% of the company’s total shares) is a successful case of “common prosperity” that balances efficiency and fairness even in the realm of “primary distribution.”
Let us now examine the shortcomings of the argument that “secondary distribution relies on the government.” Let us consider a Western example. Thomas Piketty, author of Capital in the Twenty-First Century, proposes using “annual wealth taxes” and “inheritance taxes” to provide every citizen aged 25 or older with a one-off “universal capital endowment.” This can be understood as a system of “inheritance for all” or the “universalization of land reform” (land reform aims to make land ownership more equitable, but Piketty argues that this logic is not limited to land). Specifically, the amount of “universal capital endowment” could be set at 60% of the average adult’s wealth. Since the average adult wealth in the U.S., Europe, and Japan is around 200,000 euros, every citizen aged 25 or older would receive a one-off “universal capital endowment” of 120,000 euros. Piketty believes this is a crucial step toward socializing capital and making it temporary, thereby enhancing its mobility both within and across generations [4]. But can Piketty’s “secondary distribution” scheme be achieved simply by “relying on the government”? The answer is clearly no. Any “secondary distribution” scheme is the result of conflict and compromise among various political and social forces (including classes, political parties, interest groups, and civic movements).
The notion that “tertiary distribution relies on society” is also overly vague. The development of philanthropy is linked not only to the “inheritance tax” (which falls under “secondary distribution”) but also to the spiritual life of society. In the Gospel of Matthew in the Bible, there is a profound saying of Jesus: “Truly I say to you, it is hard for a rich man to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God.” During his 35 years as Bishop of Hippo (396–430 AD), St. Augustine delivered over 6,000 sermons, repeatedly emphasizing and arguing that it is harder for a rich person to enter the kingdom of heaven than for a camel to pass through the eye of a needle, unless the rich person ultimately renounces his or her wealth. At that time, wealthy believers would hire professional stenographers to record every word St. Augustine spoke [5]. Of course, it is not only Christian believers who make charitable donations. The Chinese tradition of “Confucian merchants” also exerts a certain pressure on the wealthy, though its intensity may not be as great as the notion that “it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God.” In short, “tertiary distribution” based on voluntary giving is closely tied to a society’s spiritual life, particularly to the values of those involved, and cannot be explained by the vague notion of “relying on society.” As an example, MacKenzie Scott, the novelist and ex-wife of Amazon founder Jeff Bezos, is currently the 84th richest person in the world according to the Forbes list 2026. She has become the most generous and fastest-giving philanthropist in recent times, donating more than $26 billion to over 2700 organizations from 2019 onward. One of the key reasons for her actions is her belief that the Federal Reserve’s quantitative easing policies have made the rich even richer—a situation she finds deeply unjust (her stock holdings were valued at $35.6 billion at the time of her 2019 divorce, but had appreciated to $62 billion by 2020)—prompting her to increase and accelerate her giving. This serves as a vivid illustration that “tertiary distribution” relies on specific values (rather than a vague notion of “society”) [6].
Since the popular saying that “primary distribution relies on the market, secondary distribution on the government, and tertiary distribution on society” has many shortcomings, what interpretation can truly reflect the profound implications of the concept of“common prosperity”? This article argues that“supply-side structural reform” first proposed by the Central Government in 2015, “dual circulation” first proposed in 2020, and the concept of“common prosperity” put forward at the Central Financial and Economic Affairs Commission meeting on August 17, 2021, share an intrinsic logic. In fact, they form a “new trinity,” and this is precisely where the profound significance of “common prosperity” lies.
In his speech entitled “Advancing Supply-Side Structural Reform” delivered at the Central Party School on January 18, 2016, General Secretary Xi Jinping stated that “Domestically, economic development faces ‘four declines and one rise’: a decline in economic growth, a decline in industrial product prices, a decline in profits of real economy enterprises, a decline in fiscal income, and a rise in the probability of economic risk. The principal contradiction underlying these issues is not cyclical but structural, with severe mismatches in the supply and demand structure. The marginal benefits of demand management are diminishing continuously, and relying solely on stimulating domestic demand cannot resolve structural contradictions such as overcapacity. Therefore, we must make improving the supply structure our primary focus and achieve a leap from low-quality supply-and-demand balance to high-quality supply-and-demand balance” [7]. Clearly, the proposal of supply-side structural reform was a response to Keynesian macroeconomic policies that “relied solely on stimulating domestic demand,” indicating that China, in its practical experience, had already recognized the deficiencies of Western “Keynesianism.”
General Secretary Xi Jinping first proposed the “dual circulation” concept on May 23, 2020, while visiting economic sector members attending the third meeting of the 13th National Committee of the Chinese People’s Political Consultative Conference. He stated that“Looking to the future, we must make meeting domestic demand the starting point and ultimate goal of development, accelerate the construction of a comprehensive domestic demand system… and gradually form a new development paradigm with the domestic economic cycle as the mainstay and the domestic and international economic cycles reinforcing each other.”
This concept of “establishing a comprehensive domestic demand system” is highly innovative and constitutes the core of the “dual circulation” strategy, indicating that China’s practical approach has also transcended the “supply-side school” of Western economics.
In this context, the book The Knowledge Economy, published in 2019 by Roberto Unger, Roscoe Pound Professor of Law at the Harvard Law School, may offer insights into understanding the evolution of China’s macroeconomic policies from 2008 to 2021. Unger argues that economic growth requires constant breakthroughs of both supply and demand constraints. However, the process of breaking through these two types of constraints is both “discontinuous” and “heteronomous” [8]. “Discontinuous” means that overcoming a supply or demand constraint does not automatically guarantee the ability to overcome the next constraint. Take demand constraints as an example: the expansion of household debt in the U.S. prior to the 2007–2008 “subprime mortgage crisis” could be seen as a method for overcoming demand constraints, but it did not automatically guarantee the next (better) method of overcoming demand constraints (such as expanding demand through progressive income taxes and public social spending). “Heteronomous” means there is no spontaneous correspondence between demand expansion and supply expansion. For example, even if demand is able to expand as we move beyond household debt and onto progressive income taxes and more public social spending, this does not guarantee that on the supply side, production will spontaneously shift from a state of no technological innovation to one with technological innovation.
Keynes had already noted that supply expansion does not automatically generate demand expansion. In his seminal 1936 work, The General Theory of Employment, Interest, and Money, Keynes profoundly criticized the so-called “Say’s Law,” which posits that “supply creates its own demand.” In 1939, in the preface to the French translation of The General Theory of Employment, Interest, and Money, Keynes even summarized his doctrine in a single sentence: “in the theory of production it is a final break-away from the doctrines of J.-B. Say and that in the theory of interest it is a return to the doctrines of Montesquieu.”[9] However, Unger emphasized that Keynes failed to recognize that an expansion in demand does not automatically generate an expansion in supply; therefore, Keynes’s theory is not a “general theory” but remains a special case. From this perspective, we can interpret the Chinese leadership’s 2015 proposal of “supply-side structural reform” as a recognition that the demand expansion since 2008 did not automatically lead to supply expansion, while the 2020 “dual circulation” strategy’s call to “make meeting domestic demand the starting point and ultimate goal of development, and accelerate the construction of a comprehensive domestic demand system” reflects the realization that supply expansion does not automatically lead to demand expansion either. Consequently, “supply-side structural reform” and “building a comprehensive domestic demand system” are not mutually exclusive; rather, continuous institutional and technological innovation are required to overcome constraints on both supply and demand.
Of course, recognizing the above does not mean we have already successfully integrated “supply-side reform” and “demand-side management” in practice. However, China’s decision-makers and economic theorists no longer view “supply-side reform” and “demand-side management” as opposites, as is common in mainstream Western macroeconomics. Looking specifically at current macroeconomic policies, we can clearly see a dual-pronged approach addressing both the supply and demand sides. In the 15th Five-Year Plan, on the one hand, emphasis is placed on “strengthening the supply of cutting-edge technologies” (such as accelerating the development of strategic emerging industries including next-generation information technology, new energy, new materials, robotics, and high-end equipment) and “promoting the orderly exit of outdated and inefficient production capacity”to continuously improve the supply structure. On the other hand, measures designed to boost consumption are introduced, ranging from “formulating and implementing plans to increase the income of urban and rural residents” to raising the proportion of government investment in livelihood projects, in order to further expand domestic demand.
After examining the mutually reinforcing yet non-substitutable relationship between “supply-side structural reform” and “building a comprehensive domestic demand system” in the “dual circulation” strategy, we can gain a deeper understanding of the significance of the “common prosperity” agenda: the essence of “common prosperity” lies precisely in exerting efforts on both the supply and demand sides simultaneously. From the supply side, common prosperity calls for “inclusive growth.” The term “inclusive” appeared in Xinhua News Agency’s press release on the August 17, 2021 meeting of the Central Financial and Economic Affairs Commission, because only an “inclusive growth model” (such as inclusive finance for small and medium-sized enterprises and the sharing of digital dividends between urban and rural areas) could advance society toward “common prosperity” in the stage of “primary distribution.” From the demand side, common prosperity requires reducing unnecessary income and wealth inequality through “secondary distribution.” We can draw on political philosopher John Rawls’ A Theory of Justice to understand what constitutes “unnecessary inequality.” The “Difference Principle” in Rawls’ A Theory of Justice states that resources and opportunities should be distributed equally; inequality is necessary only when it benefits the disadvantaged groups in society, and otherwise, it should be reduced. The intuition behind this “Difference Principle” is straightforward: inequality always benefits the privileged; it is only beneficial to society as a whole—and enables society to transcend “equality in poverty” (or China’s former “communal dining”)—when it also benefits the disadvantaged (such as higher incomes for innovators in science and technology). For this very reason, even Hayek, one of the leading proponents of “neoliberalism,” claimed to agree with Rawls’ “Difference Principle.” However, because Rawls did not conduct a quantitative analysis of the impact of inequality on disadvantaged groups, Hayek was able to claim that even extremely high levels of inequality could be beneficial to them. Piketty’s quantitative research, however, demonstrates that the share of wealth held by the bottom 50% of population in the West has remained unchanged over the past century, consistently ranging between 5% and 10%. This indicates that the current distribution of wealth does not conform to Rawls’ “Difference Principle” and that a significant amount of unnecessary inequality exists. Reducing unnecessary income and wealth inequality is of great significance for expanding domestic demand (since the marginal propensity to consume is higher among the poor than among the wealthy) and serves as one of the key policy tools for establishing the “olive-shaped distribution structure with narrow ends and a large middle portion” mentioned in Xinhua News Agency’s press release.
From the perspective of the “new trinity” comprising “supply-side structural reform,” the “dual circulation” strategy (with a focus on “building a comprehensive domestic demand system”), and “common prosperity,” this paper offers a new interpretation of the “common prosperity” agenda raised by the Central Financial and Economic Affairs Commission on August 17, 2021. I seek the insights of readers in the hope of sparking further academic discussion.
Prof. Zhiyuan Cui, an internationally renowned political economist, is a Professor at the Tsinghua School of Public Policy and Management and an Advisor to the Hong Kong Reform Institute.
Translated with AI, with subsequent editing done manually.
Notes
1. Thomas Henk and Chris Logan, Mondragon: An Economic Analysis of Modern Worker Cooperatives, Shanghai Sanlian Bookstore, 1991.
2. For details on Huawei’s employee stock ownership and profit-sharing programs, see “Jiuling Management Research Institute” WeChat public account and “Huawei Annual Report 2019.”
3. “HUAWEI: A Case Study of When Profit Sharing Works” (https://hbr.org/2015/09/huawei-a-case-study-of-when-profit-sharing-works)
4. For details, see The Paper’s “Cui Zhiyuan Reads Piketty” (https://m.thepaper.cn/newsDetail_forward_8955837)
5. Peter Brown, Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350-550 AD, Vol. 2, p. 589, Social Sciences Academic Press, 2021
6. Thanks to Liu Yan for bringing this case to my attention
7. Xi Jinping, On Governance, Vol. 2, p. 254
8. Roberto Unger, The Knowledge Economy, Verso, 2019, pp. 191–193
9. The Collected Writings of John Maynard Keynes, Vol. VII, p. xxiv, Cambridge University Press, 2013