In a recent speech, China’s president Xi Jinping called for “common prosperity,” pressing private businesses and entrepreneurs to help narrow the wealth gap.

Chinese private enterprises have responded promptly. In August, Tencent said it would double the money it is putting toward social initiatives to 100 billion yuan (AUD $20.9 billion). The funds will go toward programs including rural revitalisation and helping grow earnings for low-income groups. The Alibaba Group announced it would spend 100 billion yuan by 2025 in support of “common prosperity”.

China has a relatively short corporate social responsibility (CSR) history. Recently Chinese firms have experienced an increased rate of growth in CSR norms and practices. Chinese firms are keen to sign up for the UN Global Compact initiatives. Four key forces are driving this rise of CSR practices in firms:

  1. Responsible Chinese company leaders pursue traditional human-based and virtue-based practices in their businesses;
  2. Western multinationals in China drive local firms to institutionalise international ethics standards;
  3. Chinese local Party-state requires local enterprises sponsoring community-linked CSR practices – disaster recovery, tree planting and building local schools and infrastructure – to relieve local public budget burdens;

However by far the most important factor – and the one pushing the above three – is:

  1. Chinese central Party-state promotes CSR as a social legitimacy rebuilding lever. Major CSR legislation includes covering CSR in article 5 of the 2006 Company Law, integrating CSR reporting into policy frameworks, CSR obligations among asset management guidelines for state-owned enterprises, and setting up CSR investigation committees in various ministries.

In the past, despite the strong regulatory approach, Chinese central Party-state’s role in CSR implementation was largely seen as only important for large state-owned enterprises, but symbolic for private companies. State legislations were often too general and ambiguous to regulate and incentivise private firms’ CSR plus their enforcements were lax locally.

The recent shifts in China show the central Party-state is not only keen to have CSR legislated in the laws, but also stringently enforced at the local level. Latest policy announcements provide hints of Chinese central state’s CSR orientation. In July, Zhejiang Province, one of China’s richest provinces, detailed a pilot zone for common prosperity. The plan proposed 52 tasks and goals relating to income, employment, housing, education and public health in the province. Education, for example, a key development indicator, is projected to reach the international and domestic advanced level with an enrolment rate in higher education of more than 70 percent, Xinhua News Agency reported.

As China grows its economy and faces pressing social and environmental issues, the legitimacy of the Party-state increasingly relies on not just GDP figures but also social cohesion and overcoming the middle-income traps. CSR is a key part of the instruments for the Party-state to build social legitimacy.

Participants in UN Global Compact, 2021

Image: Li Zhang

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