SHANGHAI / BEIJING: Chinese technology billionaires have suddenly been doing their best to spread their wealth. In recent weeks, huge sums of money have been spent on altruistic efforts. There is little coincidence that this wave will take place after President Xi Jinping’s “common prosperity” campaign.
But behind most of the humanitarian activity is the fear of interfering with public and state reactions, although there is growing concern that this effort will know the vitality of the country’s vibrant private sector.
The common prosperity initiative launched by the Chinese government last month is approaching for this wave of charitable activities. The agenda aims to correct income inequality through a three-pronged approach that includes compensation, taxes and donations.
The Chinese Communist Party said it would “regulate excessively high incomes and encourage high-income groups and businesses to return more to society” during a Aug. 17 meeting of the Central Commission on Economic and Financial Affairs. presided over by Xi.
And with that the donation floodgates were opened. Zhang Yiming, founder of developer TikTok ByteDance, donates 500 million yuan ($ 77.3 million) of his own money to set up an education fund. Pinduoduo e-workshop founder Colin Huang has donated $ 100 million to his alma mater.
Not to be outdone, Lei Jun, founder and CEO of smartphone maker Xiaomi, transferred 14.4 billion yuan of its shares to the Xiaomi Foundation and the Lei Jun Foundation, both established to eradicate poverty.
Not only are people opening their portfolios, but tech corporations have also jumped on the philanthropic bandwagon. Tencent Holdings presented a plan to invest a total of 100 billion yuan in causes, such as revitalizing rural communities and raising the wages of low-income wage earners. Pinduoduo launched a 10 billion yuan “agricultural initiative” in late August dedicated to researching agricultural technology and food security.
The compensation for the effort can be seen in moves to improve the number of 200 million workers in the country. E-commerce giant JD.com expands the benefits, including health insurance for its delivery drivers, for example.
STO Express and five other home delivery companies announced in late August that it will offer couriers a 0.1 yuan bonus for each package delivered. Alibaba Group Holding, a leading e-commerce company, is investing 100 billion yuan by 2025 to support and promote the hiring of workers and small businesses.
The impetus for common prosperity marks an important political change for China. So far, the government has supported the private sector for its importance for job creation. Technical conglomerates such as Tencent and Alibaba have generated great growth thanks to tax incentives and state-produced financial subsidies.
Although the standard corporate tax rate is 25%, Tencent only paid an effective tax rate of 11% during the first half of this year due to incentives.
Technology entrepreneurs have amassed immense fortunes by creating oligopolies and getting the first public offerings. According to a study by Credit Suisse, the top 1% of China occupies about 30% of Chinese wealth.
Meanwhile, “there are still about 600 million people earning middle or low income, or even less,” Premier Li Keqiang noted at a May news conference. “Their monthly income is barely 1,000 yuan. It’s not even enough to rent a room in an average Chinese city.”
Similarly, the urban middle class is reduced by rising housing prices and education costs. The government’s insistence that wealthy companies and large corporations share a larger share of the burden is related to the desire to divert public anger in the face of wealth disparities. It is also driven by the fact that it can easily gain the support of citizens.
The leadership of the Communist Party forced Ant Group, Alibaba’s financial arm, to postpone its stock market debut in November. In the following months, Alibaba received a record fine of 18.2 billion yuan for antitrust violations.
In July, the company behind China’s largest app, Didi, was subjected to a cybersecurity investigation immediately after listing it in the US. Didi’s apps were later removed from app stores.
The Common Prosperity Campaign is not a “steal from the rich for the poor” approach, Han Wenxiu, deputy director of the Central Economic and Financial Affairs Commission’s office, told a news conference on Aug. 26. This suggests that the government does not believe that the slogan contradicts the state’s emphasis on the market for a long time, entrepreneurs and international investors remain at the limit.
Companies wishing to avoid being targeted by regulators have no choice but to fully cooperate with the drive for common prosperity.
A Pinduoduo executive expressed support for the common prosperity campaign. But the manager admitted that “long-term patience” will be needed before the company can translate the 10 billion yuan investment into profits for shareholders.
The technology giants and the rest of the private sector are facing deeper uncertainties in the future. These nebulous prospects run the risk of scandalizing the foundations of the world’s second largest economy.
The last axis of the common prosperity effort is taxation, but policymakers are slow to impose taxes on real estate due to the almost certain setback, even of party members themselves.
Currently, China does not collect property or property taxes nationwide. A source close to a financial authority said China will announce “by the end of the year” the cities that will conduct pilot taxes on property tax, but it looks like a national version of the tax is a long way off.
According to a survey, more than 10% of households that own urban markets retain three or more home properties in their portfolios.
“Senior Communist Party officials who have several properties in favorable locations are strongly against a property tax” because of the added financial burden, a real estate agent in Beijing said.
Any serious attempt to take on wealth disparities would lead to a re-examination of tax advantages and the establishment of uniform rules, without setting a political agenda. But the reality in China is that it is afraid that state intervention will be the one that keeps private companies online. This is where the arbitrary and distorting political decision of the Chinese Communist Party stands out.