HONG KONG – China’s leading Internet companies have pledged billions of dollars in social goods in response to President Xi Jinping’s call to share their wealth, signaling the great politically driven change in a sector that has already been affected by Beijing’s regulatory repression.
This year, philanthropic and investment commitments have been made by companies ranging from Tencent Holdings to online retailer Pinduoduo and top executives, including Wang Xing, of the Meituan food delivery platform, and Lei Jun, of the Xiaomi smartphone manufacturer. These efforts will fund areas such as research, agriculture and clean energy.
Promises come as Xi makes rhetoric about “common prosperity” (which includes regulation and redistribution of income) and offers to reduce the income inequality of the world’s second largest economy.
Companies have changed dramatically. After reporting on first-half earnings, large companies such as Alibaba Group Holding and online retailer JD.com focused on plans to create value for society rather than profits, which scared investors concerned about Beijing’s regulatory crackdowns. Analysts are trying to gauge whether the change poses a serious threat to corporate bottom lines or whether investments will eventually recoup corporate profits.
“A new regulatory environment is being created, which will impose more limits on the growth and profitability of Internet companies and increase state control,” Ernan Cui, an analyst at the research company, wrote in a note to clients on Thursday. Gavekal Dragonomics. Chinese authorities now treat these companies more as “essential infrastructure providers” that require rigorous oversight.
Last week, Tencent pledged 100 billion yuan ($ 15.4 billion) to fund social responsibility projects in areas, from basic scientific research and education to clean energy, with half dedicated to a “common prosperity” fund that focuses on improving China’s low-income livelihoods. winners.
As a technology company that “benefited from China’s economic reform, Tencent is always exploring ways to … better return to society,” it said in a statement.
Pinduoduo, a fast-growing Chinese e-commerce platform, promises to invest up to 10 billion yuan in future profits to expand agriculture and the rural economy.
“Investing in agriculture compensates for everyone because agriculture is the nexus of food safety and quality, public health and environmental sustainability,” Chen Lei said in a call last week, after communicating his benefits.
He acknowledged that the initiative is non-profit and would affect Pinduoduo’s profits in the short term, although Nomura analysts said initiatives such as training farmers to sell products through more channels and improving logistics infrastructure they could boost the company’s business.
While Pinduoduo “highlighted the social nature of this initiative, we believe agricultural e-commerce has significant potential, given its high frequency of consumption,” analysts said on Tuesday. “In the long run, it can help Pinduoduo acquire a unique strength in one of the largest verticals in e-commerce.”
Alibaba will continue to fulfill its commitment “to be a good company that creates long-term value for society in China and globally,” Daniel Zhang, president and CEO, said on August 3. The group will invest all incremental profits and additional capital this year in strategic areas, including merchant support programs to reduce its operating costs, he said.
Jeffrey Towson, an online professor on China’s digital sector and a former professor at Peking University, said these commitments will erode market value and eliminate funds that would otherwise have been invested for growth.
“All shareholders observe whether this is a one-time event or a common occurrence,” he said.
Meanwhile, Zhang Yiming of Father TikTok ByteDance and Pinduoduo founder Colin Huang have vowed to donate much of their personal wealth. Five of China’s technology billionaires have pledged at least $ 13 billion of their personal or corporate fortunes to charitable foundations and initiatives, a sum that far exceeds the totals of previous years, according to Fortune magazine.
Xi reaffirmed the socialist value of common prosperity – widely used by former leader Deng Xiaoping in the 1980s – at a meeting of the Communist Party’s Central Committee on Economic and Financial Affairs last week. He called for “reasonable adjustments to excessively high incomes” and encouraged rich people and businesses to return more to society.
Although China declared this year that it has eradicated poverty, income inequality has not decreased since 2015. The richest 20% of Chinese had an average disposable income of more than 80,000 yuan a year. past, 10.2 times what the poorest 20% earn, according to government data.