HONG KONG:
Chinese President Xi Jinping is fleshing out his plans for wealth redistribution. He wants to restrain “unreasonable income”, hike wages and expand the middle class, per a readout of a top-level conference on Tuesday, which helps explain his recent rough treatment of corporate tycoons.
Xi told top leaders from the ruling Chinese Communist Party on Tuesday that the government must establish a system to redistribute wealth in the interest of "social fairness," according to a summary of the speech published by Xinhua, the official state news agency.
He said it was "necessary" to "reasonably regulate excessively high incomes, and encourage high-income people and enterprises to return more to society."The Xinhua article did not include many details about how Xi hoped to accomplish this goal, but did suggest that the government could consider taxation or other ways of redistributing income and wealth.
Xi even invoked the need for "common prosperity" among the Chinese people as critical for the Party to maintain power, and transform the country into a "fully developed, rich and powerful" nation by 2049, the 100th anniversary of the existence of the People's Republic of China.
"Common prosperity is the prosperity of all the people," Xi said during the leadership's economic meeting, which is hosted every few months to determine policy. "Not the prosperity of a few people."But while the country's private sector and amount of wealth has exploded — in 2019, the number of rich Chinese surpassed the number of rich Americans for the first time — gaps between rich and poor and rural and urban citizens in China have worsened.
Funding fiscal transfers and social services could entail fresh burdens for China Inc, and the long-delayed property tax may be implemented at last.
The wealthiest 1% of Chinese people now hold 31% of the country’s wealth, up from 21% two decades ago, per a Credit Suisse report. The pandemic, which hit small businesses and poor workers hardest, has exacerbated the gap, yet the number of newly-minted ultra-rich surged 50% compared to 2019 as financial markets popped.
It is easy for Xi to make rich people less rich; investors wiped up to $1 trillion off the value of listed Chinese companies since February as officials and state media went after e-commerce giants, video-game companies, after-school tutors and property developers.
But increasing disposable incomes for ordinary people, which only grew 1% for urban residents in 2020, will be trickier in a system better at driving growth through investment than consumption. It will require fresh fiscal transfers and increased social spending, and companies and wealthy people will probably be on the hook to help pay.
For example, while executives ranging from Tencent's (0700.HK) Pony Ma to Meituan's (3690.HK) Wang Xing have already stepped up their charity efforts, that probably won’t stop Beijing from bringing tax rates for internet companies, long held at a preferential rate of 10%, back up to the 25% corporate standard.
The biggest change might be the implementation of a controversial, long-delayed property tax.
Real estate contributes 70% to China's wealth gap, noted Li Shi, an expert on income distribution at Beijing Normal University. Yet Xi’s campaign to cool prices has struggled to find traction.
A tax could have three benefits: cooling speculation that makes ownership financially onerous for ordinary people; putting empty flats into rental market; and extracting contributions from those whose wealth is concentrated in apartments. On the other hand it could hammer an industry that directly and indirectly contributes as much as a quarter of GDP. But at this point investors are ill-advised to bet against Xi’s resolve.