China’s rich write checks to show solidarity with the poor
As Xi seeks to revive the egalitarian spirit of the Maoist era under the slogan of "common prosperity," he's demanding financial sacrifices from the country's wealthy private entrepreneurs.
As a teenager, Chinese President Xi Jinping swapped a life of privilege in Beijing for an impoverished village, joining millions of urban youngsters "sent down to the countryside" during the Cultural Revolution.
It was a grueling introduction to the hardships of rural life for the son of one of Mao Zedong's revolutionary comrades. These days however, China's elites are responding differently to the latest mandate that they show solidarity with the less well-off: They're writing checks.
As Xi seeks to revive the egalitarian spirit of the Maoist era under the slogan of "common prosperity," he's demanding financial sacrifices from the country's wealthy private entrepreneurs. The latest example is Pinduoduo Inc., China's largest online retailer by consumer, which has pledged to donate all future profits to address critical needs in rural areas—up to a total of 10 billion yuan ($1.5 billion).
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Pinduoduo Chief Executive Officer Chen Lei called the initiative "an important and challenging task."
As in the Cultural Revolution, displays of zealotry like this are a form of political theatre. Fortune magazine calculates that in the past eight months five of China's richest tech moguls have pledged at least $13 billion in personal and corporate wealth to charity.
Pony Ma, the founder of Tencent, is giving away $7.7 billion to village revitalization initiatives, as well as clean energy and education. Wang Xing, the founder of food delivery platform Meituan, is handing over $2.3 billion for education and scientific research.
This flood of generosity comes, coincidentally, as the headquarters of China's biggest Internet firms swarm with regulators probing for evidence of price-fixing, low pay for gig workers and other abuses.
There's no question that China suffers from shocking wealth disparities. Thomas Piketty, the French economist, estimates that the share of China's income held by its top 10% rose from 27% of all income in the late 1970s to 41% by 2015—roughly the same as the US
The difference is that China's wealth gap has expanded by design: At the start of the reform era, Deng Xiaoping declared "let some people get rich first," effectively turning socialism on its head.
In practice, this meant prioritizing cities over the countryside, and coastal areas over the interior. A residential "hukou" system prevents farmers living in backwaters like Liangjiahe, the dusty village in Shaanxi province where Xi spent much of his youth, from moving to big cities with their families. And it has largely excluded farmers from the great China property boom, the most important source of private wealth in the country.
Deng's successors have ensured that inequality is baked into the tax system, which is deeply regressive. According to the International Monetary Fund, the bottom 50% of society is taxed at a higher rate than all but the top 5%. Property goes untaxed altogether, apart from timid experiments in two cities, which helps explain why the wealthy buy second, third and fourth homes as investments—and leave many of them empty.
Moreover, the burden of funding social welfare falls most heavily on the poor—especially the very poor—who pay for it out of contributions from their paychecks.
"It may claim to be communist and to embrace the ideological legacy of Karl Marx, but the government offers relatively little support to many workers," writes the economist Brad Setser.
Worst off are migrant workers from the countryside who flock to cities to sweep the streets, nanny babies and guard the mansions of the super-rich. Because social benefits in China, like pensions, aren't portable, these folks effectively have no safety net, living as second-class citizens amid the glitz of urban China.
China spends relatively little on healthcare. Education in rural areas is chronically underfunded. This helps account for China's high savings rate. In striking contrast to most other countries, the poor in China save 20% of their salaries in case they get sick or need cash for other emergencies. The Chinese propensity to save not only skews the domestic economy by dampening consumption, but fuels global trade imbalances.
If China was to radically overhaul its fiscal system, a property tax would be a good start. Instead, workers are fed pronouncements about "common prosperity" and internet entrepreneurs are pressured for charity contributions.
Oddly, the Chinese government this week came out to defend itself against criticism of its strong-arm wealth redistribution methods by insisting Deng's determinedly elitist approach to economic development still stands.
"We should allow some people to get rich first, who then inspire and help others to become rich," Han Wenxiu, an official with the Central Committee for Financial and Economic Affairs, told reporters, adding that common prosperity "does not mean 'robbing the rich to help the poor.'"
At least the villagers in Liangjiahe are doing well. Apparently, they were the inspiration for Xi's anti-poverty campaign, and these days do a brisk business selling souvenirs in China's most famous "red tourism" site.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
