China's Alibaba to invest $15.5 billion for "common prosperity"

[reporter2]

China's Alibaba to invest $15.5 billion for "common prosperity"

Sep 02, 2021

SHANGHAI (Reuters) -China's Alibaba (NYSE:BABA) Group will invest 100 billion yuan ($15.5 billion) by 2025 in support of "common prosperity", it said, becoming the latest corporate giant to pledge support for the initiative driven by President Xi Jinping.

Beijing has been encouraging companies to share wealth as part of the effort to ease inequality in the world's second-largest economy. Other companies that have made similar announcements include Tencent Holdings (OTC:TCEHY), which also pledged 100 billion yuan, and Geely Automobile.

The government-backed Zhejiang News website said Alibaba's funds will go towards areas such as subsidies for small and medium-sized enterprises and improving insurance protection for gig economy workers such as couriers and ride-hailing drivers.

It will also set up a 20 billion yuan "common prosperity development fund", the newspaper said, with Alibaba confirming the report.

The e-commerce giant and its tech rivals have been the target of a wide-ranging regulatory crackdown on issues ranging from monopolistic behaviour to consumer rights. Alibaba was fined a record $2.75 billion in April over monopoly violations.

The sector has also attracted criticism for the treatment of delivery workers and ride-hailing drivers, most of whom are not covered by basic social and medical insurance.

Food delivery platform Ele.me and supermarket operator Freshippo, both of which are owned by Alibaba, were among operators called to a meeting last month with government regulators on improving safety and labour rights for delivery workers.

($1 = 6.4613 Chinese yuan renminbi)

[reporter2]

Explainer: What is China's 'common prosperity' drive and why does it matter?

September 2, 2021

BEIJING, Sept 2 (Reuters) - President Xi Jinping has called for China to achieve "common prosperity", seeking to narrow a yawning wealth gap that threatens the country's economic ascent and the legitimacy of Communist Party rule.

"Common prosperity" as an idea is not new in China, but a sharp escalation in official rhetoric and a crackdown on excesses in industries including technology and private tuition has rattled investors in the world's second-largest economy.

Xi, poised to begin a third term in 2022, is turning towards inequality after concluding a campaign to eliminate absolute poverty, pledging to make "solid progress" towards common prosperity by 2035 and "basically achieve" the goal by 2050.

WHAT DOES 'COMMON PROSPERITY' MEAN?

"Common prosperity" was first mentioned in the 1950s by Mao Zedong, founding leader of what was then an impoverished country, and repeated in the 1980s by Deng Xiaoping, who modernised an economy devastated by the Cultural Revolution.

Deng said that allowing some people and regions to get rich first would speed up economic growth and help achieve the ultimate goal of common prosperity.

China became an economic powerhouse under a hybrid policy of "socialism with Chinese characteristics", but it also deepened inequality, especially between urban and rural areas, a divide that threatens social stability.

The push for common prosperity has encompassed policies ranging from curbing tax evasion and limits on the hours that tech sector employees can work to bans on for-profit tutoring in core school subjects and strict limits on the time minors can spend playing video games. read more

This year, Xi has signalled a heightened commitment to delivering common prosperity, emphasising it is not just an economic objective but core to the party's governing foundation.

Officials say that common prosperity is not egalitarianism.

A senior party official said last month that "common prosperity" does not mean "killing the rich to help the poor". read more

A pilot programme in Zhejiang province, one of China's wealthiest, is designed to narrow the income gap there by 2025.

HOW WILL IT BE ACHIEVED?

Chinese leaders have pledged to use taxation and other income redistribution levers to expand the proportion of middle-income citizens, boost incomes of the poor, "rationally adjust excessive incomes", and ban illegal incomes.

Beijing has explicitly encouraged high-income firms and individuals to contribute more to society via the so-called "third distribution", which refers to charity and donations.

Several tech industry heavyweights have announced major charitable donations and support for disaster relief efforts. Online gaming giant Tencent Holdings (0700.HK) has said it will spend 100 billion yuan ($15.47 billion) on common prosperity.

Long-discussed reforms such as implementing property and inheritance taxes to tackle the wealth gap could gain new impetus, but policy insiders believe such changes are years off.

A property tax has been discussed for years and two pilots have been implemented in Shanghai and Chongqing since 2011, but little progress has been made.

Other measures would include improving public services and social safety net.

WHAT WILL BE THE ECONOMIC IMPACT?

Chinese leaders are likely to tread cautiously so as not to derail a private sector that has been a vital engine of growth and jobs, analysts said.

The common prosperity goal may speed China's economic rebalancing towards consumption driven growth to reduce reliance on exports and investment, but policies could prove damaging to growth driven by the private sector, analysts say.

Increasing incomes and improved public services, especially in rural areas, would be positive for consumption, and a better social safety net would lower precautionary savings.

The effort supports Xi's "dual circulation" strategy for economic development, under which China aims to spur domestic demand, innovation and self-reliance, propelled by tensions with the United States.

($1 = 6.4622 Chinese yuan renminbi)

[reporter2]

Xi Jinping’s drive for economic equality comes at a delicate moment for China

President wants to spread ‘common prosperity’ but Covid and material shortages could spell trouble

Phillip Inman

2 Sep 2021

For decades the aim in China has been the pursuit of growth, building the world’s second-largest economy from a relative backwater on the international stage. Now, the promise from Beijing is to enlarge the economic pie and divide it well.

President Xi Jinping announced plans this month to spread “common prosperity” in what is one of the world’s most unequal major economies, signalling a shift from his predecessors’ pursuit of growth and heralding a tough crackdown on wealthy elites – including China’s burgeoning group of technology billionaires.

Yet the shift comes at a delicate moment. Signs of pressure are emerging in the Chinese economy as it embarks on Xi’s mission, fuelled by the coronavirus Delta variant and raw material shortages.

Figures published on Wednesday show factory output went into reverse in August, slumping to an 18-month low, while the main survey of the services sector showed it took an even greater hit and contracted for the first time since last March.

The spillover effects were felt across south Asia, where countries from Malaysia to Vietnam have come under pressure, not just from falling trade with China, but their own recent coronavirus attacks and the chaos in the shipping industry that has stranded containers many miles from where they are needed, leaving firms badly short of raw materials.

Only the economies of Japan, South Korea and the city-state Singapore have shrugged off the spread of Covid-19 to maintain their recovery from lockdowns earlier in the year.

China, as the first country to succumb to pandemic-fuelled recession and the first to emerge, is however now spooking international investors, fearful that a summer blip in growth could herald a longer-term slump lasting into 2022.

Diana Choyleva, an economist and respected China watcher, believes growth will weaken in the third quarter to 0.9% from 1.3% in the three months to 30 June, “dragged down by manufacturing and export headwinds and China’s struggling small and medium-size businesses”.

She said the Xi’s determination to reduce China’s growing wealth gap was a dangerous move in the midst of a resurgent disease.

“Xi Jinping has embarked on an ambitious but uncharted path as he aims to make good on the party’s promise of a socialist system that does not put the needs of the few over the needs of the many,” said the director of Enodo Economics.

“But he is taking the risk that his comprehensive income and wealth distribution agenda will undermine [what has] powered China’s strong catch-up growth over the past 40 years.”

According to World Bank data, China has one of the highest measures of inequality after the US. It comes after the pursuit of economic prowess, decades in the making since president Deng Xiaoping first moved to open up the country to global trade in 1978, with the acknowledgment that to do so would have to “let some people get rich first” to help poorer areas in the long run.

Under the shift orchestrated by Xi, focus will be on the quality of economic growth, with potential implications for other countries around the world.

Billionaires in general, and the mega-wealthy beneficiaries of the tech industry in particular, have scrambled to appease the party with charitable donations and messages of support.

Nasdaq-listed e-commerce website Pinduoduo said earlier this year it would donate its second-quarter profit and all future earnings to help with China’s agricultural development until the donations reached at least 10bn yuan ($1.5bn). The move prompted its shares to jump by 22%.

Hong Kong-listed Tencent, reading the same signals from Beijing, set aside 50bn yuan for welfare programmes supporting low-income communities, bringing this year’s total philanthropic pledge to $15bn.

Nonetheless, China is moving to restrict domestic companies from listing on US stock exchanges, in a move threatening to restrict the growth of tech firms that had come to symbolise record Chinese economic growth rates and the emergence of rich company bosses.

Rana Mitter, a historian and director of the University of Oxford China Centre, said Xi’s “common prosperity” rhetoric stemmed from genuine concern that previous economic models had created growth at the expense of inequality.

“Party officials also fear that the tech giants and the people who run them are out of control and need to be reined in. And then we must add Xi’s determination to be nominated next year for a third term, that changes to the constitution now allow,” he said.

Mitter warns that Xi is constructing a broad populist agenda that will make his bid for a third term in power unstoppable.

“He might not be facing a general election, but he wants social media to be behind him, cheering on policies that bring tech billionaires, property magnates and even film stars down to size,” he added.

Natwest’s China economist, Peiqian Liu, said Xi’s attempt to close the wealth gap “marks the beginning of bureaucratic-level reforms whereby local government officials will no longer be pressured to achieve lofty GDP targets; instead, they will be assessed by a variety of indicators to achieve higher quality growth.”

He said it was unclear exactly how far reaching the reforms will be, though they are likely to “focus on improving the social safety net, improving labour productivity, reducing systemic financial risks and achieving more balanced growth in the long run”.

He added: “As a result, we see some downside risks for real GDP growth in the short and medium term but we expect the growth momentum to be more balanced and sustainable. We also expect the policymakers to put more emphasis on risk management, especially the debt risks and data security.”

Some analysts believe evidence of weaker growth rates will lead to China’s central bank easing borrowing rules to allow a mini-credit boom. With more borrowing by consumers and small businesses, the pain of increased taxes can be absorbed and the economy can return to higher levels of growth.

Mitter said Beijing faces a more fundamental problem as it considers how to balance the virus and the need to maintain economic growth.

“One of the difficulties at the moment is reading how Xi will answer the question: what is the economic future if your plan is to eliminate the virus.

“For instance, will China’s huge middle class be able to go on foreign holidays? The expansion of foreign holidays has not only kept a large number of people satisfied, it has given Beijing huge influence in neighbouring countries,” he said.

“If the virus means tourists and business people cannot travel and you don’t have easy connectivity for trade and leisure, then you need to consider a radically different economic model.”

[reporter2]

How China’s ‘Common Prosperity’ Drive Will Redistribute the Wealth

Contributors: Alex Millson and Tom Hancock

August 31

China’s Communist Party has decided it’s time to redistribute the wealth and build a fairer society. As the number of billionaires — and their bank accounts — ballooned in recent decades so did the inequality gap. Now, Xi Jinping wants things to change, and the socialist buzzword is “common prosperity.”

Among the aims of common prosperity are raising the income of urban and rural residents, reducing the wealth gap and promoting equal access to services, officials have said.

Entire sectors have been ordered to change the way they do business. The once hugely lucrative after-school education industry was decimated overnight by a regulatory decision to ban for-profit tutoring and big tech was hammered by a wide-ranging anti-monopoly crackdown. Then came celebrities who evade taxes, food delivery giants who hire workers without full contracts and video-gaming giants who let youngsters play on their platforms. It seems nowhere is safe from scrutiny. The question is, where will the ax fall next?

By The Numbers

• 65 The number of times Xi Jinping mentioned "common prosperity" in speeches and high-level meetings in the first eight months of the year
• $5 billion How much just seven of China's top billionaires have given away to charities so far this year
• 996 Slang in China for the common practice of working 9 a.m. to 9 p.m., six days a week, which the government has warned against

Why It Matters

Xi Jinping’s rhetoric surrounding “common prosperity” has surged this year, with the phrase increasingly mentioned in major speeches and during top-level meetings, pointing to a deliberate shift in policy. That hints at changes that could ripple across the world’s second largest economy — even as details have remained scarce.

Jittery investors have been dumping stocks in areas affected, and hunting for clues as to Beijing’s next targets, while the wealthiest individuals and biggest corporations have suddenly upped their philanthropic game and poured cash into good causes. Now there’s speculation that Beijing may introduce taxes on property, inheritance and capital gains as a means of redistributing the wealth accumulating in relatively few hands.

Improved distribution of income could provide a boost for Chinese consumers who are already the world’s top spenders on automobiles, and whose spending on entertainment, clothing and cosmetics is second only to the U.S. But changes could also mean risks for the global economy. Reining in house prices, for example, could depress China’s demand for commodities, which is crucial for overseas economies from Australia to Peru.

And if the bearish mood of investors doesn’t fade, it could limit the ability of Chinese companies to raise financing, depress innovation and entrepreneurship and ultimately undermine the economy. As China has been the largest contributor to global growth in recent decades, the effects could ripple far beyond its borders.