Chinese president Xi Jinping yesterday sent a stark message to the country’s wealthy: It is time to redistribute their excessive fortunes.
At a meeting of the Party’s Central Committee for Financial and Economic Affairs, Xi emphasized that “common prosperity” must be a core feature of Chinese-style modernization. The government must promote this goal while maintaining high-quality development, he said, according to a summary of the meeting published by state news outlet Xinhua.
The Party has good reason to worry about inequality, which increased over the decades of economic reforms that created a richer and more capitalist society. Last year, China’s richest 20% had 10 times more disposable income than the bottom 20%. Public concern about the difficulty of getting—and staying—ahead appear to be contributing to major structural problems, such as a plunging birthrate as parents worry about rising educational and property costs. Some young people are also adopting passive forms of resistance to what increasingly seems like an unwinnable rat race, such as the “lying flat” philosophy, essentially opting out and doing the bare minimum.
Another reason for the Party’s focus on outsize wealth is to reduce rival centers of power and influence in China, which has also been an impetus for its crackdown on the tech sector, a major source of new wealth in recent years. In fact, the regulatory storms it has unleashed since last year have already wiped out a great deal of paper wealth for China’s billionaires.
Yesterday’s meeting pledged to carry out “reasonable adjustments to excessive income” and encourage high-income groups and enterprises to give more back to society. At the same time the government will improve education and opportunities for more people to become prosperous, with the aim of having an “olive-shaped” society with a large middle class and few who are extremely rich or extremely poor. Policy makers also vowed to “clean up and regulate unreasonable income, rectify the order of income distribution, and firmly eradicate illicit income,” according to the summary. That could be a possible nod to the entertainment industry, which has been the focus of major tax evasion campaigns in recent years.
Xi’s remarks are not to be taken lightly, and the latest ones could signal that higher taxes or more philanthropic requirements of the super rich are on the way.
China already has fairly high income tax rates for its wealthiest. That includes a top income tax rate of 45% for those who earn more than 960,000 yuan ($150,000) a year as wages, while the top rate for taxable personal income from a privately owned business stands at 35%. Meanwhile the corporate tax rate is 25%, though some tech enterprises qualify for a preferential rate of 15%.
Upcoming moves could include rolling back the preferential tax rate for internet companies, while a push for a nationwide property tax has also been accelerating. Some Chinese tech moguls including the CEO of food delivery giant Meituan have already donated company stakes worth billions of dollars to charity, a move seen by many as trying to appeal to the authorities.
However, in what is likely an effort to moderate the uneasiness the remarks will generate, the meeting also reaffirmed the value of the idea of allowing some people to become richer than others, a reference to a 1978 speech by Chinese leader Deng Xiaoping that kicked off China’s economic opening up. It also said legal income is protected, and that the government supports the development of small and medium enterprises.