China sets aside push for wealth distribution in pivotal year for Xi

BEIJING – For most of the past year, Chinese leader Xi Jinping has waged a fierce campaign to rein in private capital and narrow social inequalities. Regulators have cracked down on tech giants and wealthy celebrities. Beijing has demanded that business tycoons give back to society. The Communist Party promised that a new era of “common prosperity” was on the horizon.

Now, the Communist Party is putting its campaign behind. In doing so, Beijing is tacitly acknowledging that Mr. Xi’s push to redistribute wealth has upset the private sector – a pillar of growth and job creation – at a time of growing uncertainty over China’s economic outlook.

For Beijing, ensuring the stability and growth of the economy is extremely important this year, which is very important for Mr. Xi. As he prepares to claim a third five-year term later in the year, he has sought to portray China as more prosperous, powerful, and stable under his rule. Officials have scrambled in recent months to try to reverse slowing growth, which has been exacerbated by high global oil prices, uncertainty over the war in Ukraine, and lockdowns in China to contain a continuing increase in coronavirus cases.

“Shared prosperity still exists, but the growth situation is a huge challenge,” Huang Yiping, deputy dean of the National School of Influential Development at Peking University, said in an interview. “The really top priority is to stabilize growth.”

The delay is more of a tactical retreat than a wholesale abandonment of Mr. Xi’s plans, which the party continues to describe as a long-term goal. Mr. Xi’s “Shared Prosperity” campaign is a pledge to reduce the country’s vast wealth gap and build a middle class that can drive domestic consumption and reduce the country’s reliance on debt-fueled growth. It also serves political goals: to strengthen public support for Mr. Xi’s leadership and endorse the Chinese political system for centralized control as superior to the West.

The regulators targeted what they called the “uncontrolled expansion of capital”. They have cracked down on a variety of companies seen as widening the gap between the haves and the have-nots, including after-school tutoring, online financial products and online shopping. These moves have suddenly wiped out more than $1 trillion in the value of Chinese companies and forced many companies to lay off workers or even file for bankruptcy. The campaign also frightened investors and businessmen by asserting the party’s power over society and asking questions about the role of private companies in the country’s future.

The party leadership began signaling in December, as the economy slowed, that it was cooling off from the campaign. When the Politburo met that month to decide on economic priorities for 2022, it did not use the phrase “shared prosperity” in its official summary; Instead, she emphasized “stability as a top priority.”

Beijing has also sought to reassure international investors that it remains open for business, with Mr. Xi himself declaring that China welcomes all kinds of capital and that his campaign was not a push for equality.

“We will make the pie bigger first, then divide it properly through reasonable institutional arrangements,” he said in a video address to business leaders at the World Economic Forum in Davos, Switzerland, in late January. “While the rising tide lifts all boats, everyone will get a fair share of the development.”

But investors at home and abroad continued to be alarmed by Beijing’s crackdown on the private sector. Confidence in the Chinese economy faded as China imposed strict lockdowns to curb the outbreak of Covid-19 and as Russia’s invasion of Ukraine raised prices of basic commodities.

The massive sell-off in Shanghai over the past months – with the market down 17 per cent from mid-December to mid-March – prompted a rare intervention from Vice Premier Liu He, Mr. Xi’s right-hand man on economic policy.

Mr. Liu pledged that Beijing would support the economy and curb the unpredictability that has disrupted markets. Any new government policy that might have a significant impact on stock prices and other activities in the financial markets must first be approved by Liu’s financial management team, according to a statement issued by the official Xinhua News Agency.

Mr. Liu may have been implying that last year’s crackdowns were a form of overzealousness on the part of officials who were moving too quickly to implement Mr. Xi’s long-term goals, a point some economists have made.

“Under President Xi Jinping, the Chinese government system works like a sports car – the gas pedal and brake pedal work at breakneck speed,” said Li Daokui, director of the China Center in the Global Economy at Tsinghua University in Beijing. “When he wants to implement a policy, even a long-term policy, the car immediately accelerates, and that may not be what is meant.”

Mr. Lee, for example, noted how officials raced to respond to Mr. Xi’s announcement in September 2020 that China would cut its net carbon dioxide emissions to zero by 2060. Local governments standardized coal investment and production and imposed restrictions on fossil fuel use, without discovering sources Alternative energy first to keep the activity going. The moves caused nationwide blackouts last year and briefly paralyzed many factories in September as coal-fired power plants did not generate enough electricity.

Mr. Shi himself last month decried any premature move to ditch coal, using a culinary metaphor to describe how officials had to lay the groundwork before major changes were made.

“You can’t get rid of dinnerware in your hands before you have new dinnerware in your hands – that’s not good,” he said at a meeting of the national legislature controlled by the Communist Party of China.

There are indications that Beijing is reversing its policies in other sectors to support the economy. For example, Chinese Prime Minister Li Keqiang called on officials last Thursday to provide more support to Internet companies and help them add jobs.

The government tried to rein in the real estate market after Mr. Shi said several years ago that “housing is for shelter, not speculation”. But those efforts have led to widespread malaise — as well as defaulting on debts at mega developers like Evergrande. This has hurt construction and related industries that make up up to a quarter of the Chinese economy.

The government has in recent weeks loosened its tight restrictions on home buying. The city of Zhengzhou in central China has dropped restrictions on home buying by people who already own a home. Hengyang, a city in southern China, has provided a subsidy of about $5,000 to help technicians and undergraduates buy their first homes. More than 65 cities have moved to lower minimum down payments and mortgage interest rates, or otherwise relax policies, according to Zhuge Housing Search, an online real estate brokerage and data service in the country.

Beijing has also delayed plans to expand the property tax experiment that has been a focus of the wealth redistribution drive. The party has long debated a national property tax, which economists say could help the government raise money without holding land auctions, as well as punish speculators who buy homes and leave them vacant.

In October, Mr. Xi urged officials to “actively and steadily advance the work and reform of property tax law” as part of plans to “reasonably regulate excessive incomes”. But the Treasury said last month that conditions this year were not right for an expansion of the pilot property tax scheme, an announcement seen as an attempt to stimulate home buying.

And the party’s overriding priority for growth this year is also forcing it to push back tough changes that could address deep-rooted problems in its economic model. China has long been pushed to wean its economy off its dependence on borrowing for infrastructure projects that have burdened the country with trillions of dollars in debt.

This year, China is preparing to pursue the largest batch of construction projects since the 2008 global financial crisis. At the time, the national government launched a flurry of construction spending to keep the economic engine taut, but local governments and state administration borrowed heavily from companies to help finance highway construction. bridges and a high-speed rail line from Beijing to Shanghai.

China is building more high-speed railways this year, as well as eight national computing centers and 10 data center clusters.

“This year will be a replay of 2008 and 2009, in terms of trying to boost infrastructure,” Mr. Li predicted in Tsinghua.

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