China Sets Aside Push to Spread Wealth in Pivotal Year for Xi

BEIJING — For much of the past year, China’s Supreme Leader Xi Jinping has waged a fierce campaign to curb private capital and reduce social inequalities. Regulators cracked down on tech giants and wealthy celebrities. Beijing urged the tycoons to give something back to society. And the Communist Party promised that a new era of “common prosperity” was on the horizon.

Now the Communist Party is putting its campaign on the back burner. In doing so, Beijing is tacitly acknowledging that Xi’s push for wealth redistribution has unsettled the private sector – a pillar of growth and job creation – at a time when China’s economic outlook is increasingly clouded.

For Beijing this year, ensuring the economy is stable and growing is paramount, an all-too-important thing for Mr. Xi. As he prepares to claim a third five-year term later in the year, he has sought to portray China under his rule as more prosperous, powerful and stable. Officials have been scrambling to reverse a growth slowdown exacerbated by soaring global oil prices, uncertainty over the war in Ukraine and China’s lockdowns in recent months to stem a relentless wave of coronavirus cases.

“The overall prosperity is still there, but the growth situation is quite challenging,” said Huang Yiping, deputy dean of the influential National School of Development at Peking University, in an interview. “The number one priority is really to stabilize growth.”

The delay is more of a tactical retreat than a complete 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 narrow the country’s wide wealth gaps and build a middle class that can boost domestic consumption and reduce the country’s reliance on debt-fueled growth. It also serves political goals: to bolster public support for Mr. Xi’s leadership and to defend China’s political system of centralized control as superior to the West.

Regulators had targeted what they called “disorderly capital expansion.” They cracked down on a variety of businesses believed to widen the gap between the rich and the have-not, including after-school tutoring, Internet financial products and online shopping. The measures have abruptly slashed the value of Chinese companies by more than $1 trillion, forcing many companies to lay off workers or even file for bankruptcy. The campaign also spooked investors and entrepreneurs by emphasizing the party’s power over society and raising questions about the role of private enterprise in the country’s future.

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

Beijing also sought to reassure international investors that it was still open for business, with Mr Xi himself stating that China welcomes all forms of capital and that his campaign is not a push for egalitarianism.

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

But investors at home and abroad continue to be shaken by Beijing’s crackdown on the private sector. Confidence in China’s economy dwindled as China imposed strict lockdowns to contain outbreaks of Covid-19 and as Russia’s invasion of Ukraine pushed up commodity prices.

A precipitous sell-off in equities in Shanghai in recent months – with the market plummeting 17 percent from mid-December to mid-March – prompted rare intervention from Vice Premier Liu He, Mr Xi’s right-hand man on economic policy.

Mr. Liu pledged that Beijing will support the economy and limit the unpredictability that has roiled the markets. According to a statement released by the official Xinhua News Agency, any new government policy that could have a significant impact on stock prices and other activities in the financial markets would first have to be approved by Mr. Liu’s financial management team.

Mr. Liu may have implied that last year’s raids were a form of overzealousness on the part of officials who acted too quickly to implement Mr. Xi’s long-term goals, a point some economists have pointed out.

“Under President Xi Jinping, the Chinese government system runs like a sports car — the accelerator pedal and the brake pedal work extra fast,” said Li Daokui, director of the influential Center for China in the World Economy at Tsinghua University in Beijing. “If he wants to implement a policy, even a long-term policy, the car will accelerate immediately, and that may not be what is intended.”

Mr. Li, for example, pointed out how officials rushed to respond to Mr. Xi’s September 2020 announcement that China would reduce its net emissions from carbon dioxide to zero by 2060 to keep going. These moves caused nationwide power outages last year and briefly shut down many factories in September as coal-fired power plants failed to produce enough electricity.

Mr Xi himself last month condemned any hasty move to abandon coal, using a culinary analogy to describe how officials had to lay the groundwork before making any major changes.

“You can’t throw away the eating utensils in your hands before you have new eating utensils in your hands — that’s not okay,” he told a meeting of the Chinese Communist Party-controlled national legislature.

There are signs that Beijing is reversing policy in other sectors to prop up the economy. China’s Premier Li Keqiang, for example, last Thursday urged officials to give more support to internet companies and help them create jobs.

The government tried to rein in the real estate market after Mr Xi said a few years ago that “apartments are for protection, not speculation”. But those efforts have resulted in widespread malaise — as well as defaults on big developers like Evergrande. That has hurt construction and related industries, which make up up to a quarter of China’s economy.

The government has eased its tough restrictions on home buying in recent weeks. The city of Zhengzhou in central China has lifted a limit on house purchases by people who already own one. Hengyang, a city in southern China, introduced a nearly $5,000 subsidy to help technicians and undergraduate students buy their first home. According to Zhuge Housing Search, an online real estate agency and data service in the country, more than 65 cities have moved to lower minimum down payments and mortgage rates or otherwise relax policies.

Beijing has also postponed plans to expand an attempt at a property tax, which has been at the heart of wealth redistribution efforts. The party has long debated introducing a national property tax, which economists say could help the government raise money without holding land auctions and penalize speculators who buy houses and leave them vacant.

In October, Mr. Xi prompted officials “Actively and steadily advance the work of property tax legislation and reform” as part of plans to “adequately regulate excessive income.” But last month the Treasury Department said conditions this year were not suitable for expanding the property tax pilot plan, an announcement seen as an attempt to stimulate home buying.

The party’s overriding priority of achieving growth this year is also forcing it to put aside difficult changes that could address deep-rooted problems with its economic model. China has long pushed to free its economy from reliance on loans for infrastructure projects that saddled the country with trillions of dollars in debt.

This year, China will undertake its largest batch of construction projects since the 2008 global financial crisis. Back then, the national government unleashed a wave of construction spending to keep the economy running, but local governments and state-owned enterprises borrowed heavily to finance the construction of highways, bridges and the Beijing-Shanghai high-speed railway.

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

“In terms of trying to promote infrastructure, this year will be like a repeat of 2008 and 2009,” predicted Mr. Li of Tsinghua.

Li you contributed research.

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