Singapore/Hong Kong: Lost in Communist Party jargon coming out of China over the past week was a crucial rhetorical shift in the world’s second-largest economy: tackling inequality is becoming as important as growth.
President Xi Jinping inserted the change last week in a three-and-a-hour speech to open the twice-a-decade meeting, and it was enshrined in the party’s charter when it ended on Tuesday. The language will influence China’s policy—as well as some of the world’s biggest listed companies—over the next few decades after Xi was given a status on par with party stalwarts Mao Zedong and Deng Xiaoping.
The focus on quality of life instead of boosting incomes reflects the shifting challenges of a nation where a massive increase in wealth has also enhanced divisions between the rich and poor. Failure to meet the needs of a middle class seeking clean air, trips abroad and foreign education risks undermining the Communist Party’s legitimacy to rule.
“What we’re seeing is a watershed moment, a new milestone,” said Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai. “This is giving a clue to what the Communist Party will focus its energy on in the coming years.”
For more than three decades, Communist Party dogma—repeated in speeches and taught in schools—circled back to Deng’s declaration in 1978 that some people should get rich first. That prompted the elite to turn a blind eye to a growing obsession with accumulation of personal wealth, setting the stage for China’s $11 trillion economic miracle.
As the economy boomed, so did inequality. China has a tenth of the world’s richest people, but 1% of households own a third of the wealth. One study showed its Gini coefficient, a measure of income inequality, has worsened to 0.61—well above the 0.4 level economists consider destabilizing.
At the party congress, Xi said China had entered a “new era” in which it must confront the challenge “between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. He called it a “historic shift that affects the whole landscape and that creates many new demands for the work of the party and the country”.
Some of China’s wealthiest people and biggest companies responded immediately.
Jack Ma, China’s richest person and founder of Alibaba Group Holding Ltd, told a state publication that entrepreneurs who’ve obtained affluence have a responsibility to help others catch up. Haier chairman Zhang Ruimin echoed those comments. Property mogul Wang Jianlin was separately cited as saying his Dalian Wanda Group Co. has mapped out its business strategy in line with Xi’s call.
“The message to the billionaires is: it’s wrong to simply get rich. One has to take more social responsibility,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “The billionaires who’re calling for more social responsibility are the ones feeling a sense of crisis.”
Xi’s administration has a track record of getting its way. After endorsing Guizhou’s ambition to become China’s data centre capital, Apple Inc., Alibaba and Tencent Holdings Ltd. were among those unveiling plans to build multi-billion dollar facilities or research outfits in the landlocked province. Wanda set up a poverty re-education programme in the region, which is home to almost one in 10 of China’s poor.
Economists see several implications for companies. Lu from Industrial Bank Co. expects discussions about property taxes to emerge as soon as next year, and said the government could boost levies for environmental pollution and usage of natural resources.
Businesses also may need to pay more for employee welfare and safety, according to Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group Ltd. Local governments will need to do more than submit targets on growth and jobs, and smaller firms could struggle.
“This will become the cost of doing business in China,” Yeung said. “Corporations will have to bear higher costs for welfare and environment cost.” Bloomberg