Why has a ‘vague’, brief mention of a new ‘common prosperity’ push got on the nerves of China’s rich?

Xi Jinping outlined how China will keep ‘income distribution and the means of accumulating wealth well-regulated’ at the 20th party congress
So-called common prosperity was first mentioned by Xi last year amid a drive to close the country’s yawning wealth gap

China’s 20th Party Congress

He Huifengin Guangdong

Published: 11:00am, 22 Oct, 2022

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“The more vague it is, the more afraid everyone is.” A renewed push to regulate wealth accumulation has triggered fresh worries among wealthy and upper middle-class families in China.

First mentioned last year as part of a plan to address inequality, President Xi Jinping laid out more practical implications of so-called common prosperity in Sunday’s work report to the 20th party congress.

Xi outlined how a personal income tax system will be improved, while highlighting how China will keep “income distribution and the means of accumulating wealth well-regulated”.

“We will protect lawful income, adjust excessive income, and prohibit illicit income,” said Xi.

It is seen as targeting the wealthy class, though so far we don’t know the specific agenda and intensity of the implementation of the action plans onwards

Echo Liang

Officials have previously denied the strategy is a Robin Hood-style steal from the rich to give to the poor plan, but concerns over investment and asset security remain.

“It is seen as targeting the wealthy class, though so far we don’t know the specific agenda and intensity of the implementation of the action plans onwards, however, the more vague it is, the more afraid everyone is,” said Echo Liang, a Guangdong-based emigration agent and overseas wealth manager.

“In addition, high-net-worth clients now have to realise that they will only have fewer means and less room for portfolio investment globally, which have previously aimed at reducing their risks of over-reliance on China’s policies and markets.”

Common prosperity is seen as key to help avoid the dreaded middle-income trap where growth stagnates and incomes stall, but China’s haves are concerned about a narrowing political space and shrinking opportunities to manage their assets and immigration.

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“No doubt. Private entrepreneurs will have to be more prudent in complying with regulations in tax and redistribution of income and wealth,” said Guangzhou-based lawyer Angela Luo.

“Apart from concrete policies to come, what also concerns the wealthy group is the risk of any campaign-like movements to tighten or crackdowns, especially on those who accumulate massive wealth quickly or from burgeoning new industries.”

China’s use of its zero-Covid policy of lockdowns and travel curbs has also left the wealthy and upper middle-class concerned about how the new policy will be implemented, Luo added.

Since 2018, a number of China’s super-rich have left the country with a significant percentage of their wealth due to the changing political climate, according to Lai Ni, who works for a Shenzhen-based trust company.

Common prosperity, according to Lai, could push more high-net-worth individuals (HNWIs) to leave as they are already struggling against the implications of the zero-Covid policy.

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“There is also a significant percentage of HNWIs who maintain their Chinese ID, as they thought at the time an overseas ID would prevent them from dealing closely with local governments to get more business overseas,” said Lai.

“But a number of them do regret that now, because even for HNWIs, it has now become incredibly difficult to transfer their wealth overseas.

“Many tax preparers have been measuring the impact of common prosperity since last year. At this point, it looks like the property tax may be delayed, due to the sluggish market, while the inheritance and wealth taxes may be launched more quickly in the next few years.”

China currently does not have either an inheritance or wealth tax, while a property tax plan has been discussed since last year as part of the common prosperity campaign.

Xi declared in August 2021 that China will “actively and steadily push forward property tax legislation and reform” and carry out pilot programmes.

I didn’t think about [the common prosperity push] too much. After all, I just started being rich

Raymond Wang

Founding father Mao Zedong and fellow former leader Deng Xiaoping have both mentioned common prosperity in the past before Xi’s rhetoric surged last year amid a drive to close the country’s yawning wealth gap.

“I didn’t think about [the common prosperity push] too much. After all, I just started being rich,” said 30-something Raymond Wang, a non-fossil energy infrastructure contractor with three children aged between seven and 15.

Like most people in China who have the money to do so, Wang has invested in property in China’s first-tier cities, with 80 million yuan (US$11 million) spent over the last few years on condos, offices villas and residential flats.

“The most important thing now is to seize the dividend period of this industry, so most of my company’s revenue appreciation is invested in expanding the business,” he added.