China’s common prosperity push may force Japanese businesses to ‘reconsider investment strategy’
- Common prosperity is central to promoting well-being as China strives to achieve its second centenary goal of fully building a modern socialist country
- But Japanese businesspeople working in China say they have been disappointed with Beijing’s current policy direction, which might stifle spending and investment
Chinese President Xi Jinping’s push to achieve so-called common prosperity, aimed at reducing income gaps at home, has sparked concern among Japanese companies that the most populous country would become a less attractive market in the future.
Since Xi earlier this year declared the ruling Communist Party had reached its long-held goal of building a “moderately prosperous society,” his leadership has apparently started to levy severe restrictions on the rich in a bid to rectify economic inequality.
In Shanghai, the annual China International Import Expo is slated to be held for six days starting next week, as Xi has been trying to show the world its commitment to free trade with economic and technology tensions with the United States escalating.
But Japanese businesspeople working in China say they have been disappointed with Beijing’s current policy direction, which might stifle spending and investment by the Chinese wealthy and in turn could hamper the nation’s economic expansion across the board.
In his one-hour keynote speech to commemorate the 100th anniversary of the ruling party’s founding on July 1, Xi said, “A moderately prosperous society has been built in all aspects,” emphasising all citizens now can enjoy a comfortable life in China.
Xi had pledged to realise a moderately prosperous society, defined by Beijing as doubling its 2010 gross domestic product and per capita income by 2020. The goal was originally set by former Chinese leader Deng Xiaoping in 1979.
The Communist Party has been tightening surveillance of the country’s IT giants to curb their monopolistic behaviour and disorderly capital expansion, fanning fears that innovation of the Chinese hi-tech industry would be impeded.
Chinese big enterprises and business leaders also appear to be forced by the central government to share their profits for the common good by taking steps such as making donations and providing social supports to narrow income disparities.
While implementing several measures targeting tutoring agencies with an eye on lessening the heavy academic burden on children and addressing unfair competition, Chinese authorities have begun to crack down on the entertainment sector.
As performance fees of movie stars have been surging with the entertainment market booming in China, Xi’s leadership is believed to be imposing strict controls on tax evasion and other crimes by those who are regarded as symbols of the wealthy.
The controversial move is expected to prevent real estate prices from spiking and to help local governments, which have been struggling with fiscal woes, boost their tax revenues, but it is also certain to put an enormous burden on property owners.
“Minimising use of income from capital for luxury consumption, rather than property income being used for investment, is a very serious economic issue both in the US and in China,” said the Global Times, a tabloid of the Communist Party.
Common prosperity is “in line with both the facts of economic development and with economic theory,” the newspaper added.
Strengthening regulations is likely to dampen a willingness to innovate by Chinese companies, probably undermining potential economic growth, said Hideki Ito, a senior economist at Mizuho Research & Technologies in Tokyo.
Takashi Watanabe, a worker at a Japanese electric machinery maker operating in China, echoed the view, saying, “If Chinese rich people shy away from spending, it would be difficult for the world’s second-biggest economy to maintain its growth momentum.”
Although Xi has committed to pushing a market economy under the policy of “reform and opening-up,” Japanese firms would be “forced to seek other attractive investment destinations than China if he puts priority on common prosperity,” Watanabe said.
In fact, some Japanese enterprises are already keen to exit the Chinese market with a population of 1.4 billion, a real estate broker in Beijing said.
Naoto Takeshige, a researcher at the Ricoh Institute of Sustainability and Business in Tokyo, said, “An era in which China enjoyed high economic growth is approaching a turning point.
“We will need to monitor where the great power is going next more closely than ever.”