Xi’s “Common Prosperity” Goal May Make Japan Reluctant to Invest in China

Chinese President Xi Jinping’s efforts to achieve “common prosperity,” aimed at reducing income gaps in the country, have raised concerns among Japanese businesses that the most populous country will become a less attractive market in the future. .

Since Xi said earlier this year that the ruling Communist Party has achieved its long-standing goal of building a “moderately prosperous society,” its leaders have apparently started to impose severe restrictions on the wealthy in an effort to rectify inequalities. economic.

Chinese President Xi Jinping (top) delivers a speech at an event in Tiananmen Square in Beijing on July 1, 2021, to mark the 100th anniversary of the founding of the Communist Party. (Kyodo) == Kyodo

In Shanghai, the annual China International Import Expo is set to run for six days until November 10, as Xi tries to show the world his commitment to free trade amid economic and technological tensions with the United States is stepping up.

But Japanese businessmen working in China say they are disappointed with Beijing’s current political stance, which could stifle spending and investment by wealthy Chinese people and, in turn, hamper the country’s economic expansion at all levels. .

“If the communist-led government focused too much on income distribution by siphoning money from the rich, the number of those who want to buy our products would certainly decrease in China,” said Kazuya Nakayama, an employee of a manufacturer. Japanese.

“Our best scenario is that the Chinese economy continues to grow and the country’s rich people further increase their purchasing power. If the Chinese market becomes more socialist, we may have to reconsider our business strategy,” he said. he adds.

In his one-hour opening speech to commemorate the 100th anniversary of the founding of the ruling party on July 1, Xi said, “A moderately prosperous society has been built in all its aspects,” stressing that all citizens can now enjoy a comfortable life in China.

Xi was committed to achieving 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. .

Since Xi’s statement, the Chinese government has tightened regulations on the internet, education, entertainment and real estate – areas that have particularly benefited the wealthy with the country’s economy growing rapidly.

The Communist Party has stepped up surveillance of the country’s IT giants to curb their monopolistic behavior and disorderly expansion of capital, stoking fears that the innovation of China’s high-tech industry may be hampered.

Large Chinese companies and business leaders also appear to be forced by the central government to share their profits for the common good by taking measures such as donating and providing social supports to reduce income disparities.

Alibaba Group Holding Ltd., China’s leading IT company that has become one of the world’s largest e-commerce companies, has in fact pledged to contribute 100 billion yuan ($ 15.6 billion) by 2025 to promote common prosperity, state media reported in September.

The photo taken on April 15, 2021 shows the Alibaba logo in front of the group’s building in Beijing. (Kyodo)

While implementing several measures targeting tutoring agencies with the aim of alleviating the heavy school load of children and combating unfair competition, the Chinese authorities have started cracking down on the entertainment sector.

As entertainment fees for movie stars have increased with the boom in China’s entertainment market, Xi’s leadership is believed to be imposing strict controls on tax evasion and other crimes committed by those under scrutiny. as symbols of the rich.

In addition, China’s highest legislature has adopted the decision to roll out a pilot property tax in certain regions with the aim of facilitating a stable and healthy development of the country’s real estate market, the state-run Xinhua news agency reported at the end of the year. last month.

The controversial move is expected to keep house prices from soaring and help local governments, which have struggled with tax difficulties, boost their tax revenues, but it is also sure to place a huge burden on property owners. .

“Minimizing the use of capital income for luxury consumption, rather than property income for investment, is a very serious economic problem in the United States and China,” the Global Times, a tabloid, said. of the Communist Party.

Common prosperity is “consistent with both the facts of economic development and economic theory,” the newspaper added.

Many analysts, however, are skeptical about whether the concept of common prosperity will really boost economic development in China, given that excessive restrictions would make the wealthy more reluctant to consume and invest.

Tighter regulations are likely to dampen Chinese companies’ willingness to innovate, likely undermining potential economic growth, said Hideki Ito, senior economist at Mizuho Research & Technologies in Tokyo.

Takashi Watanabe, a worker at a Japanese electric machinery maker operating in China, echoed this view, saying, “If the rich Chinese avoid spending, it would be difficult for the world’s second-largest economy to maintain its momentum. growth.

Although Xi is committed to promoting a market economy as part of a “reform and opening up” policy, Japanese companies would be “forced to seek other attractive investment destinations than China if it prioritizes common prosperity, ”Watanabe said.

In fact, some Japanese companies are already keen to exit the Chinese market with a population of 1.4 billion, a real estate broker in Beijing said.

“I recently heard from Japanese companies that they want to sell their properties in China as soon as possible. It seems that they are gravely concerned about the future development of the Chinese economy,” the broker said.

Naoto Takeshige, researcher at the Ricoh Institute of Sustainability and Business in Tokyo, said: “An era of high economic growth in China is approaching a turning point.

“We will have to watch more closely the leadership of the great power,” he added.

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