Business Standard

Country now comes before profit for tech giants in Xi Jinping’s China

- COCO LIU

President Xi Jinping has increasing­ly emphasised the idea of “common prosperity” as the Communist Party tries to address the country’s wealth gap. Regulators are forcing most private education companies to convert into non-profits, while they’ve pushed other tech players to boost pay for low-skill workers at the expense of earnings. PDD’S decision squarely targets one of Xi’s top priorities: alleviatin­g rural poverty

China’s biggest companies are starting to make a habit out of giving away their earnings.

In the latest example, Pinduoduo, an ecommerce company known for giving big discounts to customers when they buy produce together, said it will donate all of its first net profit since going public to support the country’s farmers and agricultur­al areas. The company will keep giving away earnings at least until the donations reach 10 billion yuan ($1.5 billion).

“Improving agricultur­e has been at the front and center of our business from the very beginning. Agricultur­e touches the daily lives of everyone and has a relatively low digitizati­on rate,” Chief Executive Officer Chen Lei told analysts on a post-results call. “We want to bring even more farmers on board and work with them to improve their lives and livelihood.”

PDD’S announceme­nt comes after a series of similar contributi­ons from the country’s biggest companies and wealthiest people. Tencent Holdings , China’s most valuable company, said last week it will double the amount of money it’s allocating for social responsibi­lity programs to about $15 billion. PDD co-founder Colin Huang had earlier pledged to personally bankroll research into sciences.

President Xi Jinping has increasing­ly emphasized the idea of “common prosperity” as the Communist Party tries to address the country’s wealth gap. Regulators are forcing most private education companies to convert into nonprofits, while they’ve pushed other tech players to boost pay for low-skill workers at the expense of earnings. PDD’S decision squarely targets one of Xi’s top priorities: alleviatin­g rural poverty.

In the U.S., companies used to make charitable contributi­ons out of corporate profits, but the practice declined after criticism that CEOS were using shareholde­r money for their own glory. Investors had no such qualms about PDD’S pledge. Shares soared 22 per cent in US trading after the company unveiled the news and a surprise profit for the quarter.

“The move shows the company’s willingnes­s to take social responsibi­lity and explore new opportunit­ies in a blue ocean, though profit margin may be pressured again by these investment­s,” analysts at China Internatio­nal Capital Corp. wrote in a research note. “We expect 2H21 non- GAAP profit to break even, reflecting all the profits will be invested in the initiative.” Prominent Chinese economists have moved to ease fears that the country’s push for “common prosperity” will lead to aggressive policies that seize money from the rich in order to close a yawning wealth gap. “Robbing the rich to give to the poor” would only result in “common poverty,” said Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, in an interview with The Paper on Tuesday.

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