It is progressive in theory, but a 2018 reform creating many deductions and raising its threshold brought the percentage of the urban population concerned down from 44 to 15%. Sectoral measures have already been introduced, such as a 5% cap on rent increases (the first ever rent control in post-1978 China), and a compulsory rotation of teachers in large cities to avoid real estate speculation around the best schools.
In the last case, we also see the new social policies that are responsible for the sudden banning of private tutoring, leading to the wipeout of a 120 billion USD sector. The capping of video gaming at 3 hours per week appears difficult to enforce, as is the admonition to video game companies that they should not seek profit as their main objective. Rumor has it that the cosmetic surgery branch - a 50 billion USD industry - is the next target. A mobile phone app of 200 million users, initially designed to combat phone and internet financial fraud, is now used by authorities to query individuals who have accessed international financial news services. Then there is of course the ban on trips abroad, justified by the zero-Covid policy. The move against real estate and speculation now extends to new rules for urban renewal that clearly challenge the existing ethos of China’s real estate business. How economics, society and politics are inextricably linked here can be deduced from the following imperative: "We shall put an end to the bad practice where grand, strange, and Western-style buildings are sought for". Ironically, it does feel like the rest of the new regulation could have been written by a Western green or social-minded administrator.
Do these ambitions go any further? The rhetorics around "common prosperity" would suggest so. Strikingly, many professionals and media economists are falling over themselves to suggest ways to fight inequality. From pension reform to "tertiary redistribution" (philanthropy) to current income tax inequity, they are taking cues from Western socially minded thinkers (essentially American, and also with mentions of Thomas Piketty) to put flesh on Xi Jinping’s words. But what has previously happened with the entire platform economy, and is still reverberating with new announcements, suggests caution: control over data by the government is clearly the most consistent priority, beyond anti-monopoly action and the protection of private data from commercial endeavors. In all the policies listed above, we suggest that the limitation of financial risks and therefore the control on new debt and speculative bubbles are the primary intent, with social redistribution thrown in as a secondary goal and a useful political prop.
The snowballing economic effect that is starting this September will leave a deep imprint on China’s urban society and the so-called middle classes, as well as on international investors. The second part of this analysis looks at the risks taken and the international implications of these changes.
Copyright: NICOLAS ASFOURI / AFP
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