According to an October 2 Bloomberg report, the communist regime will likely push hard for a shared wealth policy at the twice-a-decade Party congress to be held on October 16.

The main goal of the so-called common prosperity is meant to tackle inequality in China by widening the middle class. This will include those who do not graduate university, small retailers, migrant workers, and farmers. 

The approach includes regulations aimed at private companies, billionaires, and celebrities in China. As a result, the new push has heightened investor concerns, who have lost billions of dollars and worry what will happen to the business environment in the time ahead.

Bloomberg noted governments worldwide have already learned that closing the wealth gap within a nation is undoable. Without trickle-down economics, wealthy individuals and large organizations will panic and their first move is to lay off staff and curtail employment.

In China, after years of a brutal clampdown on big tech and real estate firms, the ‘common prosperity’ policy has proved unsustainable. Not only is the Chinese Communist Party unable to meet its objectives, but its people also have become poorer. 

Among the 170 million migrant workers included in this strategy, about 25% work in the service industry, such as retail, transportation, and food services.

Many accept hard work for better pay, including ride-hailing and food delivery. However, the communist regime’s tech crackdown has greatly impacted their stable earnings.

The CCP’s orders to take down leading ride-hailing firm Didi Global Inc. from app stores last year has upended the daily lives of delivery staff across the nation. Moreover, the draconian “zero-COVID” policy also left them stranded on the street for days while still struggling to find ways to survive. 

Many couldn’t stand the hardships and had to return to their hometowns. Migrant workers tend to spend their savings buying apartments back in their home villages. 

But the communist regime’s crackdown on the real estate sector has undermined home prices and reduced their wealth a lot more than urban homeowners.

In addition, Nikkei Asia reported that while private real estate companies suffered terribly amid the property crisis, many Chinese state-run firms could still enjoy favorable funding conditions and tacit support from the government. Several of these firms also appeared as “winners.”

Of the 31 key listed developers that announced monthly contracted sales data on September 16, only China Merchants Shekou Industrial Zone Holdings recorded positive growth in the second half of the year. 

The media outlet noted that the company is a Shenzhen-listed unit of the state-backed conglomerate China Merchants Group, which belongs to less than a hundred so-called “central companies.” These are major state-owned conglomerates under the direct control of the communist regime.

Yan Changming, sector analyst at Industrial Securities, said the firm had “prominently demonstrated its advantageous financing position as a [unit of a] central company.”

In July and August companies reported contracted sales data but China Merchants Shekou logged 18% and 17% year-on-year growth, respectively. 

Two other state-backed “winners” were Greentown China Holdings and China Resources Land. Both of these central companies’ subsidiaries posted an increase in July sales from a year earlier.

Apart from these three state-owned developers, the remaining 28 firms saw contracted sales tumble last month. At least 14 reported a more than half decline in August sales over the same period in 2021.

Among the 36 key listed firms that have revealed their first-half earnings, 11 posted net losses and 17 recorded a double-digit fall.

According to Apollo, while private firms are battling with highly leveraged and fast-turnaround business strategies to survive the property crisis, Chinese state-backed companies will also take the chance to increase market share and buy up more cheaper assets.

So far in 2022, Chinese state-run developers have acquired 74% of available land. This compared with 40% of land before 2019.

Regarding overall China’s real estate market, unlike state-backed firms, private developers are losing and facing lawsuits from unsatisfied investors. 

Bloomberg noted that since last month, Chinese authorities have called on everyone to “avoid excessive consumption” and “glorify thriftiness.”

Paul Pong, managing director at Pegasus Fund Managers, said that Chinese consumers are happy to buy cheaper brands as they do not network in person anymore. Thus, they tend to cut spending on luxury watches, expensive handbags, and clothes.

As a result, Chinese firms have to sell goods at lower prices amid a so-called consumption downgrade trend. 

Raymond Yeung, chief economist for Greater China at ANZ Research said, “In the longer term, ‘common prosperity,’ ‘profit sharing,’ and remuneration cap will hurt high-end spending. The luxurious segment will be hit.” Yeung believes that China’s economy will continue to decline in the next few months. Moreover, Chinese authorities will be “more inclined to prioritizing ‘zero-COVID’ and snuffing out the virus outbreaks” amid the upcoming Party congress.

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