China’s biggest companies are starting to make a habit out of giving away their earnings.
In the latest example, Pinduoduo Inc (拼多多), an e-commerce company known for giving big discounts to customers when they buy produce together, said it would donate all of its first net profit since going public to support the nation’s farmers and agricultural areas.
The company would keep giving away earnings at least until the donations reach 10 billion yuan (US$1.54 billion), it said.
“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,” Pinduoduo CEO Chen Lei (陳磊) 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.”
Pinduoduo’s announcement comes after a series of similar contributions from the country’s biggest companies and wealthiest people. Tencent Holdings Ltd (騰訊), China’s most valuable company, last week said it would double the amount of money it was allocating for social responsibility programs to about US$15 billion.
Pinduoduo cofounder Colin Huang (黃崢) had earlier pledged to personally bankroll research into sciences.
Chinese President Xi Jinping (習近平) has increasingly emphasized the idea of “common prosperity” as the Chinese Communist Party tries to address the country’s wealth gap.
Regulators are forcing most private education companies to convert into non-profits, while pushing other tech players to boost pay for low-skilled workers at the expense of earnings.
Pinduoduo’s decision squarely targets one of Xi’s top priorities: alleviating rural poverty.
In the US, 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 Pinduoduo’s pledge.
“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 (中國國際金融) wrote in a research note. “We expect 2H21 non-GAAP profit to break even, reflecting all the profits will be invested in the initiative.”
Chinese economists have moved to ease fears that China’s drive for “common prosperity” signals aggressive policies afoot that would seize money from the rich to close the country’s yawning wealth gap.
“Robbing the rich to give to the poor” would only result in “common poverty,” Zhang Jun (張軍), dean of the School of Economics at Fudan University in Shanghai, said in an interview with The Paper on Tuesday.
“The prerequisite of common prosperity is that the pie must continue to get bigger,” he added.
Li Daokui (李稻葵), a former adviser to China’s central bank, on Tuesday said the campaign to help more people enjoy economic well-being was a long-term goal.
“It cannot be expected that progress on a variety of indicators be made in the short term, for example five years,“ Li said in an interview with Phoenix Television. “We must be vigilant against ‘common prosperity’ becoming a Great Leap Forward, a risky endeavor, or something that drags down economic development and affects efficiency.”
Li, now chief economist at New Development Bank (新開發銀行), told the network it was “harmful” to equate common prosperity with making everyone’s income equal, adding that the campaign should not be equated with the anti-monopoly crackdown.
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