Exploring the intricate ways how Chinese Communist leaders amassed wealth in the name of economic reforms. Through a web of secretive business deals and abuse of power, Chinese officials are the biggest beneficiary of their policies. Their paths to wealth highlight communist China’s complex intersection of power and wealth.
The head of the Chinese Communist Party (CCP) Xi Jinping is pushing his vision of “common prosperity” and reminding everyone that power lies in the Party, no matter how wealthy you are. Beijing has accelerated ways to increase the supervision of high-net-worth individuals. Affluent Chinese are feeling the pain. 2022 saw the largest drop in Chinese billionaires in 24 years. Let’s revisit how the CCP previously eliminated private business and redistributed wealth so we understand how “common prosperity” will be carried out.
Why wealthy Chinese are at risk?
Wealthy Chinese are like an endangered species that is seeking refuge everywhere. It seems that the wealthier you are, the faster you disappear and the bigger danger you face. According to the Hurun 100 Rich List released on Nov. 8, the number of Chinese worth more than $750 million was down 11 per cent from last year. The number of people worth more than $1 billion fell by 20%.
And the super-rich, worth $10 billion or more, fell by 34%. Yang Huiyan, the co-chairperson of property developer Country Garden and the wealthiest woman in Asia, lost half of her wealth. Jack Ma’s wealth fell by 29%. But Yang and Ma are not the richest people in China. The truly wealthy Chinese are the Party elites and their families. I’ll talk about how they became wealthy later. Let’s first look at how the CCP eliminated private businesses.
The CCP’s history of private assets nationalization
In 1949, when the CCP seized power, there were 123,000 private companies in China, accounting for 63% of the country’s total industrial output. To maintain stability, Mao Zedong initially wanted to wait 10 years before nationalizing private assets. In 1950, the CCP issued a provisional regulation stipulating that private business owners would receive no less than 60% of their companies’ profits after paying taxes. In other words, the CCP shared 40% profit in addition to collecting taxes. This was already incredible but the worst was yet to come.
Mao couldn’t wait 10 years. Three years later, in 1952, he began plans to eliminate private businesses. In 1953, Mao put forward a policy to “utilize, restrict and transform” private enterprises. He formally proposed to turn capitalist private ownership into socialist public ownership and called the elimination of capitalist commerce “the essence of socialist transformation.” The share of profits that business owners received was reduced from 60% to 25%.
In November 1955, the CCP stipulated in its “Resolution on the Transformation of Capitalist Industry and Commerce” that the state would pay a small annual percentage to business owners to “redeem” their company. The rate was fixed at 5% in 1956. The government would pay business owners 5% for 20 years to “buy out” their companies.
By the way, some say the 5% rate was even lower than what banks were paying. On Jan. 10, 1956, Beijing was the first city to announce a complete socialist conversion of private companies under the “private-public partnership movement.” The movement was quickly implemented across the country. More than 800,000 private businesses were forced into a partnership with the government, and the owners became the receivers of a 5% annual compensation. But the CCP couldn’t wait 20 years and didn’t keep its word.
Ten years later, in September 1966, the CCP announced that the government had paid the business owners in full, and the private-public partnership ended 10 years before the 20-year term. By 1966, all partnerships became state assets. Private businesses were thus completely wiped out in China.
During the 30 years from October 1949 to December 1978, the CCP seized land, factories, businesses, and vast private wealth from all social classes by forcing private to public conversion. The regime implemented the state planned economy. China became very poor, with most people living in poverty, except for the few who were living in the leadership compound in Beijing. In 1979, the CCP adopted the “Reform and Opening-up,” gradually allowing private businesses to exist again.
In 1992, Deng Xiaoping proposed a socialist market economy to “allow some people to get rich first.” This started the second phase in which the CCP reverse-engineered what they had done before. Once again, it was to benefit themselves because they misappropriated what didn’t belong to them in the first place.
A case study: Luneng Group in Shandong
In 2006, the largest state-owned company in Shandong province, Shandong Luneng Group, a company in the energy, real estate and aluminum business with 74 billion Chinese yuan (or US$10.3 billion) in assets, was quietly sold at a huge loss to some obscure individuals.
On Jan. 8, 2007, an investigative report by the Chinese Caijing magazine (“Finance and Economy”), whose chief editor was the well-known media personality Hu Shuli, revealed that two unidentified companies had bought 91.6% of Luneng Group for 3.7 billion yuan, resulting in a loss of more than 70 billion yuan in state-owned assets. The entire acquisition process was very secretive and too complex for an outsider to comprehend. It was later revealed that the actual acquirer of Luneng Group was Zeng Wei, son of Zeng Qinghong, former member of the Standing Committee of the CCP’s Political Bureau and the No. 2 man in the Jiang Zemin faction.
In an article in Taiwan’s Liberty Times, Hong Kong political commentator Paul Lam said that Zeng Wei was the key person involved in the Luneng sale. The Caijing magazine did not mention Zeng Wei’s name in its article but still got into trouble. Its editor-in-chief and her team were kicked out. The low-ball takeover of Luneng is one of the CCP’s standard modes of operation in peddling off state-owned assets to benefit personal pocketbooks.
Socialist reforms or robbery?
In the first 30 years of its rule, the CCP eliminated landowners and capitalists by plundering their properties and wealth in the name of socialist reforms. In the next 40-plus years, senior members of the Party and their families, in the name of economic reforms, redistributed vast state-owned assets to themselves by using Western capitalist marketization tools. Using their power, position and authority, CCP leaders and their families became the nouveau riche who amassed more wealth than the capitalists of the past. They are also more powerful than the capitalists in the West because the entire national resources are at their disposal.
After three decades of so-called economic reforms, high-ranking CCP officials and their families have divided state resources among themselves, and almost every major industry in China is controlled by a CCP red “princeling” family.
For example, Jiang Zemin’s family controls China’s telecommunications industry, Zeng Qinghong’s family and Zhou Yongkang’s family control the oil industry, former premier Li Peng’s family controls the power industry, and Deng Xiaoping’s family controls the real estate, non-ferrous metals, and arms industries. Zeng Qinghong’s brother, Zeng Qinghuai, controls the film and television industry. Hu Jintao’s son, Hu Haifeng, has control over China’s airports, ports, and subway systems, and the list goes on.
These people became the red capitalists of the “new era.” But they are low-key and never appear on any official list of the rich and famous. The wealthy Chinese on the list, such as Jack Ma and Pony Ma, are merely the “bagmen” or “white gloves” subordinate to the princelings. China Youth Daily reported in 2006 that “0.4% of the people [in China] hold 70% of the nation’s wealth. The concentration of wealth is far greater [in China] than in the United States where 5% of the population holds 60% of the wealth.”
Also in 2006, according to a report by the Chinese Academy of Social Sciences, 9,700 or 86% of wealthy Chinese with assets of more than 100 million yuan were family members of CCP officials. The annual income of Chinese officials at all levels was 8 to 25 times the per capita urban income and 25 to 85 times the average annual income in rural China.
By the way, these surveys and studies have been stopped in recent years as the data is too sensitive for Beijing. The socialist market economy implemented after the reforms is in essence, a hunting ground for the Party elites and their bagmen, as well as some western capitalists, whose combined power has generated enormous wealth for them, while Chinese farmers still do not own any land, and Chinese homeowners don’t own their homes, they only have a 70-year right of use.
The CCP has ruled China for more than 70 years and has redistributed wealth twice. In the first 30 years, it ransacked private businesses and turned them into state property, and in the next 40 years, public property was privatized into the hands of CCP elites in the name of economic reform. Similarly, Xi Jinping’s “common prosperity” will only benefit the Party elites for them to sustain power and prevent the regime from collapsing.
It is taking the fruit of their labour from every Chinese citizen to help the Party and its officials. Whether you are rich or poor, whether you are a Jack Ma or an assembly line worker at Foxconn, the wealth you create is used to foot the bill for the CCP’s massive ambition and ill-conceived policies, and you will have to live according to the modest standard the regime decides for you. And that, essentially, is what “common prosperity” is about.
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