And over decades of astronomical growth, many in China did get rich. Today, the country boasts the world’s second-biggest economy, with more than 1,000 billionaires and 5mn millionaires. Now the pendulum is swinging back again.
Strongman Xi Jinping wants those who benefited the most from China’s economic ascent to increase their contributions back to the state, embarking on what could be the most ambitious global tax hunt in history. From October 22, authorities will begin collecting a 20 per cent tax on dividends and interest earned from offshore trusts, explicitly targeting wealthy Chinese who shelter their assets overseas. Analysts at Barclays view the measures as “potentially the first steps” in a broader campaign to “[expand] scrutiny to areas such as exporter earnings held offshore, overseas investment income, overseas employment income and, over the longer term, estate or inheritance taxation”.
Some content could not load. Check your internet connection or browser settings. The sudden move announced this summer came as a shock to many of China’s wealthiest people, arriving at a pivotal moment when the country faces a generational handover of wealth.
Many Chinese entrepreneurs who built fortunes during the early decades of reform are nearing retirement, raising pressing questions about how their assets will be passed on, who will take control of the family empires — and who will pay the taxes. The shockwaves have been felt in financial, legal and property industries across Asia. Hong Kong, Singapore and Tokyo are in flux as their status as havens for money channelled offshore from China faces an existential test.
Others, including New York bankers, spy an opportunity to shield Chinese customers from their country’s taxman. If successful, the campaign has the potential to help Beijing fill a deepening fiscal hole in central government coffers. Revenue collected by local authorities from land sales has plateaued or fallen, and the central government has been siphoning more funds to provinces in recent years to cover basic services such as education and health and to pay civil servants.
The situation is “becoming untenable on [its] current trajectory”, says Victor Shih, professor of Chinese political economy at the University of California, San Diego. Technocrats “have to find another source of revenue”. Shoppers at a mall in Haikou, China.
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