Rich Chinese Communists Channel U.S. Tea Party in Tax Debate
By Bloomberg News
March 16 (Bloomberg) -- Zong Qinghou, China’s richest man, says a property tax will hurt homeowners. Wang Jianlin, the 16th wealthiest, agrees. Lu Guanqiu, No. 19, says China isn’t ready for such a levy.
Their financial clout, a combined $12.4 billion according to Forbes magazine’s latest ranking, packs a political punch. They are members of the Communist Party and delegates to China’s parliament or its political advisory committee. Their concerns about the tax, which the government might adopt in the five-year plan beginning 2011, are shared by many Chinese investors and homeowners.
“A property tax isn’t appropriate,” Zong, 64, chairman of beverage company Hangzhou Wahaha Group Co., said in an interview. “Now everyone already pays monthly management fees, so it would just add another burden.”
Call it a nascent Chinese Tea-Party movement, after the self-described U.S. activists who protest the spending and taxation policies of President Barack Obama and Democrats who control Congress. The groups take their name from a 1773 Boston protest by supporters of independence from Great Britain.
An annual levy on property would give local officials a reliable stream of revenue, making them less dependent on land auctions that have fueled speculation and helped prices rise 10.7 percent in February from a year ago, the fastest pace in almost two years.
China overtook the U.S. last year to become the world’s biggest property-investment market, according to New York-based real-estate broker Cushman & Wakefield LLP.
Influence Policy
Officials in Beijing are constrained by an emerging affluent class with increasing ability to influence policy. Wang, chairman of property developer Dalian Wanda Group Co.; Lu, 65, chairman of Hangzhou-based auto-parts maker Wanxiang Group Co.; and Zong have connections in the highest levels of government. Their company Web sites document meetings with Premier Wen Jiabao and other leaders.
“The ones who have properties are the ones with the power to implement the tax,” Pan Shiyi, 46, chairman of Beijing-based real-estate developer Soho China Ltd., told reporters in Hong Kong March 11. “So it’s very unlikely” the tax will become law. He and his wife rank 24th on Forbes’ list.
The executives represent one side of a widening rift within the Communist Party, said Li Cheng, director of research at the Brookings Institution’s John L. Thornton China Center in Washington. It will grow as the country continues to develop, pitting them and businesses in coastal regions against those who want to redistribute more of China’s growing income and develop interior provinces.
“This is what I call one party, two factions,” Li said.
Vocal Opponents
Blame former Chinese President Jiang Zemin. He altered party doctrine in 2002, encouraging private entrepreneurs to join. Now some of the most financially successful members are voicing opposition to government initiatives from within the system.
They echo American Tea Partiers whose rise to prominence was stoked partly by anger over Obama’s programs to spur growth. Zong said there was wasteful spending in China’s 4 trillion yuan ($586 billion) stimulus plan. Wang, 65, sounded like former Republican U.S. President Ronald Reagan when he told reporters on March 11, “if you really want to provide a boost to employment, don’t raise taxes, cut them.”
“The opposition of the rich is in line with reason,” because they must pay most of the money for the levy, Jia Kang, head of the Finance Ministry’s research institute, told reporters March 10 in Beijing. He advocates a system that puts most of the burden on owners of investment homes and luxury villas.
‘Earnestly Investigate’
The government should “earnestly investigate and prepare for the property tax to be introduced,” possibly on a pilot basis initially, Jia said.
A new source of revenue would help curb real-estate speculation that made housing less affordable and threatens to create a bubble that might restrain China’s economy, which expanded 10.7 percent in the fourth quarter.
“It is widely recognized that the current structure of property, which has been a big source of growth, is not sustainable,” said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics-research firm whose clients include hedge funds and Fortune 500 companies.
The Finance Ministry and other government supporters of the tax will eventually prevail, Kroeber said, overcoming resistance from officials who say it will hurt the value of their own real- estate investments.
“They will come to grips with this,” Kroeber said in an interview. “It will be messy and it will be a drawn-out battle, but I think that it will happen.”
Eliminate Fees
Not all China’s richest people oppose the tax. Wang Chaobin, 54, a property developer in central China’s Henan Province, said it would allow the government to eliminate other fees, adding that primary residences shouldn’t be included.
Wang, whom Forbes ranked 251st in 2009 with a $440 million fortune, knows about property taxes. He owns a home in Syosset, New York, on Long Island valued at $1.57 million last year and he paid more than $26,000 in local taxes, according to records for Nassau County, which had the second-highest U.S. real-estate levies in 2008, according to the Washington-based Tax Foundation.
“The whole world pays property tax,” Wang, a delegate to the political advisory committee, said in an interview. “China’s economy must be linked with the whole world in order to become prosperous.”
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