Business Maverick

Business Maverick

Country Now Comes Before Profit For Companies in Xi’s China

A woman wearing a protective mask embroiders the emblem of the Chinese Communist Party on a flag at an exhibition celebrating the Party's centenary at The China Millennium Monument in Beijing, China, on Friday, June 25, 2021. The Communist Party will celebrate 100 years since its founding on July 1, an occasion which President Xi Jinping is also using to showcase his own grip over the ruling party. Photographer: Yan Cong/Bloomberg

China’s biggest companies are starting to make a habit out of giving away their earnings.

In the latest example, Pinduoduo Inc., an e-commerce company known for giving big discounts to customers when they buy produce together, said it will donate all of its first net profit since going public to support the country’s farmers and agricultural areas. The company will keep giving away earnings at least until the donations reach 10 billion yuan ($1.5 billion).“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,” Chief Executive Officer Chen Lei 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.”

PDD’s announcement comes after a series of similar contributions from the country’s biggest companies and wealthiest people. Tencent Holdings Ltd., China’s most valuable company, said last week it will double the amount of money it’s allocating for social responsibility programs to about $15 billion. PDD co-founder Colin Huang had earlier pledged to personally bankroll research into sciences.

Month Billionaire Amount Donated
August Colin Huang, Pinduoduo Company pledges $1.5 billion in profit to help agriculture development;

In March, Huang’s foundation donated $100 million to Zhejiang University;

In July 2020, Huang and Pinduoduo’s founding team transferred shares worth $2.4 billion to a charitable trust

July Lei Jun, Xiaomi $2.2 billion in shares
June Zhang Yiming, ByteDance $77.3 million of personal wealth
June Wang Xing, Meituan $2.3 billion in shares
April Pony Ma, Tencent About $7.5 billion of company money set aside (In August, Tencent doubled the pledged amount to roughly $15 billion)

President Xi Jinping has increasingly emphasized the idea of “common prosperity” as the Communist Party tries to address the country’s wealth gap. Regulators are forcing most private education companies to convert into non-profits, while they’ve pushed other tech players to boost pay for low-skill workers at the expense of earnings. PDD’s decision squarely targets one of Xi’s top priorities: alleviating rural poverty.

Xi Doubles Mentions of ‘Common Prosperity,’ Warning China’s Rich

In the U.S., 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 PDD’s pledge. Shares soared 22% in U.S. trading after the company unveiled the news and a surprise profit for the quarter.

“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. wrote in a research note. “We expect 2H21 non-GAAP profit to break even, reflecting all the profits will be invested in the initiative.”


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