Is this the end of China's experiment with capitalism? | Counting the Cost

[Music] hi there i'm kim vanell this is counting the cost on al jazeera your look at the world of business and economics this week is this the end of china's experiment with capitalism president xi jinping launches sweeping socialist reforms to address inequality in the world's second biggest economy and the party is over for the chinese conglomerate that rode the property boom hundreds of billions of dollars in debt the implosion of everground could take down the banking sector as traditional analog watchmakers fend off the fashion industry and tech giants that are eating into their business we find out why sales of second-hand watches are taking off [Music] president xi jinping isn't afraid of letting everyone know who is the ultimate power in china since his elevation in 2012 he launched an anti-corruption purge of what he called tigers and flies or high-ranking national and local officials then came the internment of millions of weakers and so-called re-education camps in xinjiang he followed that up by crushing the hopes of democracy protesters in hong kong ji's latest target is a huge segment of the economy that has powered growth in recent years billionaires celebrities property gaming and tech companies she's reasoning the side effect of growth has been ever increasing inequality it's time he says for common prosperity take a look at this chart this is china's genai coefficient basically it's a measure of inequality the closer you are to one the more unequal society is in 2019 it stood at around 0.47 remember anything above 0.40 is considered destabilizing and that is the one thing that the communist party fears the most social unrest she is concerned that the young and rural migrants to cities are being priced out of the property market and education isn't enough to improve the lot of the poorest take a look now at this from the world economic forum this is their social mobility tracker we've selected a handful of countries out of 82. you can see china lags behind russia the united states and most of europe and here's another play on the same theme this study by the oecd shows how many generations it would take to climb out of the bottom 10 into mean income status for china you can see it's seven generations compared to five for the united states and just two at the top there for denmark and with china creating two new billionaires every week the top one percent are increasing their share of the nation's wealth as you can see from this graph compiled by bloomberg in 1989 the top 1 and bottom 50 percent owned roughly you can see there an equal share of the wealth but move along here and by 2015 the share held by the bottom 50 shrunk and the top 1 increased their share to a there is so much more to talk about but let's start with ji's crackdown as told by our correspondent katrina yug she begins this report with beijing's ban on tutoring which has hoped to ease the financial burden on parents wall street english once sold private tutoring sessions to chinese students keen to improve through extra study [Music] now it's one of more than 1 000 companies forced to close their doors following sweeping new education regulations tutoring companies can no longer teach compulsory school subjects teach during school hours not earn a profit thousands of foreign tutors like catherine peterson have suddenly found themselves redundant the american has taught english and critical thinking skills in china for five years this is going to impact the industry a lot and especially now with covet it's so hard for foreigners to come into the country too i think it might mean a huge downsizing of the industry many parents invested in tutors to help their children boost their results in hyper-competitive exams known as gao cow that they need to pass to get into universities but many say china's tutoring industry that was once worth an estimated 140 billion dollars is now decimated chen yusha lost her job as an administrator in one of china's biggest tutoring companies and is now struggling to find work because of the huge demand this industry was booming but it put a lot of pressure on parents because extra tutoring is not the chinese government hopes its crackdown on private tutoring will reduce the cost of raising a child and ease pressure on families china's birth rate is slowing and authorities are desperately trying to encourage couples to have more children but analysts say this isn't the only goal authorities also want to encourage investment in more innovative areas of china's i.t industries to create greater competition with high-tech companies in the west amazon is investing heavily in space technology elon musk is conquering mars but those um those i.t giants in china they're making money of parents anxieties but some worry that the government ban may just lead to a black market in private tutoring just because the government has banned or is trying to cut back on a certain kind of education i don't think that will stop parents from trying to pursue it the government says it's offering support to thousands of people affected by the measures but that may not be enough to help all of those reeling from the shock of seeing their teaching career in china suddenly at an end millions of young fans loyal to famous actors and singers are a lucrative force in china's entertainment industry now celebrity fan clubs have become the latest target of government regulators authorities have banned activities which encourage fans to spend money on their favorite stars online celebrity rankings and discussions about their salaries are also prohibited state media newspaper the global times says fan clubs could be used to manipulate mines and split chinese society mega-rich entertainers have been criticized and punished for tax evasion and other undesirable behaviors the moves are part of beijing's efforts to promote chinese socialist values among young people and crack down on so-called negative influences in entertainment culture it follows the announcement of new rules limiting how much time young people can spend playing online video games miners can now log on for three hours a week maximum and only on weekends beijing says the kerbs are necessary to combat gaming and internet addiction but critics say it'll do the opposite i don't think the new regulation makes any sense it aims to help teenagers but the less access you get the more curious you will be on the surface these changes seem like rules designed to stop unhealthy or obsessive behaviors among young people but for the chinese communist party it's much more it sees the entertainment industry as an ideological battleground that needs to be kept in check regulators have also banned the portrayal of effeminate men and online lgbtqi communities have been censored activists are ming says the government is actively trying to mold the identity of young chinese the government wants a traditional image for its people not a diverse one i think this really limits the imagination and creativity of the young people it shows the society is becoming less accepting to those who are different arming and others like him are worried there are more changes ahead and the freedoms of chinese youth will increasingly be replaced by the agenda of the communist government let's take a deep dive into ji's common prosperity with iris pang iris is the chief economist for greater china with ing banks she joins me now from hong kong via skype thank you for your time so xi jinping has called for common prosperity how big of a problem is inequality so if we talk about inequality we usually use the genie index gini index in china back into 2000 was 0.412 any readings above 0.4 indicates an inequality issue but after that after 2000 um there have been no updates on the genie index in china so um we we don't know this uh actual situation but um as i have seen rural side has increasingly um being more wealthy um than the than previously so i think the inequality issue is that there are many people uh or corporates that are very rich and although the rural size has become more wealthy the inequality the gap has widened common prosperity though isn't a new theme is it why is it that we're hearing more and more about it now um common prosperity is isn't new at all for example we know that in some countries their tax rate is very high that is because they want to uh narrow the wealth gap and redistribute wealth from the rich to the poor so now china is experiencing there are more rich people super rich people as you said so i expect that will be a more progressive tax rate system in china for corporates as well as for individuals but if we think about why president xi jinping is pushing this common prosperity theme i mean is there a political element to it too does he want perhaps a third term i think he he he doesn't have to do anything for his third term he has changed the system that he can roll over continuously so i think it is not about um domestic politics it's more about the the living quality of people especially those in in in the base of the pyramid they um the government wants them to live at us in in a state that is closer to the rich china is the second biggest economy yeah i believe 600 million people half the population live on about 150 a month so do you think these efforts to tackle that will have the sort of impact that's needed um it depends on how the government do it so there are many reports that the government will do it through property tax i i don't fully agree property tax is just one tool to do this i as i've said i expect a more progressive tax system on corporate tax as well as individual tax the government can introduce wealth tax but this is not really ideal because this will actually disincentify the people to climb the wealth ladder so i believe progressive task is enough to balance the rich and the poor more effectively is this the end you think of the capitalistic experiment or an acknowledgement perhaps that we can't leave everything to the market i think it is the second we in many places there there are a kind of government controls government policies for example taxation is one of them in economic theory if it is a purely econ market economy we may not have taxation i would say that it is the second but of course how to do it is that in china it will be quite a socialist method so we will hear a lot of slogan or jargon like common prosperity in china which we may not hear it in other economies even they share the same idea with a huge population and an almost endless pool of labor was this perhaps inevitable wealth gap is inevitable in in all economies i think but how wide is the world gap wealth gap if we can narrow it a little bit it will be better for the for the base in the pyramid and those are the struggling to climb the wealth ladder i think the it is also important for the uh children in the poor family that can get access to quality high quality education and chances in the society so that they can move up the ladder xi jinping has overhauled the 100 billion dollar tutoring industry taken on tech giants gaming even hit out at celebrities has there been any meaningful study as to what impact that may have on the economy first of all the tuition centers it already creates a pool of jobless young people and those young people are actually middle income class in china just in beijing city alone there are more than 90k young people being jobless because of the shutdowns of tuition centers so you can actually simply multiply it by four so that you can get the four biggest cities uh jobless people from the tuition policy and in on the online game policies i think it is not about jobless it is about how to switch to other business plans within the company so they still need the people so it is not not that damaging but it gives room for foreign brands to take into this game markets because some game consoles that are famous in the world are made by japan and they will easily get the market share because those don't need to be online at all and the policy only pinpoints on online games i just want to ask you quickly before we run out of time we have this huge if we look to the property sector we have this huge property company evergrand which is i believe 300 billion dollars in debt advisors are being called in to look at the structuring of the company assess its liquidity will that be allowed to go under would that company be allowed to go under and what kind of impact would that have i think survival is the still the main theme because the chinese government doesn't want to create extreme condition in the market and extreme conditions in the financial sector because they lend to these real estate companies also so i believe that there will be solutions that avoid extreme conditions all right chief economist for greater china with ing bank iris pang thank you very much for your time at the center of the inequality problem was china's policy for rapid urbanization which meant building millions of homes it contributed to breakneck economic growth and created sprawling property giants as we just mentioned evergrand is now on the brink of collapse after taking on debts of 300 billion dollars once again here's katrina you evergrande is one of the biggest real estate conglomerates in china it employs 200 000 people nationwide and even owns a chinese football team but the hong kong listed giant has become one of the most indebted companies in the world with more than 300 billion dollars worth of liabilities and it's struggling to pay it back sparking fears of a default that could send tremors through china's economy it's not just in the property business though it also has a new energy branch logistics branch it has business in almost every major city and many counties in china evergrande has suspended interest payments to some lenders and delayed payments to others this week ratings agencies fitch and moody's downgraded its credit status company shares have plummeted by 75 since the beginning of the year china can be said to have two property markets in major cities like beijing prices are rising here in the cbd the average two-bedroom apartment costs more than 1.3 million dollars but in smaller chinese cities there's an oversupply of housing and prices are slumping investing too much in those areas has led to many of everground's debt problems tighter regulations in china's financial market have also made it difficult for the firm to raise cash employees have protested outside evergrant offices saying their salaries haven't been paid chinese authorities met with company management last month demanding they resolve its debt but analysts say the government is unlikely to let evergrand go bankrupt they do not want to bail out all those bad behaviors but still it would be too strong a signal if it actually failed so i i think there will be some effort to bail out at least a portion of everyone's business um and maybe strategic investors will be encouraged from the private sector trying to take over some of the business evergrand is renegotiating payment deadlines with banks and other creditors more than 1.5 million home buyers waiting for their properties to be completed by the firm are holding their breath the multi-billion dollar traditional premium to luxury watch market is expected to see little in the way of growth over the coming years the industry is under attack from smart watch makers and fashion houses that are rolling out their own brands apple has come to dominate the smartwatch market with the launch of its new apple watch 7 which boasts a bigger screen it hopes to see off competition from samsung and google's fitbit the smartwatch market is expected to be worth 59 billion dollars in 2021 whereas the traditional market was valued at 49 billion in 2019 and is expected to be worth up to 59 billion in 2025. while the traditional market is under threat the pre-owned or second-hand market is growing it was worth 18 billion in 2019 and is expected to be worth 32 billion by the middle of this decade the pandemic has sent sales online and one of the companies taking advantage is a collected man and i'm delighted to say that the founder and ceo silas walton is with me now from london thank you for joining us so is the traditional watchmaker business under threat from smartphone makers and and also from fashion houses hi kim thanks for having me you know i think it's a very valid question i think when the apple watch joined the fray five years ago um i think much of the traditional watch industry was fearful about the consequences i think that what's happened is there's been a push for innovation inevitably as that's traditionally a response in the face of an existential threat to any market but i think what's particularly interesting is that there's been a boom in the more traditional let's say under the market artisanal watchmaking everything that's complicated or a little bit independent or high-end yeah and to that end there's been growing interest in the pre-owned market which of course you're capitalizing on why do you think that is look i think consumers are increasingly discerning value conscious they have an interest in sustainability in many cases and equally they're looking for something a little bit more interesting and if you think about it today you can choose from a limited range of watches available on the market new according to what the brand has in their portfolio but if you look at pre-owned you can pretty much have your pick from the last 50 years of watchmaking more or less talk us through what kind of people are interested in pre-owned watches what's the demographic that you're seeing coming through i mean it's it's it's a complete uh range and spectrum today it's young people it's people you know of all ages all over the world digital natives people who are perhaps a little bit more averse or risk-averse to online um all areas of the world it's a it's an absolutely booming market and it's it's really not specific to any particular demographic i would say quite interesting though that digital natives that younger people are interested in these pre-owned traditional analog watches i mean you would think that they would be more looking at the smartwatch sort of end of things yeah i i think the in many cases smart watches opened the door at the same time as information became more available and educational information became more available online to a whole new generation so once you had re-motivated people of a certain age to put a watch on their wrist perhaps hadn't thought about it before or weren't really interested suddenly they were thinking well actually i'm used to having this as i turn my wrist to the left so i can i can you know check the time on my wrist it's convenient to me maybe there's something else and often i think that leads to subsequent discovery of mechanical watchmaking tell us how did you come to start your business what was your journey i mean so i started a collected man seven years ago and when we started pre-owned was really a um not a wild west but it was a hyper traditional market it was not at all really online or social media friendly um you know the the the principal actors protagonists were high street retailers and auction houses um and for me it just felt like an inevitability that the direction of travel would be more digital and so we focused on that and so we've been a digital first education centered social media you know highly present business from day one and and today that's you know um where the market wants us to be of course i mean as you say you're digital from day one but how did the pandemic change your business if at all uh so you know the pandemic obviously had appalling consequences for for so many people across the world so many businesses um i think our business was fortunate in the sense that we were already poised to benefit from some of the changes that the global pandemic catalyzed so people just became more and more comfortable spending higher amounts of money online reaching out online without seeing in person reading about things online you know we have a journal where we publish articles two three times a week that are you know written by professional journalists and highly researched and i think as a result you know all those things came together as well as a growing acceptance of the online sorry of the pre-owned concepts um and it and it really favored our business model just finally how have you managed to build up your clientele i mean are these people who want to publicize who they are so it's a very uh you know some some clients are incredibly discreet incredibly confidentiality sense sensitive um captains of industry you know people in the film industry in the music industry etc other people are you know very very comfortable with social media either because they grew up with it or because they were early adopters um you know everyone has to be careful about how they present themselves and how they present the things they own um but but most consumers i would say today are increasingly sophisticated um and you know they they know they know what they're doing they know how to handle it all right thank you very much for your time silas walton there ceo of a collected man my pleasure thanks for having me and that is our show for this week get in touch with us by tweeting me at kim vanell and do use the hashtag ajctc when you do or drop us an email counting the cost at al jazeera.net is our address there's more for you online at al jazeera.com ctc that'll take you straight to our page which has individual reports links and entire episodes for you to catch up on and that's it for this edition of counting the cost i'm kim vidal from the whole team here in doha thanks for joining us the news on al jazeera is next you

Channel: Al Jazeera English

Views: 46,508

Rating: 4.6408978 out of 5

Keywords: China, Economy, President Xi Jinping, capitalism, counting the cost, aljazeera, al jazeera

Id: UkAVSqVtNeo

Length: 25min 45sec (1545 seconds)

Published: Sat Sep 18 2021