Kenson Li, a Shanghai restaurateur, nightclub owner, real estate developer and antiques dealer, says he earns $1.3 million a year. But he doesn't believe in sharing his wealth. Asked last spring about his personal income tax bill, Li grinned and said, "No one in China pays taxes." He isn't grinning now. Due to a government crackdown on tax dodgers, Li (who recently picked out a new English name to obscure his identity) has been obliged to visit the Shanghai assessor's office twice in the past six months to pay $100,000 in back taxes.
He has, at least, stayed out of prison. The taxman cometh on the mainland, and China's emerging monied class has been paying the price. In June, Premier Zhu Rongji berated China's 10 richest citizens, accusing them of using Enron-style accounting to evade personal income tax. "Why do some rich people not pay?" Zhu asked. "This is not normal." The most glamorous highflyer to fall so far: Liu Xiaoqing, a movie star who allegedly owes the government more than $1.2 million and now sits in a Beijing jail protesting her innocence.
It's all part of a mounting backlash against China's nouveaux riches. The get-tough-on-fat-cats policy was inspired in part by the widespread suspicion that the benefits of capitalism are not trickling down to the masses. While legions of workers in state-owned factories are being laid off—typically without unemployment benefits or medical care—China's millionaires are perceived to have made their riches through graft and connections. According to the Chinese Academy of Social Sciences in Beijing, graft reduced the nation's GDP by 17% between 1995 and 1999.
Zhu served notice that the government—which has been forced to resort to deficit spending to fund China's massive financial burdens—wants the wealthy to start shouldering their share. An official survey found that only four of China's 50 richest individuals paid any income tax last year. "China's rich have the smallest tax burden in the world," says Hu Angang, an economist at Tsinghua University in Beijing, who estimates that wealthy Chinese on average pay only 0.6% of their income to the government. (The official tax rate for high earners is about 20%.) "Rich Chinese don't feel an obligation to help with social welfare," says Chen Xin, a sociologist at the Beijing academy. "They think that is the government's responsibility."
The tax campaign notwithstanding, many of China's wealthy continue to bend the rules. A Shanghai property developer remembers a client complaining that his country estate didn't have a stream running through it—he wanted to take his business mates fishing on weekends. A few weeks ago, the client asked the developer to divert a creek that nearby peasants were using for irrigation so he could stock it with trout. "I told him it was against the rules," says the developer. "The next day, the local government cadre called me up and told me to go ahead and move the stream." The peasants now have to buy water to keep their paddies wet. China's class struggle continues, but in ways Mao never intended.
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