Country now comes before profit for China's tech giants

Pinduoduo said it will donate all of its first net profit since going public to support the country's farmers and agricultural areas. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - China's biggest companies are starting to make a habit of giving away their earnings.

In the latest example, Pinduoduo, an e-commerce company known for giving big discounts to customers when they buy produce together, said on Tuesday (Aug 24) that it will donate all of its first quarterly 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 (S$2.1 billion).

"Improving agriculture has been at the front and centre of our business from the very beginning. Agriculture touches the daily lives of everyone and has a relatively low digitisation 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."

Pinduoduo's announcement comes after a series of similar contributions from the country's biggest companies and wealthiest people.

Tencent Holdings, China's most valuable company, said last week it will double the amount of money it is allocating for social responsibility programmes to about US$15 billion (S$20.3 billion). Pinduoduo co-founder Colin Huang had earlier pledged to personally bankroll research into sciences.

Chinese President Xi Jinping has increasingly emphasised 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 have pushed other tech players to boost pay for low-skill workers at the expense of earnings.

Pinduoduo's decision squarely targets one of Mr Xi's top priorities: alleviating rural poverty.

In the United States, 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 Pinduoduo's pledge. Shares soared 22 per cent in US trading on Tuesday 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... though profit margin may be pressured again by these investments," analysts at China International Capital wrote in a research note.

Join ST's Telegram channel and get the latest breaking news delivered to you.