China's new social contract
What's the link between a $1.5bn corporate donation and a 22% jump in the cpmpany's share price?
Pinduoduo made headlines this week as its shares rose by 22% after the company's announcement that it would donate $1.5bn to the development of agriculture in China.
That wasn't the whole story: the e-commerce platform had also just announced its first quarterly profit, although it downplayed expectations for sustainable future earnings. But media coverage linked the pledge, which aligns with the government's focus on "common prosperity”, with the jump in Pinduoduo's share price.
Every market has its own expectations for the role companies should play in society. In the US, firms stress their commitment to employing veterans, for example. Foreign and domestic companies in China have also long understood that they are expected to give back in a meaningful way.
What is new, though, is the notion that social responsibility is so closely linked to a firm's licence to operate that a major CSR initiative could help drive up a company's valuation by a fifth. That implies that investors now see a strong relationship between corporate philanthropy and a company's long-term viability.
Investors now see a strong relationship between corporate philanthropy and a company's long-term viability.
Pinduoduo's announcement followed Tencent's pledge of $7.7bn to a "common prosperity programme." While it's not surprising to see domestic internet groups leading the way following recent regulatory actions, MNCs will also be thinking about how they can ramp up their social programmes in China.
This shouldn't be too hard as many are already very active in local CSR. But the tricky part will be the messaging in today's geopolitical environment. Once again, MNCs - which are a vital tissue connecting China with the rest of the world - will have to walk a narrow path with steep cliffs on either side.