The richest man in China oversees more than 70 companies in the banking, real estate and livestock feed industries. He greets visitors beneath crystal chandeliers in the marble lobby of his villa at Jinguan New City, a complex of 200 Mediterranean-style homes that he built here in southwestern China for $120 million. A silver Mercedes waits to whisk him to the airport for his flights to Shanghai, where he is putting up a similar development.
But while Liu Yonghao, chairman of the New Hope Group, has managed to erect and supervise the pieces of his complex commercial empire, he has until recently been flummoxed, he says, by a more pedestrian piece of his life: the personal income tax code.
"I wasn't very clear about that, paying personal income taxes," Liu said during a recent interview here in the capital of Sichuan province. "We were kind of vague on personal income taxes and didn't pay much. We weren't doing a very good job."
He could well have been speaking for the entirety of this country's burgeoning ranks of ultra-wealthy people. The government is fond of pointing to China's towering skylines and fast-growing economy as signs that its market reforms have modernized the world's most populous country. But there's another side of China's growing affluence: The most successful people in the People's Republic of China generally don't pay income taxes.
Of the roughly $180 billion the government collected in taxes last year, personal income taxes accounted for only $12 billion, or about 6.5 percent of the total. In most developed countries, such taxes make up about 28 percent of the total, experts say. In the United States, the figure is about 30 percent. When Forbes magazine published a list of China's richest people in 2000, only four of them also popped up on a list of the country's 50 largest private taxpayers, according to a recent report in the Jinghua Times, a government-run Beijing newspaper.
Government officials in Beijing are increasingly concerned about tax evasion -- both as an emblem of a system that many people see as corrupt and as a troublesome fiscal problem: The government needs the money.
Under promises China made to gain entry to the World Trade Organization last year, it must roll back protective tariffs, forgoing past sources of revenue. At the same time, the government needs funds to establish pension and social welfare systems to replace housing, health-care and retirement benefits once provided by now-failing companies owned by the government. The demise of these social services has fueled protests, particularly in rural areas.
In a speech in July, China's reformist prime minister, Zhu Rongji, thundered about a report in state media showing that the richest 20 percent of the country's population holds 80 percent of its $850 billion in savings, while its income taxes amount to only about 10 percent of all income taxes.
The speech added fuel to an ongoing state crackdown on tax evasion. A report from China's official New China News Agency said authorities in Beijing have put together lists of those who earn more than $12,000 annually, with the top 100 earners in each area set for special scrutiny.
In June, police arrested Liu Xiaoqing, a once-glittering film star who stands as China's 45th-richest person, according to Forbes, charging her with hiding income. She was led away from her Beijing villa in handcuffs. The widely publicized incident served as a kind of warning shot to the wealthy.
Then earlier this month, police in the northern city of Shenyang detained another of China's richest people, Yang Bin, who has built his fortune in the orchid trade, on suspicion of illegal activities, including suspected tax evasion.
The tax-evasion problem feeds perceptions that communist China is run for the benefit of the privileged while neglecting ordinary people -- this, at a time when the gap between rich and poor is as great as anywhere in the world.
China's cities are scenes of extraordinary contrast between lifestyles of extravagant plenty and dire poverty, which still defines the days of hundreds of millions of Chinese. On a lane in downtown Shanghai, a man who gave his name only as Wu squatted against a brick wall, patching a bicycle tire beneath laundry lines flapping in the breeze. He pumped up another tire and collected 5 cents for his work. His shirt was worn down to holes. The laces on his sneakers were broken and tied together again. A question about rich people and taxes brought a shrug.
"They don't accept a feeling of responsibility for the country," he said. "They're selfish. The whole system has loopholes."
Twenty paces away, on a leafy street around the corner, customers inspected tapestries from Thailand and French candles that sold for more than $50 in one of the city's proliferating housewares boutiques, as the sound system pumped out a Brazilian samba. A clerk there -- a 23-year-old woman who goes by the name Coco -- called the tax-evasion problem symptomatic of an essentially rotten system that has trained Chinese people to pursue their personal interests above all else, banishing talk of collective good as so much leftover propaganda.
"Every year, I have to go down to the local police station to extend my driver's license," she said. "I personally spend a day and a half there, taking required traffic safety classes. But I see rich people come in, pay a bit of money and they're done. They don't even have to go inside the classroom. Why should I go there? It's unfair."
Taxes, she said, are the same. "In China, we have a lot of back doors. Basically, doing things according to regulations is for people who don't have a back door."
For China's leaders, this increasingly widespread view of how things work is a threat to the country's stability, particularly as economic reforms shutter inefficient factories and throw people out of work while depressing incomes among farming families.
"It used to be that everybody had the same income, but now there's no balance anymore," said Qian Cheng, a taxation expert at People's University of China in Beijing. "One group can make a fortune. The income tax code is the government's way of restoring the balance. But ordinary people are paying taxes, and rich people are avoiding it. It's just simply not fair."
Even as the government makes tax collection a high priority, a culture of evasion, ignorance about the system and loopholes in the law make it a difficult problem to solve, according to experts. China has only had an individual income tax since 1980. Before that, the very notion of individual income was anathema to a communist country that was, at least nominally, built on collective labor to serve the collective good.
Recent years have seen the emergence of a new class of private entrepreneurs, whose profits have become a key source of government revenue. In 1993, the government collected a mere $567 million in personal income taxes, but that number has grown annually by an average of 48 percent since.
Poor people -- generally, those who earn less than $97 a month -- do not have to pay income taxes. Because the threshold is set by local governments that then collect taxes and pass them on to the central government, no reliable data exist on how many people do not have to pay, but it is clearly hundreds of millions, experts say. Those above the monthly threshold must pay taxes on a scale that ranges from 5 to 45 percent.
Most people have no choice in paying: Their employers withhold taxes. According to statistics from the State Administration of Taxation, in 2000, 90 percent of China's individual income taxes came from wage earners and self-employed people.
But the rich, especially those who run their own companies, have many ways to avoid tax. They typically are paid tiny salaries by their companies to hold down income, while their companies provide their houses, cars, clothes and fancy restaurant meals.
"Among the wealthy people, it's quite widespread," said Lewis Lu, a senior manager at the Shanghai office of KPMG LLP, the global accounting giant.
Liu Yonghao -- whose family business has assets worth about $1 billion, according to Forbes -- was for years an expert practitioner of this approach. In the interview here in Chengdu, he said he never used to differentiate between company money and personal money. Still, he carefully added, he has always followed the rules.
"I paid taxes based on my salary," he said, describing that amount as "no fixed number." When pressed, he added: "Last year, my salary was not very much."
Then came the ominous talk from the government about the rich avoiding their duty to society. Liu said that last year he started paying himself a regular salary of about $102,000 a year, but he declined to be more specific. He also would not discuss reports in the Chinese press that in the first half of this year he had become one of China's largest individual taxpayers, handing the government about $120,000. Some reports have said he stepped forward and admitted responsibility for avoiding taxes in the past and had made a large one-time payment to cover past obligations, but Liu shot down such stories, saying only that the issue is "very sensitive."
Liu eschews fancy clothes. His haircut gives him the windblown look of a farmer. "I'm not the sort of person who wants a high-paying, luxurious lifestyle," he said. "My daily costs are very modest, no more than 100 yuan [about $12]. I work every weekend, and I myself don't own a car."
Conveniently, though, his company does own the Mercedes. It makes the car available to him whenever he needs to go anywhere. It also provides the villa at New Jinguan and will probably let him choose one of the villas being constructed in Shanghai. It owns the golf cart Liu uses to navigate the grounds here, past the fountain with the marble dolphins to the 18-story luxury apartment building he likes to show visitors.
"I've always seen my company and my family as one and the same," he said.