China’s private sector, heavily affected by regulatory crackdowns and Covid curbs, is being encouraged to drive the nation’s economic recovery as signs of economic faltering increase. While influential entrepreneurs have applauded Beijing’s 31-point action plan to stimulate private business, smaller business owners express doubts about its efficacy.
Government Calls on Private Sector
Last month, Beijing unveiled a 31-point guideline to bolster the private economy, praised by top entrepreneurs in state media. However, as members of China’s political system, some skepticism remains over whether their support is genuine or a mere adherence to the party line.
The plan reflects the government’s reliance on the private sector to lead post-pandemic recovery and support jobs and technological innovation amidst increasing tensions with the West. Prominent business leaders like Cheng Wei, CEO of Didi Chuxing, have publicly committed to the guideline’s direction.
However, the stock markets’ negative reaction in the immediate aftermath reveals underlying skepticism. Analysts and entrepreneurs have called for concrete measures and an end to discrimination against private companies.
Skepticism Among Entrepreneurs
Some business owners remain unimpressed, citing longstanding issues like market entry barriers and financing difficulties that remain unresolved despite past promises. There’s a lack of confidence in the government’s support, especially after years of crackdowns and the increasing dominance of government-backed companies.
President Xi Jinping’s historic third term has seen the release of the most comprehensive guideline, pledging a “first-grade business environment” and addressing challenges like fair competition, financing, and legal protection. Despite the positive tone, there’s widespread mistrust and a need for tangible changes.
The Private Sector’s Role
China’s private economy plays a significant role, contributing to more than 60% of GDP, over 70% of technological progress, and employing more than 80% of the urban workforce. However, it faces discrimination compared to state-owned enterprises (SOEs), ranking lower in the economic hierarchy.
The last three years have seen regulatory clampdowns, mainly targeting technology companies, property developers, and private education firms, wiping out trillions of US dollars in market value. These actions, along with strict anti-pandemic measures, have led to widespread business collapse and unemployment.
Policy Changes and Challenges
Recent signs indicate a policy shift from the state-led model, as China intensifies efforts to revive its Covid-hit economy. The country’s economic growth was just 3% last year, and recovery this year has been sluggish. Local business owners have pointed out the risks of unpredictable and inconsistent policymaking, citing personal experiences where government policies have overridden the law.
A New Plan with Old Concerns
The 31-point action plan includes promises to “trust, unite, serve, guide, and educate” private business owners and streamline administrative procedures. However, skepticism remains among entrepreneurs, especially when governments have their own competing companies. The constitution’s stipulation of SOEs’ dominance reinforces this doubt.
Some voices, like Liu Shijin, former vice-president at the State Council’s Development Research Centre, have argued for a stop to the distinction between companies based on ownership, calling for the elimination of ownership discrimination.
Yet, others believe this distinction will continue, consistent with the tone set in the 15th national congress in 1997, emphasizing the public sector’s control over key industries. New guidelines aim to revive the economy and help the country withstand rivalry with the West, but the “guiding” theme indicates that China’s private companies may still operate with restrictions.
Conclusion
China’s latest initiative to boost the private sector reveals a complex interplay between economic necessities and political control. While there is acknowledgment of the private sector’s importance in driving recovery and innovation, underlying skepticism and challenges remain, casting doubts over the plan’s effectiveness.
The new guidelines offer hope but are entangled in longstanding issues of discrimination, policy inconsistency, and mistrust between the private sector and the government. Whether these challenges can be overcome will be crucial in determining the success of China’s economic recovery efforts.
The narrative will continue to unfold as China’s private sector responds to the government’s calls, working to balance the demands of economic growth, technological innovation, and political realities in an increasingly complex global landscape. How the nation navigates these challenges may set the tone for its economic future and relationship with the global community.
Read More: