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China Economy

China policies must take care of business

Guidelines urging support for entrepreneurs come at a time when many are trying to move wealth out of the country amid a deteriorating investment environment

PUBLISHED : Saturday, 30 September, 2017, 4:06am
UPDATED : Friday, 06 October, 2017, 10:54am

The lead-up to the five-yearly Communist Party congress on October 18 is a sensitive period in Chinese politics. Important policy decisions and documents issued at this time are weighed for their significance. Guidelines calling for more support for China’s entrepreneurs are no exception and are part of the first such directive to safeguard the country’s private business owners since the party took power in 1949.

Beijing tries to win over entrepreneurs with praise and promises

It is not hard to find reasons why the Central Committee and the State Council would laud the contribution of businesspeople to China’s rise, highlight the role entrepreneurs have to play in structural economic reform and sustainable development, and promise to protect them. They are to be found in a slowing contribution to domestic investment growth from the private sector, as capital outflows from the country continued. In the first eight months state sector investment grew by 11.2 per cent, while private investment slowed to 6.4 from 6.9 per cent January to July.

Given that the private sector contributes more than 60 per cent of China’s gross domestic product and provides 80 per cent of its jobs, this imbalance cannot continue. Government-led investment is not a sustainable growth driver for the mainland economy. The guidelines are therefore seen as a response to calls for further reforms ahead of the party congress.

Coming from the Central Committee and the State Council, they represent a high-level consensus rather than the views of a state leader. They also confound criticism that President Xi Jinping is leading China back to the era of Mao Zedong.

A loss of confidence and reluctance to invest, or invest at home, are attributed to intrusive state intervention in business and investment activities and the lack of rule of law to protect private assets. Many businesspeople are trying to move wealth out of China amid a deteriorating business environment.

Next generation poised to take over China’s biggest private firms

This is hardly positive for more private investment in innovative and hi-tech industries in line with the policies of Xi. The crackdown on tycoons buying highly leveraged overseas assets has raised more questions about policy direction.

The recent announcement of a mixed state and private share structure for some state-owned enterprises signals greater recognition of the private sector. The promises in the new guidelines to protect entrepreneurs’ legitimate rights and interests, ensure fair market competition and strengthen protection of intellectual property rights are welcome.

We need to see more policies to encourage investment, improve the business environment and protect assets.