China economy

Private sector worthy of more Beijing support

In an important message, Xi Jinping has pledged to improve the business environment for individual firms that have helped make state-owned enterprises more competitive

PUBLISHED : Tuesday, 02 October, 2018, 6:51pm
UPDATED : Tuesday, 02 October, 2018, 10:47pm

China has risen on the back of a hybrid state-private sector economic model ever since its historic opening up. Indeed, the decision to set aside ideological debate about ownership helped the nation embark on four decades of reform. The private sector has since proved itself as an economic driver and innovator that contributes 60 per cent of national gross domestic product and 80 per cent of jobs in urban areas. But doubts about the party’s commitment linger. They have been fanned by official encouragement of state-owned enterprises to expand their resources and influence, at the expense of private companies. Recent deleveraging of the economy that crippled shadow-bank lending and curbed traditional borrowing by the private sector has done nothing to counter the perception.

One online essayist even argued that China’s private sector had “completed its historic mission” of assisting the leap forward of state-owned enterprises and should now be phased out. That ignores the fact a vibrant private sector has helped make SOEs more competitive. It is as if the innovative development spearheaded by the sector is now a self-sustained chain reaction that has no further use for ingenious, risk-taking initiatives.

Xi Jinping reassures state-owned enterprises – and private sector

This is far from the case. So it is good that during recent visits to state and private enterprises in northeastern Liaoning province, President Xi Jinping came out to quash such speculation by pledging the government’s support for both strengthening the SOEs and further developing the private economy. This is in line with Beijing’s talking up of the role of small and medium-size private companies and vow to let the market play a “decisive role”.

“The party’s policies are beneficial to the development of private enterprise,” Xi said, pledging to improve the business environment for them. This kind of message is important. China should not forget economic lessons of the past that gave rise to the hybrid policy. The state-private enterprise debate is a pointless diversion. There should be no question that the private sector’s role in China’s economy is worthy of more support. Far from undermining the Communist Party or socialist belief, the private sector over past years has contributed a lot to China’s growth.