Despite pledges from China that it is determined to restore business confidence, scepticism remains about the government’s sincerity following the controversial deployments of apparatchiks to private firms by local authorities. Doubts centre around implementation of central government policy at the local level, which may undermine Beijing’s advocacy for a market-oriented, law-based, international business environment. While December’s chaotic reopening has stirred hopes of an economic rebound, Chinese policy advisers say there must be improvements in policy stability and fair competition – rather than one-off incentives. “If many private entrepreneurs lie flat , it may signal problems in the national business climate,” Wang Xiaolu, deputy director of National Economic Research Institute, said last month in an online article posted to Baijiahao, a blogging service run by Chinese search engine Baidu. “The key is to truly and uncompromisingly implement what was said at the central economic work conference. We must guarantee that all market entities, no matter if they are privately run or state owned, can equally utilise production factors, fairly participate in market competition, and receive equal legal protection,” he said in the post which has since been deleted. Who will take on China’s biggest economic challenges? China’s private sector is vital for social stability and economic growth, with more than 405 million people – roughly 29 per cent of the population – either working at private companies or self-employed in 2019. The country’s top leadership has been at pains to talk up the country’s investor environment at major events recently, from October’s party congress to the annual economic conference to meetings with the business community. Addressing the global business and political elite at Davos in mid-January, Vice-Premier Liu He called entrepreneurship the engine driving “social wealth” and “common prosperity”, adding China would “by no means” go back to the days of a planned economy. During a visit to the People’s Bank of China on Monday, Premier Li Keqiang reiterated the government’s position, saying it was essential to help market entities stabilise their expectations and protect jobs. “We need to improve the fundraising environment for the private economy and small and medium-sized enterprises,” he told central bankers. Beijing has begun easing its “three red lines” for property developers, completed regulatory tightening over internet platform companies and is providing financing support for private and small businesses. However, the support is being felt unevenly across economic sectors and regions, with some local implementation criticised for undermining business rules and intervening in corporate operations. The recent decision by Shaanxi province to dispatch party officials to be the first secretary chiefs of 25 major private businesses, for instance, frayed the nerves of private firms. Shaanxi provincial authorities explained that these young cadres were selected from the market regulator, statistics bureau and other departments to “elevate the party building in non-public sectors and help develop private companies” over the course of their one-year tenure. But the decision has drawn criticism from policy experts and analysts. Do private enterprises still have the right to operate independently? Wang Xiaolu “Will the party secretary become the No 1 leader of the private companies? Will they participate in business decision-making or have the power to veto the decisions of the business controllers?” said Wang. “Do private enterprises still have the right to operate independently? Does this mean that the owners will be deprived of their legitimate property rights?” Shaanxi ranked 23rd among China’s 31 provincial-level jurisdictions in 2021 when assessing development of the non-state economy, according to a biennial marketisation index compiled by Wang. Communist Party cells are common among private Chinese firms and have even spread into foreign-funded companies. In most cases, the party secretary of private firms is concurrently held by company controllers or executives trusted by local officials. Wang Zhigang, founder of the privately run Zhigang Think Tank, said the move by Shaanxi authorities was an “extremely inappropriate” signal to give off in a “sensitive period”. Free flow of labour ‘vital’ to China’s poorer regions amid population decline “There is too much supervision, but too little service,” he said, adding policies were often well intentioned, but government controls at all levels prevented adequate implementation. “The disappearance of market confidence, particularly that of entrepreneurs, can’t be inspired to recover by some deliberately created atmosphere, such as chanting a few slogans, implementing a few policies, or backing them up on several occasions.” Tension between the strategic goals of Beijing and the interests of local authorities is not just confined to Shaanxi, however. In Shandong province, the founder of the struggling Letin Auto has accused a county party chief of inflating industrial output by 200 per cent and said the local government’s refusal to renew financial guarantees could lead to the firm’s bankruptcy. “He did not provide assistance for the sustainable development of the enterprise, but only cared about economic data and ‘prosperity on paper’ to create personal achievements,” founder Li Guoxin said in an open letter that went viral on Chinese social media platform Weibo in mid-January. The carmaker has largely halted production amid mounting debt. The county government previously helped finance its acquisition of an energy auto license in return for construction of a 60,000-unit local factory, but the new administration has since backed away from the deal. Speaking at a forum in Beijing in mid-January, Zhang Junkuo, the former deputy director of the Development Research Centre of the State Council, said the refusal of new government officials to act on their predecessor’s promises was one of many complaints from the business community. Others include unfair competition with state firms, hidden barriers, ineffective law enforcement, defaults on municipal project payments and weak protection of property rights. “It’s a life-or-death issue for affected companies,” he said. “This will also generate a chilling effect among entrepreneurs.” Zhang, now a member of China’s top political advisory body, said China must avoid a dramatic policy turn. The government needs to ensure transparency and predictability of policies to counter uncertainties Zhang Junkuo “The government needs to ensure transparency and predictability of policies to counter uncertainties in the domestic economy and risks in the external market,” he said. Tens of thousands of private businesses are struggling because of the three-year coronavirus pandemic. National retail sales fell by 0.2 per cent last year, down from a rise of 12.5 per cent in 2021. Industrial output of foreign-invested companies dropped by 1 per cent last year, while private sector growth was only 2.9 per cent, according to the National Bureau of Statistics. Private investment rose by 0.9 per cent last year, far below national fixed-asset investment growth of 5.1 per cent. Headwinds are mounting for overseas demand , too. Jia Kang, co-founder of the Chinese Academy of New Supply-side Economics, has long advocated for the protection of the private economy. Last month, he joined six economists and entrepreneurs in filing an online letter requesting equal treatment for approvals, financing and business rules for all China-registered companies. “The revival of private confidence depends on multiple factors,” he said. “The supportive attitude of the central government is clear, but actual implementation at local levels is inadequate. “Two prominent factors, according to our analysis, are the social climate of preferring to be [ideologically] left to right, and the circulated theory of eliminating private ownership.” Calls for the elimination of private ownership, which have been made by academics like Renmin University professor Zhou Xincheng and finance professional Wu Xiaoping, are reminiscent of China’s ideologically driven past and have fanned panic in the business community. Concerns were triggered again this summer when economist Wen Tiejun advocated for the creation of a people-oriented economy that included a bigger role for state-owned enterprises. ‘A permanent home’: why a wave of wealthy Chinese is moving to Singapore Jia, who is also the former head of the Ministry of Finance’s research institute, said the Chinese translation of Capital: A Critique of Political Economy , a socialist text by German philosopher Karl Marx that was first published in 1867, never mentioned eliminating private ownership but rejecting it. The government adviser called for a private economy with Chinese characteristics. The Chinese constitution promised protection of private property rights in 2004. Private firms contribute more than 60 per cent of the national gross domestic product and account for more than 70 per cent of hi-tech companies. The number of private firms reached 50 million by the end of last year, according to the State Administration for Market Regulation.