China’s key private sector needs ‘continuity, stability’ to support economic recovery, but doubts remain
- China has 50 million private firms that are vital for social stability and economic growth, but they remain under pressure
- Speech by President Xi Jinping at the economic work conference in December, which was released on Wednesday, confirmed Beijing’ support for the private economy
China’s 50 million private firms require a level of certainty and less interference if they are to fulfil their role as a key pillar for the country’s economic recovery, economists said, amid Beijing’s commitment to restoring business confidence after walking away from its zero-Covid policy.
The private sector provides employment for almost 30 per cent of the population, but has had to endure Beijing’s education and tech crackdowns.
Three years of China’s zero-Covid policy and Beijing’s push for so-called common prosperity have also taken their toll on the sector that is vital for social stability and economic growth, with more than 405 million people either working at private companies or self-employed in 2019.
[We] have to give entrepreneurs assurance, reduce excessive intervention by local governments in micro markets and prevent a combination of errors
“[We] have to give entrepreneurs assurance, reduce excessive intervention by local governments in micro markets and prevent a combination of errors,” Chinese economist Ren Zeping wrote in an article published on Tuesday.
“[We] need to understand the importance of entrepreneurship as a factor of production, and the government needs to maintain the continuity and stability of its policies to create stable expectations.”
China Evergrande Group’s former chief economist added that given the importance of the private economy in driving employment, promoting innovation and stimulating market vitality, concrete and effective measures are required.
The private sector is also expected to participate more extensively in China’s innovative technology industries, including IT, new energy vehicles, artificial intelligence and finance, with governmental support, according to Ren.
Private investment expectations are weak and government investment must play a steering role as a powerful tool to deal with cyclical fluctuations in the economy
“Private investment expectations are weak and government investment must play a steering role as a powerful tool to deal with cyclical fluctuations in the economy,” Xi told the central economic work conference.
“[We] need to liberalise market access for private investment. [We] have to improve the fair competition system, oppose local protection and administrative monopolies, and open up more space for private enterprises.”
Beijing has shifted its attitude towards the private sector from regulation to support amid the economic downturn and geopolitical pressures, but business confidence is expected to take longer and require more concrete measures to recover.
China’s ‘disappearing market confidence’ presents major test for Beijing
Beijing threw its support behind the private sector as part of its reopening in December, vigorously backing private enterprises, although detailed measures have yet to emerge, raising expectations that more concrete policies will be introduced during the “two sessions” annual parliamentary meetings next month.
“If there is more unexpected regulation on the private sector just after the stabilised policies, obviously entrepreneurs’ confidence will be hard to restore,” said Robin Xing Ziqiang, chief China economist at Morgan Stanley on Monday.
China is also easing monetary and fiscal policies, as well as private enterprise regulation, “but people may hold doubts about the sustainability of this policy shift and the upside limit of the economic recovery,” Xing added.
Entrepreneurs require more stable expectations, said Xing, with gradual policy changes far outweighing so-called campaign-style supervision, which is a top-down central government approach.
He added that a transparent tax system does not affect entrepreneurial confidence, but unexpected policy U-turns have the potential to damage market expectations.
Facing technology sanctions from the United States, including on semiconductors, if China can provide private companies with enough certainty, “[it] will still have room to improve productivity, and doesn’t necessarily have to rely highly on sophisticated technology”, according to Xing.
Private firms in China contribute more than 50 per cent of tax revenue, more than 60 per cent of the national gross domestic product, more than 70 per cent of hi-tech companies, more than 80 per cent of urban labour employment and more than 90 per cent of the number of businesses.
