China vows punishments if business gripes are verified in State Council’s coming investigation

In Beijing’s bid to realise its ambitious economic growth goals for this year, steps are being taken to ensure local-level authorities are pulling their weight and not making matters worse
Investigators will be dispatched across the country in the coming weeks, and they have five major issues in their sights, including unfair competition

China's economic recovery

Frank Chenin Shanghai

Published: 6:12pm, 15 Mar 2024

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Following months of mounting complaints from China’s struggling businesses, several teams of investigators will be dispatched to hear their concerns directly – part of a nationwide fact-finding mission launched by the country’s cabinet to address persistent problems and take appropriate action.

Coming hot on the heels of a promise-laden government work report at Beijing’s recent “two sessions” parliamentary gatherings that ordered local-level governments to effectively respond to business concerns, the nationwide inspections will begin next month, according to a notice by the State Council on Thursday.

The effort is in line with Beijing’s promise to keep business policies stable and transparent, while holding local authorities accountable for helping the central government meet its lofty and ambitious economic growth goals.

To that end, Beijing wants private and foreign firms to know their concerns are not going unheard. The State Council is also encouraging enterprises to report any perceived violations, and to make suggestions, on its online platform.

“Inspectors will go to relevant regions to look clues and into cases that are typical or reported by a big cross-section of business entities and the public, and they will take actions and mete out punishments if complaints are verified,” the notice said.

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Five key areas are being emphasised: market-access barriers, unfair competition, government services and efficiency issues, rights infringements, and impediments to the national goal of opening up to investors.

Eyeing a gross domestic product increase of “around 5 per cent” for 2024 after an upbeat 5.2 per cent rise last year, Beijing has been facing increasingly louder calls to galvanise the private sector, which accounts for more than 60 per cent of the national economic output and for the vast majority of urban jobs.

Foreign firms, which play a big role in China’s economic transition and the driving of trade ties, are vitally important in defying formidable headwinds at home and abroad that could stand in the way of leadership’s ambitious GDP goal that will require “hard work”.

Central authorities have been beating the drums of commerce to rekindle sentiment, doling out pledges and support since last summer. These include a 24-point list of guidelines for foreign companies, a 31-point package for the private sector, and a dedicated law being crafted to “protect and promote” the sector.

But complaints persist, and for many, positive effects remain to be seen despite all of that rhetoric. Struggles stemming from industrial overcapacity to back-owed payments continue to have an outsized impact on incomes and livelihoods.

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Alex Ma, an assistant professor of public administration at Peking University, said some of Beijing’s pro-business efforts have been overshadowed by other ambitions.

“Foreign and private sectors are definitely a priority for Beijing,” he said. However, “Beijing also has other competing priorities such as tech self-sufficiency, national security and politics. Some priorities may trump others as circumstances change, and businesses find it hard to adjust.”

Fixed-asset investments by foreign firms rose in 2023 by a mere 0.6 per cent, year on year, while those among private Chinese firms declined by 0.4 per cent – sharply contrasting a rise of 6.4 per cent among state-owned enterprises.

Growth in industrial output by foreign and private enterprises also trailed their state-owned peers by a big margin last year. Foreign direct investment slumped by 11.7 per cent, year on year, to 112.7 billion yuan (US$15.7 billion) in January, after a drop of 8 per cent last year.

“What we care more about are orders and stable business ties,” said a Shanghai-based sales executive with a Japanese company operating in China’s Yangtze River Delta.

One of the concerns is that Chinese clients tend to buy domestic brands amid Beijing’s highlight on self-reliance, the executive said, speaking on condition of anonymity because of the sensitive nature of the matter.

“If policymakers ask why foreign companies aren’t investing or are leaving despite good policies, they need to think broader: foreign companies in China want Beijing to have good or normal political and economic ties with major countries,” he added.

“And they want Beijing to address the impact – from strategies such as tech self-reliance – on foreign companies.”

Maximilian Butek, executive director of the German Chamber of Commerce in China, said the foreign business community wants to see how Beijing can build confidence among consumers and the private sector, as such efforts would also benefit foreign players.

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And a statement by the chamber said they “welcome any measures to remove market-access barriers and unfair competition”.

“Any measures that show favouritism towards one side will make investors even more cautious,” it added.

China’s economic hub of Shanghai is among those pushing an agenda of wooing foreign investors, but the lack of specifics in its new action plan announced this week means its potential impact is somewhat laden with uncertainty.

Echoing Beijing’s pro-business rhetoric, Shanghai Mayor Gong Zheng told US-China Business Council president Craig Allen that the city, as a window for the world to observe China’s progress, will take on a bellwether role in expanding high-level opening up and benefiting foreign businesses.

In a meeting on Thursday, Gong called for more American investments in Shanghai, vowing that the city will provide precise and high-quality services, including protecting intellectual property rights, to help enterprises develop.