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A Communist Party flag – made of red scarves by students ahead of the party congress next month – is seen at a primary school in Shandong province. The party has vowed to protect the rights and interests of entrepreneurs. Photo: Reuters

Beijing tries to win over entrepreneurs with praise and promises

Communist Party recognises importance of ‘entrepreneurial spirit’ to national economy in first such directive since 1949

The Communist Party on Monday said it will support and protect entrepreneurs in the first such directive to safeguard China’s private business owners since it took power in 1949.

The guideline – issued by the Central Committee and State Council – praises China’s businesspeople for boosting national economic growth.

“Lots of entrepreneurs … have made a great contribution to the accumulation of social wealth, to job creation, economic and social development,” the directive says.

“The entrepreneurial spirit will play an important role in deepening supply-side structural reform, invigorating the market and achieving sustainable development of the economy and society.”

It also promises to protect their legitimate rights and interests, ensure fair market competition and strengthen protection of intellectual property rights.

Chinese economists say the directive is aimed at boosting private sector confidence in the business environment amid concerns over capital outflows and slowing investment growth, and worries about an overreliance on spending in the state sector.

The promises come at a time when the authorities are in dire need of more investment from the private sector to support growth, as many businesses move their wealth or production facilities outside the country.

Overall investment in China went up 7.8 per cent in the first eight months from a year earlier, according to the National Bureau of Statistics. State sector investment grew at 11.2 per cent, but investment growth from the private sector slowed to 6.4 per cent in that period. The rate was 6.9 per cent from January to July.

Meanwhile, capital outflows have persisted for 22 consecutive months to August, according to a widely watched indicator released by the central bank.

“China’s economic growth can’t rely on government-led investment as it is unsustainable,” said Lu Zhengwei, chief economist at the Industrial Bank. “Private investment still has huge scope to grow.

“This is also a response to market calls for further reforms ahead of the party congress,” Lu said.

A Mao Zedong portrait hangs on Tiananmen Gate, covered with netting and scaffolding during refurbishment work. The directive comes ahead of the 19th party congress next month. Photo: AP

The private sector contributes more than 60 per cent of China’s gross domestic product and provides 80 per cent of jobs, according to the statistics bureau.

But intrusive state intervention in business and investment activities and a lack of rule of law to protect private assets is undermining confidence in China’s private sector, while a steady rise in interest rates and a lower business tax environment in the United States under President Donald Trump could tempt more Chinese firms to move their assets abroad.

“Entrepreneurs are losing confidence in the business environment in China, as we can see from the recent capital exodus,” said Zhang Lifan, a Beijing-based political commentator and historian. “They feel insecure. This policy is a gesture to win them over.”

China’s political ruling class has had an on-again off-again attitude towards the country’s private business sector over the last seven decades. After Mao Zedong took power in 1949, the new regime set about confiscating assets from the bourgeoisie and forcing many private businesses to enter “public-private joint ventures”. Private entrepreneurship was wiped out in the ’60s and ’70s under a centralised command economy that took the country to the brink of collapse before Deng Xiaoping revived it with his liberalisation policy in the late ’70s. Jiang Zemin went further, allowing private capitalists to join the party in the 1990s – a major ideological breakthrough for the sector.

Many Chinese tycoons are among the richest people in the world, and the party is generous in giving honorary titles to loyal entrepreneurs – the parliament’s largely ceremonial advisory body counts a long list of billionaires as members.

At the same time, businesspeople often find themselves dependent on the whims of the authoritarian state and haunted by the so-called original sin – problems that emerged in the early days of the private sector.

Zhang Lin, a researcher with the Beijing-based independent think tank Unirule Institute of Economics, said the directive reflected growing concerns among the top leadership over the country’s excessive reliance on government spending and the state sector – and a need for more private business support for employment and economic growth in the long term.

“This guideline is an attempt at reassurance, or encouragement ... but there haven’t been any substantial policy adjustments and they’re not expected in the near future,” Zhang said.

This article appeared in the South China Morning Post print edition as: Party seeks confidence boost for businesses