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https://scmp.com/economy/china-economy/article/3181520/chinas-struggling-private-firms-tasked-lifting-nation-out
Economy/ China Economy

China’s struggling private firms tasked with lifting nation of out economic doldrums

  • Call to action comes at annual gathering of China’s business leaders that serves as an influential idea-exchange forum
  • China’s private firms have taken an especially hard economic hit over the past year, whereas state-owned enterprises have remained mostly intact or even thrived
Despite being hit hardest by China’s economic downturn, private firms are being told to ‘make positive contributions’ to help stabilise the economy. Photo: AFP

With China’s economic headwinds intensifying amid rising internal and external uncertainties, the country’s private sector has been tasked with rebooting the economy, despite having borne most of the pain of the current economic downturn.

During last week’s Yabuli China Entrepreneurs Forum – one of the most influential idea-exchange platforms for business leaders in China – private firms were urged to “cultivate new opportunities in the midst of crisis” and “make positive contributions toward stabilising the country’s economy”.

“Private entrepreneurs should further unify their thoughts and actions into the scientific judgment of the Party Central Committee on the current situation and the decision-making and deployment of economic work,” Qiu Xiaoping, vice-chairman of the All-China Federation of Industry and Commerce, a government-controlled business association, said at the opening ceremony of the annual forum held on Friday and Saturday in Heilongjiang province.

“[Private entrepreneurs] should make efforts to stabilise and expand employment positions … and play a better role as the main force in stabilising and securing the overall employment situation,” Qiu said.

A major engine of China’s rapid economic development in the past 40 years, the private sector is responsible for more than half of the country’s tax revenue; 60 per cent of its gross domestic product, fixed-asset investment and foreign direct investment; and more than 80 per cent of urban employment.

But as the economic pressure has been mounting in the country since the second half of last year, private firms have been hit especially hard in the midst of regulatory crackdowns, rising commodity prices and repeated lockdowns under the country’s “dynamic zero-Covid” policy.

In contrast, state-owned enterprises (SOEs) have remained largely intact, or have even thrived.

In the first quarter of the year, SOE profits rose while those of private enterprises declined, with the losses rising sharply, according to Wang Xiaolu, deputy director of the National Economic Research Institute think tank.

Now many businesses have lingering fears. Even though they can open today, they don’t know if they will be able to open tomorrow Zhang Jun, Fudan University

During a seminar at the Yabuli forum, Wang said that the growth in industrial profits during the first quarter mainly came from the sharp increase in the prices of a few products, such as coal and oil.

Compared with SOEs, private firms in the manufacturing sector are mostly downstream in the supply chain, and their smaller size hinders their pricing power over the final products, so they cannot pass on the additional costs.

Meanwhile, the country’s ongoing zero-tolerance approach towards Covid-19 has led to extended and repeated lockdowns in many parts of the country, stifling consumption and hitting the service sector – including catering and tourism, areas where small private firms are the backbone.

“For micro, small and medium enterprises, the most important issue is letting them resume normal operations and freedom as soon as possible,” Zhang Jun, dean of the School of Economics at Fudan University in Shanghai, was quoted as saying by news portal Guancha.cn. “Now many businesses have lingering fears. Even though they can open today, they don’t know if they will be able to open tomorrow.”

China’s surveyed urban unemployment rate rose to 6.1 per cent in April – the worst level in two years. The unemployment rate for workers in the 16-24 age group also reached a record high of 18.2 per cent in April, with the situation likely to worsen as 10.76 million college graduates wade into the labour pool this year.

The nation’s urban surveyed jobless rate is considered an imperfect measure of unemployment, as it does not include figures for all of the nation’s tens of millions of migrant workers.

Zhang said even though SOEs can take on the responsibilities of providing more jobs, and universities can provide more opportunities for postgraduate study in the short term, these are temporary measures to ease employment pressure.

“To bring the youth unemployment rate back to a normal level, economic development is the fundamental way,” he said. “The most important thing is to allow small, medium and micro enterprises to move and operate normally.”