China should rely on rule of law, instead of flimsy political promises, to spur growth in nation’s private sector economy

Beyond the institutionalised support, it is time for Beijing to provide clear rule-of-law protections to private businesses
That would be more reassuring than creating a new government agency or making more promises

Zhou Xin

Published: 7:00am, 5 Dec 2023

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The Chinese leadership’s advocacy for measures to support and spur growth in the private sector economy has intensified in 2023.

A few months ago, China created a new government agency called the private economy development bureau, under the oversight of the National Development and Reform Commission, with the mandate to coordinate a raft of support policies that would boost the growth momentum of private companies across the nation.

The bureau was born in a political atmosphere that encourages government agencies to be more friendly to private businesses. China’s internet watchdog, for example, has banned online comments that target domestic entrepreneurs, while the country’s procurators have pledged to cut private business owners more slack.

Drastic policy reversals have already been implemented in major industries. Private property developers were once considered persona non grata at Chinese state banking institutions, following Beijing’s direction in 2021 to reduce credit for them. China’s deepening property slump, however, prompted Beijing to reverse course and directed banks to provide “unsecured credit” to these developers, treating them as VIPs.

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Chinese authorities have good reason to play nice with the private sector, as the much-anticipated post-Covid-19 economic recovery did not materialise. That led Beijing to consider the private sector as the best hope to reinvigorate the nation’s economy, as the country gets weighed down by a debt crises – including those of property developers and local governments – and its first deficit in foreign investment.

Beijing’s push to protect the legitimate interests of entrepreneurs and private business should be hailed as a positive change, compared with the situation a few years ago when irrational voices loudly denounced China’s private sector. In various online discussions, the apolitical term “private entrepreneur” was sometimes interchanged with “capitalist” – a strongly ideological word that implied China’s most enterprising community were part of society’s underclass.

For private businesses, the state’s support in economic development matters a lot on the ground. Policymakers’ new stance should help restore confidence among the private sector, with visible results expected in the next two years.

The situation in China is unlike that in the United States, where the private sector generally mistrusts government interference in business activities. Ronald Reagan, the 40th US President, famously quipped in 1986: “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help’.”

Reservations over China’s plan for private sector to kick-start economy

Even though the great majority of China’s private entrepreneurs will put faith in the government’s promises, there is growing awareness about the fickleness of short-term policies. As a result, capital spending in China’s private sector, measured by fixed-asset investment, has remained in decline.

One major concern is how the private sector’s assets and rights will be protected. In one case reported by the Post, 44-year-old Cheng Yong – owner of a hydraulic equipment maker in Changzhou, a city in eastern Jiangsu province – killed himself by jumping off a building last month after he was subjected to repeated questioning by a local anti-corruption watchdog over three consecutive days.

Local authorities later issued a statement that Cheng’s death was being investigated, but no official updates have been provided in the past three weeks. Meanwhile, China’s private economy bureau has not said anything about the matter.

China must abandon ideological discrimination to ensure private sector’s growth

Cheng’s case has received wide attention in China because it showed the risks that private business owners face. In China’s stock market, it is no longer rare for listed companies to announce that their owners or senior executives are under investigation.

Throughout the history of the People’s Republic, private business owners have been considered either as “family members” at best or “class enemies” at worst. Overall, the state’s current support for the private sector is probably as good as it gets because this has become official policy.

Beyond the institutionalised support, it is time for Beijing to provide clear rule-of-law protections to private businesses. That would be more reassuring than creating a new government agency or making more promises.