China’s re-welcoming of the private sector

When Chinese officials speak at Davos, they are responding to an audience of global capitalist elites. In 2017, Chinese Communist Party leader Xi Jinping quoted Charles Dickens and Swiss Red Cross founder Henri Donant to defend economic globalization. “Pursuing protectionism is like locking yourself in a dark room,” he then said.

This year it was the turn of Liu He, the vice premier who is known as China’s “economic czar”. His message at Davos last week was that after three years of battling the pandemic, “China is coming back.” He also pledged strong support for China’s beleaguered private sector, promising that the doors to foreign investment would “only open further”. Was Liu simply trying to win over his audience?

Probably not. Beijing’s renewed welcoming of the private sector and foreign investors is consistent with recent high-level policy statements in Beijing. Han Wenxiu, a senior official at the Central Financial and Economic Commission – a body chaired by Xi himself – made similar commitments to private capital and foreign businesses in a speech in late December.

So the outside world should take China’s signals about resetting economic policy seriously—even if doing so requires a leap of faith. A sweeping regulatory crackdown on 13 leading private Internet companies has wiped trillions of dollars off their stock over the past two years.

Foreign multinationals have also had a hard time. A survey of 1,800 members of the EU Chamber of Commerce in China last year found that 23 percent were considering moving current or planned investments out of China, the highest on record. 77 percent also reported that China’s attractiveness as a future investment destination has decreased.

So it is not charity that prompts China to change tune. A weak GDP growth rate of 3 percent last year, an urban youth unemployment rate that hit 17 percent in December, a sluggish property market, widespread debt stress at the local government level, shaky export performance and several other weaknesses are convincing. Beijing should use all potential sources of economic growth.

Indeed, its chaotic turnaround from “zero Covid” that began in December was probably as much a result of frustration in China’s political and business hierarchy as street protests in more than 20 cities in November.

However, it must be acknowledged that China’s plan to open up and embrace the private sector does not mean that Xi’s obsession with control has eased. Government control over private companies has intensified. Alibaba and Tencent, for example, have been forced to hand over “golden shares” to government entities, which allow officials to sit on the board and veto specific company decisions.

In further evidence of strengthening state control, China is creating a “traffic light” system to regulate stock offerings. According to consultancy Gavekal Dragonomics, private companies in sectors that align with Beijing’s strategic priorities – such as semiconductors – may get the green light to launch IPOs, while other less favored sectors such as education and alcohol may be barred from doing so. become

China must recognize that better treatment of the private sector and multinational corporations cannot be expedient. If Beijing wants to build trust, such policies must be long-term and sustainable. It would damage China’s reputation if officials traveled to Davos to pledge their allegiance to open markets and only reversed course after returning home.

Leave a Comment