The central government has pledged greater support for the beleaguered private sector and vowed to “resolutely” achieve this year’s growth targets after weaker-than-expected July data added to concerns about the economy. At a plenary meeting of the State Council, Premier Li Qiang told cabinet members to put greater effort into “consolidating the economic recovery”. “We must take more powerful measures to boost domestic demand,” Li said. “Boosting consumption is the key. We must adopt targeted measures to smooth economic circulation.” By some analysts’ estimates, the economy grew by about 4% year-on-year in July, short of the 5% annual target and growth in the first half of the year. To encourage private investment, the authorities will broaden the use of local government special bonds in project funding, cut red tape preventing private players from taking part in government-led infrastructure projects, and “create a better business environment” in general. “We must hear the appeals of businesses and take action to address their difficulties,” Premier Li was quoted as saying. The government also pledged to stop abuse at the local level of business inspections and fines on companies, vowing to promote innovation and development of all market entities.
The National Development and Reform Commission (NDRC) said it would work with three other government agencies to speed up land approvals, financing and environmental assessment procedures to help private investors. Private investment in the January-July period was flat compared with a year earlier. In the property sector, an area dominated by private players, investment in the first seven months fell 10.2% year-on-year. China’s receipt of foreign direct investment (FDI) also dropped 29.1% in yuan terms in the first half. “We must take greater action to use foreign investment and improve services for them,” the State Council said.
Despite Beijing’s focus on consumption, Julian Evans-Pritchard, Capital Economics’ head of China research, said he remained skeptical about the prospect of consumer handouts for households. He said the private sector would eventually start to cut down its borrowing if the economy continued down its present path. He also said the home market remained a weak spot despite the government’s rescue package and demand-side easing measures. Research analysts with Gavekal said Beijing could issue more government bonds to fund infrastructure construction in the months ahead, but there was a higher risk now that exports could falter and start to drag on economic growth. “Policymakers will probably ramp up stimulus if the export risk materializes,” they added, as reported by the South China Morning Post.
One example of the private sector getting more leeway is the Hangzhou-Taizhou High-Speed Railway in Zhejiang province, which is China’s first high-speed railway controlled by private capital and began operating in January 2022. It has handled more than 20 million passenger trips so far. It is among the country’s first rail projects funded by a public-private partnership, with 51% of the railway’s shares held by a consortium of eight private enterprises. The project demonstrates how private enterprises have the ability to invest and participate in major national projects. Zhou Maohua, Analyst at China Everbright Bank, said, “The private sector has become an important force for promoting Chinese modernization, and plays an increasingly vital role in stabilizing economic growth, creating job opportunities and bolstering technological innovation.”
The country has sent a clear signal that it is dedicated to boosting the high-quality development of the private economy through rolling out targeted measures to deal with the difficulties and issues faced by private enterprises, Zhou said. Noting that some private enterprises have been facing mounting pressures, such as rising production costs and financing difficulties, Zhou said, “It is important to encourage financial institutions to step up support for micro, small and medium-sized enterprises, deepen reform to eliminate barriers that hinder the development of the private sector, and support private enterprises in enhancing innovation capacities.”
Hong Yong, Associate Research Fellow at the e-commerce research institute of the Chinese Academy of International Trade and Economic Cooperation, said the government’s push to draft a law on promoting the private economy reflects its firm determination to support the private economy, with a specific focus on strengthening protection of private companies’ property rights, as well as the rights and interests of entrepreneurs, via legal means, the China Daily reports.
Saying that the private sector serves as a primary engine for economic growth, Hong called for more efforts to expand financing channels and reduce financing costs for private enterprises, strengthen financial assistance to private investment projects, continuously optimize the market environment for fair competition, and reinforce intellectual property protection.
The private economy has become an intrinsic element of China’s economic system and a significant force in sustainable and healthy economic development. Private companies contribute more than 60% of gross domestic product (GDP), 70% of technological innovation and 80% of urban employment.
