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Editorial: Why China’s Private Sector Is So Anxious

A worker assembles an elevator in a factory in Shenyang, Liaoning province on June 14. Photo: VCG
A worker assembles an elevator in a factory in Shenyang, Liaoning province on June 14. Photo: VCG

Some irrational theories about China’s private sector have raised heated debate in recent days. Arguments that “the private sector is leaving the stage” or that there is a “second socialist takeover of business” go against China’s fundamental economic system, and run counter to the experience of 40 years of reform and opening-up. They are not worth refuting in themselves, but these arguments have exacerbated anxiety in the private sector. This kind of negative public sentiment must be taken seriously in order to improve private enterprises’ expectations and boost private investment. Recently, Chinese President Xi Jinping reiterated publicly on a tour of Northeast China that the government will “continue to unwaveringly support the development of the private sector.” Both the timing and location of his statement are of utmost relevance.

The worries of private enterprises are not new. But this time, they are more intense and cover a wider range of issues. The background is the increased downward pressure currently faced by the Chinese economy. Some entrepreneurs say that private enterprises are currently facing the worst conditions they have seen since Deng Xiaoping’s “Southern Tour” of 1992. The wording of these arguments also evokes unpleasant periods of modern history for entrepreneurs.

There is no lack of legal and policy basis for the protection and promotion of the private sector. State-owned and private-sector companies are both important parts of the socialist market economy. China’s constitution and laws require the equal protection of private enterprises’ legitimate rights and the unwavering encouragement, support, and guidance of the private sector. This has also been reiterated many times in party documents. However, the execution has, regrettably, not lived up to expectations. The root of private enterprises’ anxiety lies in the fact that discrimination against private enterprises, both hidden and overt, has not yet been eradicated. All sorts of obstacles and constraints are still widespread. This is why we must sternly denounce these ridiculous arguments and, even more so, dare to confront the deeper causes of these worries. Simply accusing the people spreading these ideas of having ulterior motives or creating unnecessary controversy will not help to fundamentally resolve these worries.

China’s private sector has faced many trials, and has won its accomplishments through great struggle. In China, the private sector uses 40% of available resources, yet accounts for over 50% of tax revenue, over 60% of gross domestic product, over 70% of technological innovation, over 80% of urban employment, and over 90% of companies in the country. However, these substantial accomplishments don’t necessarily mean that the private sector has moved out of its weaker position relative to the public sector. Privately owned businesses still face many obstacles, including difficulty accessing markets and obtaining loans, simply because they are not state-owned. Some officials have an inconsistent attitude toward them: They appreciate the tax and employment contributions of privately owned businesses, but still see them as “dissident” forces when it comes to politics. Some local government officials have unscrupulously infringed on the operations of private businesses and embezzled private assets, causing irreparable damage to the local economy.

One phenomenon is worth paying attention to. Some national-level government think tanks and scholars at major universities are constantly adding to the anxiety of private enterprises. For example, some people call for the elimination of private ownership without regard for reality. It is hard to understand how these people have not yet been disciplined, considering the party’s campaign of keeping firm political discipline in other areas. This shows that, despite the central government’s repeated instructions to protect private enterprises, some people are still blinkered by outdated concepts, which partially explains why policies intended to protect and promote the private sector always fail to be fully implemented.

Strengthening the protection of private enterprises requires further ideological liberation, as well as corresponding incentives within the system. Top-level plans for protecting private enterprises have long been in place, and there is no shortage of relevant policies. The agencies issuing these policies are high-level ones, and the content of the policies is relevant. Yet they have failed to meet expectations. Recently issued policy documents by the State Council and other government bodies have made protecting private enterprises a top priority and can be considered guiding principle-type documents. The relevant departments have also continued to roll out implementation details. The difficult part is actually carrying out these plans.

If we want to improve the design of China’s system, we must solve the most pressing issues faced by private enterprises, including the difficulties they face in finding affordable financing. China has recently consolidated social security fee collection under its tax authority, and some local governments have even tried to recover past unpaid fees, causing panic among private enterprises. The State Council promptly responded by guaranteeing the stability of the current fee collection policy, allowing panic to dissipate. This has set an excellent example. In the future, governments at all levels should respond promptly to concerns raised by private enterprises. They have already made a good start by rehabilitating some private enterprises hit by unjust legal charges, but such cases of rehabilitation are still rare and have yet to become the norm. Governments should put effort into relentlessly promoting them.

Proposing the protection and promotion of the private sector does not necessarily mean rejecting and being suspicious of state-owned enterprises (SOEs). SOE reform is one of the core areas of the Chinese economy’s structural reforms. Only when China deepens the reform of SOEs will the private sector have sufficient space and institutional support to develop. Only when the private economy flourishes can SOEs adjust their strategic layout and focus on areas better suited to their functions. China can also use the Belt and Road Initiative to promote the healthy development of private enterprises by promoting outward expansion by these businesses. China’s push to “go out” has so far been focused on SOEs, and has often been misunderstood as a tool for achieving the Chinese government’s aims. If private enterprises “go out,” they will be able to avoid accusations like this. Vigorously promoting the private sector could also help resolve the current U.S.-China trade conflict.

The anxieties private enterprises have had in the past will not disappear in the near future. We are constantly hearing some policy or some remark by a leader described as an “anti-anxiety pill” for private enterprises. Actually, the fact that there are so many such “pills” shows how hard it is to quell these fears. They also show that the effectiveness of such measures is falling. China should consider the institutional and policy reasons causing private enterprises’ fears, and create better legal and business environments while promoting a more-friendly atmosphere. This will allow private enterprises to make use of their boundless potential and help China transition between old and new economic drivers, becoming an innovative country.

Translated by Teng Jing Xuan (jingxuanteng@caixin.com)

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