Caixin Insight: More Support for Private Companies

What to watch for at the fifth plenum

The fifth plenary session of the Communist Party’s 19th Central Committee, which will map out policies for the country’s economic and social development over the coming five years, is set to conclude a few hours after we send this newsletter.

Caixin Global published a piece earlier this week outlining key themes to watch for in the 14th Five-Year Plan, covering some recurring topics from this newsletter like dual circulation, factor market reform (see below for some updates on that this week) and more.

Check it out here.

Supporting private companies

The National Development and Reform Commission, along with the central bank and four other ministries, released a document last Friday outlining measures to support private companies, whose grievances you are likely already familiar with if you’ve been reading this newsletter.

The “Implementation opinions on supporting private enterprises in accelerating reform, development, transformation and upgrading” (full text in Chinese) have been described as a “big gift bag” of 38 supportive policies for private companies, which reads something like a laundry list of solutions to the most pressing issues affecting them.

The opinions include the usual promises to help alleviate pressure on private companies by cutting taxes and fees, reducing their operating costs, and so forth. But the most interesting section is the longest, which revolves around production factors and represents the beginning of more specific implementation following increased focus on them over the course of this year as we have discussed numerous times (for some more background, see our April 25 newsletter.)

It addresses all three major factors of land, labor and capital, calling to provide private companies with

- equal access to industrial land

- a higher quality labor force, with more support for vocational training

- easier financing, by

- guiding commercial banks to lend more to private manufacturing enterprises, and promoting “easy credit”

- expanding the scope of objects eligible to pledged as collateral

- expanding direct financing channels for the private sector

- encouraging more timely payment to SMEs, and more

Leveling the playing field and increasing private companies’ access to finance, one of their biggest gripes, may go a long way towards improving the business environment and helping fuel growth as the post-coronavirus rebound slows down.

Phasing out the “counter-cyclical factor”

China may be getting ready to scrap a key element of the way it sets the daily reference rate for the yuan, known as the counter-cyclical factor, sources with knowledge of the matter told Caixin after several banks stopped using the mechanism (link in Chinese) introduced three years ago.

This move comes as the Chinese currency has strengthened against the U.S. dollar over the past few months amid accelerating foreign capital inflows and improving economic fundamentals. Some analysts said they were not surprised by this development, as it’s generally been used to help dampen depreciation pressure, and its effect has diminished given the recent rally of the yuan.

It’s unclear whether the move will be permanent. But even a temporary suspension indicates that the authorities are prepared to give the market a much bigger role in deciding the value of the Chinese currency. Zhang Yu, chief macroeconomist of Huachuang Securities, said that it’s definitely better to make any market-oriented reform of the exchange rate in an environment of appreciation.

China has pledged for several years to allow the market a bigger role and to open up its financial markets further, including liberalizing interest rates. As top leaders gather in Beijing this week to map out policies for the economy over the next five years, changing the way the exchange rate is managed and making it more market-oriented may be under consideration.