Author: Xirui Li, NTU
The private sector and foreign investors have become increasingly wary of doing business in China since COVID-19. The risks of closures, travel restrictions, disruption to normal operations and supply chains, and liquidity shortages stemming from China’s zero-COVID policy have significantly shaken their confidence.
China has enacted a multifaceted regulatory crackdown on a variety of sectors, from the platform economy to online finance and real estate. The crackdown signals Beijing values private sector loyalty and financial stability over growth and access to capital. Beijing’s endorsement of “general prosperity” and its rejection of “unrestricted economic growth” have only increased corporate concerns about China’s aggressive redistributive policies.
The increasing antagonism and decoupling between China and the West, as well as China’s decision to develop “autonomy in technology and science,” have created enormous uncertainties for business operations and lowered business confidence. Many have questioned whether China is pursuing a state-centric and inward-looking economic development strategy and whether the era of reform and opening-up is over.
With the end of China’s zero-COVID policy in late 2022 and the recent announcement of a new lineup of senior government leaders, 2023 is a pivotal year for China to restore business confidence. China needs to show the world that even in the post-pandemic era, it still attaches great importance to openness and pro-business policies, especially for the private sector.
The Chinese leadership has reiterated its determination to open up the country. The 2022 report of the 20th National Party Congress of the Chinese Communist Party stresses that China will “remain committed to reform and opening-up”, “promote high-level opening-up” and “facilitate the healthy development of the non-public sector”. During the first plenary session of the State Council’s new term, new Chinese Premier Li Qiang told colleagues that promoting opening-up, strengthening the private sector and attracting more foreign investment are their top priorities.
Li stressed the importance of the private sector in modernizing China’s manufacturing by visiting the facilities of Build Your Dreams, one of the country’s largest electric vehicle makers and a private company, on his first trip from Beijing since becoming premier. During this trip he also met a number of heads of large companies. Among those heads was the CEO of Xiaomi, one of China’s largest smartphone makers and a privately held company in China.
During the meeting, Li promised to create a business-friendly environment. In addition to sending a message to the domestic private sector, the Chinese government has also used international conferences to reassure foreign investors. For example, Chinese President Xi Jinping sent an unprecedented congratulatory letter to this year’s China Development Forum, reiterating that opening up is China’s fundamental national policy.
During the forum, both Li and Chinese Vice President Han Zheng met with CEOs of numerous multinational companies and vowed to promote high-quality opening-up. Li clarified in his opening remarks at the Boao Forum of Asia annual meeting that China will continue to improve market access with new policies and improve the business climate for state-owned enterprises (SOEs), Chinese private firms and foreign companies.
China has adopted a whole-of-government approach to address private sector concerns. Xi stressed that the operation of SOEs must follow the market. This could be interpreted to mean that state-owned companies should not enjoy privileges and should compete in the market. The central government has taken steps to relax regulatory crackdowns on companies. For example, it issued publishing licenses for 44 foreign games for domestic publication and approved over a hundred new video game licenses for domestic companies, and Didi Chuxing, a domestic car service company, was allowed to register new users.
Central and local government departments have taken steps to promote domestic private sector development and widen opening-up. In cooperation with provincial governments, the Ministry of Commerce launched the “Year of Investment in China” to attract more foreign investment through exhibitions and forums.
The provincial governments of Hebei, Shaanxi, Hainan and Hunan have enacted policies to support private sector development. Its actions include reducing government interference in the operations of the private sector, providing financial and credit support to private companies through multiple channels, and providing cash to outstanding private companies. Provincial leaders have also traveled abroad to attract foreign investment and open up their respective provinces. Guangxi Party Secretary Liu Ning, for example, traveled to Vietnam, Singapore and Malaysia in March and April 2023, signing contracts totaling RMB 89.1 billion (US$12.9 billion).
The Chinese government has sent a clear message that it is fully committed to opening up and improving the business environment, especially for the private sector. In the post-pandemic era, it is almost impossible for China to overthrow its openness and support for the private sector.
It would be unimaginably expensive for the Chinese leadership to withdraw its support for the private sector after making statements at high-profile international events. The path dependency of China’s open economy also means that any action against opening up or developing private sectors would have huge negative impacts not only on the economy but also on politics and society.
Xirui Li is a PhD student at the S Rajaratnam School of International Studies at Nanyang Technological University and a research fellow at the Intellisia Institute, Guangzhou.
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