China Vows to Boost Private Economy, Protect Businesses

China’s Communist Party and government issued a joint pledge to improve conditions for private businesses in a signal that Beijing wants to bolster corporate confidence as economic growth wanes.

(Bloomberg) — China’s Communist Party and government issued a joint pledge to improve conditions for private businesses in a signal that Beijing wants to bolster corporate confidence as economic growth wanes.

China vowed to treat private companies the same as state-owned enterprises, according to a joint statement from the party’s central committee and the state council on Wednesday. Governments at various levels are also encouraged to invite entrepreneurs for consultation before drafting and evaluating policies.

China has shifted its tone toward the private sector after wrapping up a multi-year crackdown on tech firms and imposing fines of over $1 billion on Ant Group Co. and Tencent Holdings Ltd. this month. The Communist Party’s evolving stance under President Xi Jinping has become one of the most closely watched developments in global markets, with some observers calling China’s sprawling internet sector uninvestable.

While the latest signals will be welcomed by private businesses in China, they don’t represent a dramatic shift in policy so closely on the heels of severe crackdowns on everything from tech to online education and property, analysts said.

“I don’t see the harsh political and business environment recently experienced by the private sector to change overnight by a few guidelines,” said Xin Sun, a senior lecturer in Chinese and East Asian Business at King’s College London. Like previous moves, these are general principles “lacking concrete measures that are readily enforceable.”

Shares of Chinese companies traded in New York rallied Wednesday, with the NASDAQ Golden Dragon China Index rising as much as 2.9%, its first gain in four sessions. The index’s 4% return this year trails the S&P 500’s 19% rally. 

Read more: China Ends Tech Crackdown With Fines on Tencent, Ant Group

China’s efforts to revive growth, ranging from lower interest rates, easier access to credit and a series of measures to kick-start the moribund housing market have all done little to bolster the economy in the wake of crippling pandemic restrictions. The government added to the efforts this week with an 11-point plan aimed at boosting consumer spending. 

China’s recovery lost momentum in the second quarter —  expanding just under 1% from the prior three months, putting Beijing’s 5% growth target at risk and prompting several economists to downgrade their forecasts for the year.

Read more: Wall Street Cuts China Growth Forecasts as Economy Disappoints

China is now seeking more help from the private sector. Businesses have been bruised by years of tight coronavirus restrictions which ended suddenly in December, as well as unpredictable regulations in sectors like technology and education. China’s politburo, its top decision making body, vowed in December to ensure that private companies were treated better. China’s powerful state planning agency, the National Development and Reform Commission, also hosted heads from companies in sectors ranging from internet to logistics seeking input on regulation. 

The government will boost support for private companies in share listings, bond sales and overseas expansion, according to the statement. China also pledged to protect private businesses and entrepreneurs, while preventing unjust lawsuits.

“It won’t turn sentiment around overnight, but private entrepreneurs do take these signals seriously, so this and similar statements from top leaders make a difference,” said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York. “A similar statement directly from Xi would have an even greater impact.”

Wildau said China sees the private and state sectors as playing different roles and serving contrasting functions, so the treatment will always differ to some extent, though the party intends to improve legal protections for companies.

Other points highlighted in the statement:

  • Continue to cut market entry barriers for private firms; departments of all levels shouldn’t impose barriers in the form of registration and annual inspection
  • Improve the mechanism for preventing and resolving overdue payments for small and medium-sized enterprises
  • Accelerate the promotion of digital transformation; encourage private enterprises to carry out research and development of digital technologies
  • Improve government’s pricing system for business-related charges and implementing regular public disclosure while accepting oversight from companies

–With assistance from Jacob Gu and Ye Xie.

(Updates with analyst comment from fifth paragraph)

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