China has unveiled a package of measures to stimulate economic growth, including cutting the amount of cash banks are required to keep on reserve.
In particular, at a key Communist Party meeting held on Monday, President Xi Jinping vowed “unwavering” support for private businesses as he underscored their importance to the country’s economic growth.
Such a high-profile gesture from the top leader is rarely seen.
The central authorities are often seen as being more supportive of state-owned firms, rather than of the private sector.
State media has always been promoting the need to build bigger and better state-owned enterprises, stressing that SOEs should take the lead in economic development.
In 2015, China announced a mixed-ownership reform plan with the aim of introducing private shareholders into large state firms to speed up the latter’s reform and boost their efficiency.
However, authorities have little to show for the initiative, and such efforts have faded since 2017. Ironically, there are more cases of SOEs investing in private firms instead.
Moreover, a private company is required to establish a party organization if it has three or more party members. The State Council even stated that “party has to lead workers to co-manage private companies and share profit”.
Instances such as this have given the impression that Beijing favors SOEs over the private sector.
So it’s rather surprising to hear Xi saying that more support would be given to private companies, and that the nation would build a better business environment and ensure equal market access for the private sector.
The about-face would be a welcome change, although it would take time to convince private business owners that Beijing is serious about supporting them this time.
If the central government can follow through its pledge with action, China’s full economic potential stands a good chance to be unleashed.
This article appeared in the Hong Kong Economic Journal on Sept 11
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]