February 23, 2024

China pledges to throw full weight behind private businesses to support growth

Hong Kong

China has vowed to throw its weight behind private businesses, just days after economic data showed growth momentum had faltered.

The ruling Communist Party and the State Council, the cabinet, issued a policy document on state media late Wednesday detailing a list of proposed measures to make private businesses “bigger, better and stronger.”

“The private economy is a new force for promoting China-style modernization, an important foundation for high-quality development, and an important force for promoting the comprehensive construction of China’s modern socialist power,” he said.

The measures include promises to break down barriers to market access for private firms, “fully implement” a fair competition system and strengthen enforcement of anti-monopoly laws.

The document is the latest sign of the country’s recent pro-business pivot, which began late last year. Its effectiveness will depend on how policies are implemented, according to analysts.

“We believe the … pivot from the top is real, but not enough to bring back animal spirit among private companies,” Larry Hu, chief China economist at Macquarie Group, wrote in a research note.

“Looking ahead, policymakers must double down on two fronts: send stronger signals to private companies and make the recovery stronger and more sustainable.”

In December, Beijing said it would go all out in 2023 to save its Covid-hit economy by boosting consumption and loosening control over private industry, including the struggling technology and property sectors.

That promise was a big change from leader Xi Jinping’s decades-long effort to rein in private businesses, businesses deemed too powerful and disorderly.

Their support is now crucial as China struggles to propel its struggling economy. On Monday, official data showed that growth continued to lose steam in the months of April to June, prompting urgent calls from economists for more stimulus from Beijing.

Private businesses, the backbone of the economy and the largest source of employment, have been reluctant to hire or make new investments, in part because of the regulatory crackdown that began in late 2020.

Investment in fixed assets such as roads and infrastructure from the private sector increased by 0.2% in the first half of 2023, compared to the same period a year ago.

Youth unemployment was at an all time high. The jobless rate for 16- to 24-year-olds reached 21.3% last month, breaking the previous record of 20.8% set in May.

In an effort to encourage the private sector, Premier Li Qiang met with executives from major internet firms including Alibaba Group

Bytedance and PDD

last week.

Li hailed them as “track followers” and urged all levels of government to increase policy support for them, echoing the policy document just released.

Pony Ma, Tencent’s low-key chief executive

, he published an opinion piece in the state media praising the measures after they were circulated. Lei Jun, the founder and chief executive of Xiaomi, was said to be supporting them.

The news boosted shares in Chinese companies listed in New York on Wednesday. China’s Nasdaq Golden Dragon Index closed 0.7% higher, after falling in several previous trading sessions.

But the gains failed to pass on to stock markets in Hong Kong and Shanghai, which were trading mostly flat on Thursday.

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