A worker processes circuit boards at a workshop of a private enterprise in Zhangzhou, Fujian province, on June 19. In its effort to revitalise China’s economy, the central government has thrown its support behind the private sector and encouraged entrepreneurs to do their part to support the country. Photo: Xinhua
Opinion
The View
by Edward Tse
The View
by Edward Tse
Measures to boost the economy show China still has love for its private sector
Some official policies and statements in the past three years have given the impression that China’s government is anti-private enterprise
While there have been some harsh measures to bring some private firms in line, others have done well. Recent policy moves will help revive sentiment
New measures to boost growth in the private sector announced by the Chinese government on July 14 have received a mixed reaction from privately owned firms. Some are suspicious of the policy’s intent, some are in a wait-and-see mode and others are positive.
Why this sense of unease? In the last three years or so, the government has taken some actions that have stunted growth of some private-sector companies. This has created a broad impression that the government is anti-private enterprise.
Also, the private tutoring sector was told to cease operations as the government did not want schoolchildren to spend too much time on rote learning. These actions were taken over a rather short period of time, and that resulted in the feeling that the Chinese government is anti-private enterprise.
But is that really the case? China’s privately owned enterprises have generally enjoyed a rather good ride for more than a decade. Many have grown by creating game-changing business models that have generated much value for consumers, business and often the government – in addition to earning handsome profits for themselves, of course.
Companies such as Alibaba and Tencent have become giants in e-commerce, gaming, social media and finance. Their rise has contributed significantly to the growing economic might and technological prowess of China.
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Pay with your palm: Tencent launches new payment method in China
Pay with your palm: Tencent launches new payment method in China
However, as many private enterprises innovated and grew, they disrupted existing businesses. The Chinese government took a rather ambivalent attitude towards that. One example is online payment tools Alipay and WeChat Pay, which grew at a rapid pace and acquired overwhelming market shares during a period when online payment regulations were still being developed.
Despite the sterling growth registered by many private enterprises, some have felt that the central government or President Xi Jinping himself favour state-owned enterprises (SOEs) over private enterprises. Xi has openly supported SOEs. He has described them as an important pillar of the economy and said China must give them more support to help them grow stronger.
He has advocated a leading role for SOEs on many occasions in recent years. However, he has also highlighted the role of private entrepreneurs. During a trip to Nantong, Jiangsu province, in 2020, he lauded the contributions of Qing dynasty industrialist Zhang Jian to the regional economy and social well-being.
President Xi Jinping visits the Nantong Museum in Nantong, Jiangsu province, on November 12, 2020. After attending a gathering to celebrate the 30th anniversary of the country’s development and opening-up of Shanghai, Xi visited Nantong and praised Zhang Jian, a Qing dynasty industrialist and the museum’s founder, as an example for the country’s entrepreneurs to follow. Photo: Xinhua
At the central economic work conference in December last year, Xi acknowledged the leading role of private enterprises in the economy and pledged to create a more favourable environment for them to grow and develop, so they could become stronger and more competitive.
Though some private companies have suffered heavily in the last several years, others have done very well. BYD, Geely and others in electric and new energy vehicles, battery manufacturers such as CATL which have taken global leadership, and e-commerce giants JD.com and Pinduoduo are good examples.
Others that have done well include TikTok and Douyin’s parent company ByteDance, fast fashion online retailer Shein and smartphone maker Xiaomi. These firms are also in the private sector.
SOEs and private enterprises generally play different and complementary roles in the Chinese economy, though they do compete in some cases. Both types of enterprises are important for economic growth. In fact, partnerships between private and public enterprises have become increasingly prevalent, one example being the investment of the China Integrated Circuit Industry Investment Fund in the Semiconductor Manufacturing International Corporation (SMIC), China’s largest chip maker.
Earlier this year, Yangtze Memory Technologies Co, China’s top home-grown memory chip maker and the closest rival to Samsung and Hynix, received a US$7 billion capital boost from state-backed investors, including the China Integrated Circuit Industry Investment Fund.
The Chinese government is leveraging both the public and private sectors to accelerate technological self-sufficiency and build globally competitive corporations. While many businesses have maintained a stoic silence since the announcement of the government’s new private-sector policy, well-known entrepreneurs such as Tencent’s Pony Ma and Xiaomi’s Lei Jun have welcomed the latest announcements. I expect more will do the same.
I think part of the scepticism is because of changes to China’s overall economic situation. Many tend to compare the current scenario with the “good old days” of a decade or so ago when there was far less government oversight. That is changing because of the shifts in geopolitics and the global economic environment in general.
The Chinese government’s action in the case of the private tutoring businesses was probably too harsh, but actions related to anti-monopoly, data security and potential societal overexposure to financial risks were not unreasonable and in fact needed.
With this new policy and other measures likely to be taken to re-energise the economy, I expect the private sector’s sentiment to improve and confidence in the government’s support and the strength of the economy to come back.
Edward Tse is founding chairman of the Gao Feng Advisory Company, a strategy and management consulting and financial advisory firm with roots in China
