China’s leading economic regulatory body unveiled a series of nine strategic measures on Thursday, aiming to bolster the private sector and foster a more conducive environment for its growth. These measures include the implementation of policy tools to penalize local governments displaying untrustworthy behavior towards private enterprises. The move underscores the government’s commitment to integrity and transparent dealings.
Experts interpret this development as a significant step in the ongoing effort to fortify the private sector. It is part of a comprehensive stimulus package designed to reignite China’s economic momentum. This resurgence comes amid challenges posed by lackluster demand and a complex global landscape.
In a document released on the same day, the National Development and Reform Commission (NDRC) delineated penalties for local governments found engaging in untrustworthy actions. These penalties encompass curtailments in investment support from the central government budget, as well as restrictions on local government special bond applications and project financing.
The NDRC is resolute in its dedication to enhancing the government’s culture of honesty and accountability. The commission seeks to address issues like capricious policy changes, discrepancies in upholding commitments made by preceding officials, distortions of fair market transactions, and actions detrimental to businesses.
Tian Xuan, Associate Dean of Tsinghua University’s PBC School of Finance, highlighted the potential positive outcomes of these measures. By reinforcing the government’s commitment to integrity and introducing penalty mechanisms, the clearance of outstanding payments owed to small and medium-sized enterprises becomes achievable. This, in turn, could alleviate funding challenges faced by these enterprises.
Emphasizing the crucial role of the private sector, especially small and medium-sized enterprises, Tian stressed their significance in maintaining economic vitality, fostering innovation, and nurturing entrepreneurship. A robust private sector, he contends, will contribute to economic stability and inject a potent drive into the economy.
It is widely acknowledged that the private sector has been a pivotal force behind China’s robust growth in recent decades. Official data highlights the substantial contributions of private firms: over 60 percent of GDP, 70 percent of technological innovation, and 80 percent of urban employment.
Analysts view the recently issued document as part of a comprehensive strategy, following up on top-level guidance issued the previous month to promote private sector development. These measures are anticipated to bolster market confidence, stabilize expectations, and solidify the ongoing recovery.
Looking forward, experts anticipate the unveiling of additional measures in the near future to further amplify support for the private sector. Feng Jianlin, Chief Economist at Beijing FOST Economic Consulting Co, describes China’s approach as a “1+N” policy framework, where “1” signifies the overarching guidance and “N” represents the intricate follow-up measures. These measures include the newly disclosed document and two other recent documents focusing on promoting private investment and addressing challenges faced by private enterprises during their growth journey.
Feng underscores China’s unequivocal commitment to fostering private sector growth and predicts an acceleration in the formulation of meticulous supporting policies.
China’s intensified efforts to fortify its private sector are evident. The NDRC engaged in multiple discussions last month with private companies spanning various sectors, addressing their concerns and pledging support for sustainable development.
According to the National Bureau of Statistics, fixed-asset investment by the private sector witnessed a marginal 0.2 percent year-on-year decline in the first half of 2023, a slight improvement from the 0.1 percent contraction during the initial five months of the year.
Hong Yong, an Associate Research Fellow at the E-commerce Research Institute of the Chinese Academy of International Trade and Economic Cooperation, acknowledges persistent challenges faced by the private sector. These include financing hurdles, barriers to market entry, and uncertainties stemming from evolving policy dynamics.
Hong suggests potential remedies such as establishing specialized funds or financial institutions to diversify financing avenues. Moreover, efforts to ease market entry restrictions and cultivate a stable policy environment are crucial steps in further empowering the private sector’s growth trajectory.
